Sri Lanka faces refinancing risks in the coming years

Sri Lanka, like many developing nations, faces refinancing risks in the coming years, Finance and Media Minister Mangala Samaraweera said today.

He said that this warrants a concerted and coordinated policy response to mitigate such risks.

The Minister was speaking at the opening of the G-24 Technical Group Meeting at the BMICH in Colombo.

Speaking here, the Minister said that the IMF’s latest World Economic Outlook report issued last month state “the tightening of global financial conditions would have implications for global asset prices and capital flows, leaving economies with high gross debt refinancing needs and un-hedged dollar liabilities particularly exposed to financial distress.”

He said the IMF forecasts the gross financing needs for 2018 in emerging and middle-income economies ranges from 4% to 43%of the GDP with an average of 10.4%. In many developing economies, a high proportion of this outstanding debt is held by non-residents. This creates added complexities in the policy response.

“Because of these verity of impending developments in the global financial markets, the World Bank and IMF jointly formulated a new framework on Debt Sustainability for Low-Income Countries, as announced in October last year. This new framework, which will be implemented in the second half of 2018, would help guide countries and donors in mobilizing financing for development needs. The new framework would help mitigate the risk of an excessive build-up of debt in the period ahead,” the Minister said.

Samaraweera said that even countries with relatively low levels of absolute debt may face repayment challenges if there are weaknesses in its economic structures and debt management institutions.

According to the IMF’s Fiscal Monitor, within the group of low-income developing economies, over 90% of the countries had debt levels over 30% of the GDP as at end 2016.

However, the average government revenue within the same group of countries is 15% of the GDP, the primary deficit is around 3% of GDP on average, and exports are dominated by primary products.

The Finance Minister said that these structural factors are not conducive to effective debt management and entails repayments risks even at modest levels of absolute debt. (Colombo Gazette)