ECONOMYNEXT – Securities linked to gross domestic product growth proposed by bondholders to exchange for defaulted sovereign bonds may not be the best option for Sri Lanka, National People’s Power Economic Council Member Harshana Suriyapperuma said.
“Macro-lined bonds will not provide the best benefit for Sri Lanka businesses and citizens,” Harshana Suriyapperuma, a member of the Economic Council of the National Poeoples’ Power said in a forum with the business community.
“Therefore, we have to look at an alternative path…”
Under an initial deal reached with bond holders, there will be an initial haircut of 28 percent on the outstanding bonds which will reduce to 15 percent, if gross domestic product grows faster than predicted in an International Monetary Fund debt sustainability analysis.
The DSA projects a GDP growth of 3.1 percent for the next few years, which bond holders believe is too pessimistic and wants an upside if the economy performs better than expected.
A lower growth may hold creditor to accept a deeper haircut than if the economy grows strongly.
The NPP had a three-pronged approach involved with short term, medium and long term measures to maintain macroeconomic stability and social stability.
Relief has to be given on basic foods, education and health.
Fiscal policies have to be aligned to drive the growth that is targeted.
Monetary policies cannot work hand in hand with fiscal policies to create stable interest rates, exchange rates and price levels..,” Suriyapperuma said.
The NPP had plans to increase reserves, with inflows including new investment products for expatriates.
“We need to continue to engage with providers of our finances,” he said. “That is where the alternative debt sustainability assessment that we have done is very important.”
“It will provide the basis to continue to our negotiations in good faith to get the best outcome to the Sri Lankan people and businesses.”
Sri Lanka has a goods and services exports of about 17 billion dollars in 2023 which will be expanded to 45 billion in 5 years.
Services will play a bigger role accounting for about 20 billion dollars from 5.4 billion currently, he said.
To strengthen government finances, the strategy was for progressive taxation and cutting wasteful spending.
(Colombo/Aug05/2024)