Sri Lanka further into the debt crisis

(June 16, 2010, Colombo - Lanka Polity) 'Sri Lanka government has plans to sell $275 million of dollar-denominated bonds locally this month to pay for maturing debt.

Three months ago, Sri Lanka failed to raise a targeted $100 million through a debt auction.

The Central Bank of Sri Lanka will issue $175 million of two-year debt and $100 million of three-year paper, the Central Bank of Sri Lanka said on its website.

Subscriptions for the so- called development bonds close on June 18.

The nation raised $92 million by selling development bonds through competitive bidding in March, and the central bank subsequently raised $8 million through placements that month.

Sri Lanka's public debt repayments and interest is amounting to 767 billion rupees this year. It is 44 percent of the overall budget expenditure of 1,780 billion rupees.

Last year government debt hit 4.1 trillion rupees. Of it, 1.8 trillion rupees was foreign debt, a 22 percent rise, according to Central Bank annual report: “The ratio of debt service to government revenue increased further to 117.5 percent from 90.5 percent.,” the report said. Total debt servicing rose by 39 percent to 825.7 billion rupees in 2009, including a huge interest payout of 309.7 billion rupees that comprised 26 percent of total expenditure.

World Bank Director for South Asia Ernesto May launching the World Bank’s South Asia Economic Update 2010 in Colombo last week noted: “South Asia has very high levels of public debt—over 60 percent of GDP for the region. As seen in Europe with markets focusing on highly indebted countries, markets will start penalising those with high debt.” He pointed out that Sri Lanka’s debt was the second highest in the region after the Maldives—increasing from 81 percent of GDP in 2008 to 86 percent in 2009.

Out of this massive debt services burden, 36.5 percent is for foreign debt. Sri Lanka should target investment led growth and minimize borrowings which could lead to a future debt crisis, former Malaysian prime minister, Mahathir Mohamed said. "Don't depend too much on loans, the better thing of course is to invite foreign investors to come in and create jobs and bring in capital into the country," Mohamed told reporters at a media briefing in Colombo.

Allocations for health and education were as low as 52 and 46 billion rupees respectively—a total of 10 billion rupees less than for 2009. The budget for 2009 was itself 12 billion rupees lower than the amount for 2008. The combined allocation for health and education this year is less than half of defence expenditure in 2010.

The government promised an IMF team in May that it would considerably reduce recurrent spending. It intends to cut government subsidies to the Ceylon Electricity Board, Petroleum Corporation, Central Transport Board, railways and postal services. Total losses in these sectors amount to 49 billion rupees and can only be reduced by axing jobs, cutting wages and increasing prices.

Meanwhile, the defence budget at 202 billion rupees ($US1.8 billion) or 21 percent of the total expenditure of 974 billion rupees allocated to government ministries. At a convention of public sector trade unions that are under Trade Union Confederation last week, Joseph Stalin Fernando, the national organizer of the trade union coalition argued that the government is increasing defense expenditure to suppress the workers' struggles.

However, the trade unions failed to gather the expected number of participants to the convention and some trade union leaders expressed wonder why the workers were so unresponsive in a time the government is breaking the promise of Rs. 2500 per month salary hike for public servants.

(Sources: World Socialist Website, Lanka Business Online)


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Sri Lanka to get more loans from international financial market at high interest rate

(August 12, 2009 - Lanka Polity) Sri Lanka is planning to issue $500 million of five-year dollar bonds, aiming for a coupon rate of around 7 percent.

This is the second such loan after Sri Lanka's debut five-year, $500 million sovereign dollar bond, which was oversubscribed 300 percent when it was issued in October 2007 with a coupon rate of 8.25 percent.

The government is in close contact with the HSBC and JP Morgan with regard to the loan subject. 

Central Bank Governor Ajith Nivard Cabraal recently said the central bank would decide by August whether to pursue a $500 million sovereign bond, a syndicated loan or extend existing bills and bonds open to foreign investors.

A a Sri Lanka central bank official said to Reuters on August 11 that it had accepted $190 million in bids for two-year Sri Lanka development bonds at auction. The bonds will are priced at six-month LIBOR plus 4.50 percent.

Dialog and Airtel competing to buy Tigo

(August 06, 2009 - Lanka Polity) Telecom Malaysia that owns Sri Lanka's largest mobile communication network with 5.8 million subscribers and Bharathi Airtel that has invested $125 million and boasts about one million mobile connections within the launch of its operations in Sri Lanka are competing to buy the Tigo.


Tigo, owned by Luxembourg-based Millicom International, has a network with over two million subscribers. Tigo  is Sri Lanka's third largest mobile operator and it is worth $150-200 million.

India's Bharathi Airtel, Malaysia's Axiata Group, Russia's Vimpelcom and UAE's Etisalat are competing for Tigo. Axiata Group owns 85% of Dialog Telecom.

Last month, Millicom said it had received expressions of interest for its Asian assets and that it had appointed Goldman Sachs as advisor for the transaction. The company said it may either break up its Asian assets and sell them separately or may consider selling them together.

Sri Lanka heading for a soverign bond issue

(August 02, 2009 Lanka Polity) Sri Lanka state is reportedly planning to sell sovereign bonds to raise funds possibly US $ 500 million soon, government sources say.

In 2007, Central Bank of Sri Lanka  sold $500 million of bonds due in October 2012, at a yield 397.2 basis points higher than U.S. Treasuries of similar maturity.

HSBC, JPMorgan Chase & Co. and Barclays Capital had arranged Sri Lanka’s debut overseas bond sale.  Investors placed orders for more than three times the amount of debt sold.

The government has already in touch with the HSBC and JPMorgan to arrange meetings with investors in the U.S., India, Hong Kong and Singapore to highlight prospects in the island nation after the end of its civil war.

Sri Lanka signs Letter of Intent for IMF Loan as the foreign reserves are improving

(July 21, 2009 -Lanka Polity) Sri Lanka's foreign currency reserves have risen to more than $1.7 billion from $1.44 billion at the end of May and $1.27 billion by the end of March, the Central Bank governor Ajith Nivard Cabraal said on Monday.

However, although the urgency for the $ 1.9 billion loan is ebbing as the Central Bank governor says, the bank signed a list of promises to the International Monetary Fund (IMF) for a proposed lending agreement to repay debt and rebuild the island economy.

“We have set out our intentions, which do not differ from the macroeconomic policy thrust that we have been following,” central bank governor said in a telephone interview today to Bloomberg. But he seemed evading divulging the promises.