Reuters finance minister says Sri Lanka is confident of not defaulting on its debt

Reuters. File photo: Basil Rajapaksa, brother of Economic Development Minister and President Mahinda Rajapaksa, speaking in an interview with Reuters in Colombo on April 10, 2012. Reuters / Dinuka Lianawatte

Written by Udita Jayasinghe

COLOMBO (Reuters) – Sri Lanka is confident of not defaulting on its debt and will work to gradually improve the quality of its foreign exchange reserves, Finance Minister Basil Rajapaksa said on Saturday, a day after presenting the 2022 annual budget.

In his speech on Friday, the finance minister said the government would reduce its budget deficit to about 8.8% of GDP in 2022. The deficit target for 2021 has been revised to 11.1%.

“Sri Lanka has never been a defaulter in its history and that record will be maintained,” Rajapaksa said.

“Even some of our reserves have been borrowed but we will gradually improve the value of reserves from next year to 2024. By 2024, we are confident that we will be able to increase reserves and keep debt on a sustainable basis,” he added.

Debt repayment is one of the major challenges facing Sri Lanka as its foreign exchange reserves fall to 2.27 billion by the end of October.

Rajapaksa said remittances and tourism, the top two sources of dollar flows, have both been affected by the COVID-19 epidemic and have become more difficult to attract investors.

“But we want to reduce the debt. I guarantee that জুলাই 1.54 billion will be repaid by July 2022,” he added.

Analysts are unsure whether the budget announcements are enough to boost confidence among investors, rating agencies and market participants.

“Overall, the budget is unlikely to significantly help the economic situation and does not provide a strong indication of how it will meet its debt obligations or how it expects to deal with declining reserves,” said Trisha Paris, head of economic research. At Frontier Research.

“There is no clear indication of moving towards the IMF, as they continue to seek bilateral and multilateral assistance, echoing the Sri Lankan central bank’s roadmap,” he added.

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