Sri Lanka default rumours ‘totally unsubstantiated,’ says central bank

COLOMBO: Sri Lanka’s central bank said on Wednesday the country was committed to honouring all forthcoming debt obligations, adding that the island nation was not on the verge of a sovereign default.

Sri Lanka is facing its worst financial crisis in decades, and foreign exchange reserves have fallen to $2.36 billion, according to Central Bank of Sri Lanka (CBSL) data released earlier this week.

“The government and the CBSL are committed to honour all forthcoming debt obligations,” the central bank said in a press release.

“The attention of the CBSL has been drawn to certain recent media reports which have claimed that Sri Lanka is at the verge of a sovereign default,” it added. “The CBSL wishes to state that such claims are totally unsubstantiated.”

The shortage of foreign currency is already affecting parts of the economy. At Sri Lanka’s main port in Colombo, around 2,000 containers packed with food, including rice, sugar and lentils, have not been released for several weeks because of a lack of foreign exchange to pay demurrage and other charges, an importers association said.

Merchants pay demurrage for the use of containers within ports beyond a free time period. “We have given the list to the trade minister and recommended that the containers be released as soon as possible,” Nihal Seneviratne, Secretary of the Essential Food Commodities Importers Traders Association, told Reuters.

Seneviratne said an estimated $35 million was required to release the containers, even as food prices on the island steadily rise. Food inflation hit 25% in January, government data showed.

$1 BILLION IN JULY

Sri Lanka has outstanding sovereign bonds amounting to $12.55 billion, with $1 billion of the bonds maturing in July.

Sri Lanka’s trade ministry will hold a meeting with finance ministry representatives on Thursday to iron out payment modalities for the stuck containers, a government official said, declining to be named.

A finance ministry spokesperson did not immediately reply to a request for comment about the central bank’s comments or the meeting. The CBSL has taken measures to secure alternative foreign exchange inflows through bilateral and multilateral funding arrangements with a plan to settle upcoming debt obligations, it said.