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SL faces currency risk on debt servicing: IMF



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Sri Lanka is facing vulnerabilities linked to inadequate reserve coverage, exchange rate depreciation, and deleveraging which could pose a risk for debt servicing, the International Monetary Fund (IMF) has warned.

Presenting the Debt Sustainability Analysis in an IMF Staff Report released yesterday, the global lender has cautioned that Sri Lanka’s currency risk, notably related to the dollar, is at present high.

"Large rupee depreciation could pose a significant risk, if sustained; as stress tests show that a 30 percent real depreciation would raise the external debt to GDP ratio to about 72 percent. In the short run, tighter global liquidity and shifts in investor confidence could raise rollover vulnerabilities and costs," the IMF pointed out.

It noted that although rollover risks are generally low due to the high share of medium-to-long-term debt, there are lumpy repayments starting in 2019 and external financing at non-concessional terms gradually substitutes concessional financing which points to a need to build up buffers. Lower than expected GDP or export growth would also deteriorate debt dynamics, the report cautioned.

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