Sri Lanka’s foreign debt servicing rises steadily

airport busy debt

May 01, 2016 (LBO) – The amount Sri Lanka has spent on external debt repayment and interest has more than doubled over the last five years, Central Bank data shows. Earnings from exports, however, have not grown as much.

Debt service payments increased to 4.7 billion dollars in 2015 from 1.8 billion dollars in 2011, a 160 percent increase. Exports however grew to 16.9 billion dollars in 2015 from 13.6 billion dollars in 2011, a 24 percent increase.

As a result, the ratio of debt servicing to exports increased to 27.7 percent in 2015 from 13.2 percent in 2011, the Central Bank Annual Report for 2015 said.

“Debt service payments as a percentage of export of goods and services increased significantly to 27.7 per cent in 2015, compared to 20.8 a year earlier,” the Central Bank said.

“With the expected gradual increase in global interest rates and financing requirements” the ratio is “expected to increase further” unless the inflow of non-debt creating financial flows, such as FDI and services exports are increased to compensate additional future borrowing requirements, it said.

Curtailing unnecessary imports is another way to narrow the annual trade deficit.

Rather than fix our trade deficit, we are hoping that economic growth and continuous borrowing will fix the problem, a Colombo-based economist said.

The external debt of the country increased to 44.8 billion dollars, or 54.4 percent of GDP in 2015, from 42.9 billion dollars, or 53.6 percent of GDP in 2014.

The government accounted for 55 percent of the total external debt, while deposit taking corporations (20 percent), private sector corporations and SOBEs (12 percent), the Central Bank (6 percent) and direct investment enterprises (6 percent) accounted for the balance.

According to the World Bank, a high primary deficit, rising real interest rates and the currency depreciation increased the public debt to GDP ratio from 70.7 percent in 2014 to an estimated 75.2 in 2015, while treasury guarantees are estimated at 5.8 percent of GDP.

Sri Lanka has relied on international capital markets over the last few years and is expected to borrow up to three billion dollars in sovereign bond issues this year.

Last year, two international sovereign bonds of 1,500 million dollars and 650 million dollars, with a maturity of 10 years, were priced at 6.85 percent and 6.125 percent per annum, respectively.