(COLOMBO, LANKAPUVATH) –The Government has taken the decision to earmark all proceeds from the sale or long lease of government assets to be used in debt servicing, Central Bank Governor Dr. Indrajit Coomaraswamy said.
The Central Bank Governor speaking at the Sri Lanka Economic and Investment Conclave, organised by the Federation of Industry and Commerce of China and the Colombo Chamber of Commerce and the Indian Chamber of Commerce at the Kingsbury yesterday, explained the actions taken by the Central Bank and the Government to improve the investment climate for bringing potential investors into the country.
The USD 1.1 billion from the long lease of the Hambantota Port to China Merchants Port Holdings (CMPort), thus he said would be used for debt repayment.
Debt servicing has become a major challenge to the government with 2019 proving to be the test. An estimated USD 5.7 billion of International Sovereign Bonds and syndicated loans are scheduled for settlement over a period of three years, beginning in 2019.
The Sri Lankan government faces the challenge of raising a lot of money but in the last 4-5 months there was no debt maturity, so it provided us with an opportunity collect some money to act as a buffer for next year, explained the Governor.
He assured potential investors that the government was also taking steps to introduce legal frameworks to manage its main source of ‘instability’ and ‘weakness’, the ‘fiscal deficit’.
The Fiscal Responsibility Management Act is one such measure which would help them manage their debt and only allow them to deviate in extreme circumstances such as natural disasters,
“Even when such an instance happens, they have to set out targets on how they will recover that money”,Coomaraswamy said.
In addition to this, the Liability Management Act when brought in is to allow the government to “raise money to address the bunching of debt issue which will take place from 2019 onwards”.
This raising of capital, according to the Governor will come mostly from China, as he explained that China has now shifted its focus to exporting capital rather than goods though its One Belt One Road initiative.
“Sri Lanka fortunately is right in the middle of the Maritime Silk Route and it should take advantage of this massive outflow of capital which is going to take place in the next 10-20 years”, he said.
Apart from the Silk Route project, the Governor also noted that the government was working on bilateral trade agreements with China and India. The former would mostly involve in expanding the current FTA to include the exchange of service and technology.
“We hope to have agreements signed between China and India in the middle of next year,”he said.
“If the agreements are signed, the Governor noted that Sri Lanka would be the only country in the world to provide investors with preferential access to Europe, China and India,” Central Bank Governor Coomaraswamy said.
“Combine this with the location, Sri Lanka is a great place to invest,” said the Central Bank Governor.