Sri Lanka’s government debt rose to 115.2 percent of Gross Domestic Product (GDP) by the end of 2022 from 104.5 percent a year earlier, according to the latest national accounts estimates from the statistics office of the Sri Lankan government. island, The Island reported.
A report in an English newspaper in Sri Lanka read that the gross debt of the Sri Lankan central bank was about 4.66 percent of GDP. In addition, the central bank used special draft privileges that required the payment of interest.
However, as long as domestic credit is subdued and currency issuance is not restarted under flexible inflation targeting, the central bank holds government rupee T-bills that can be sold for dollars to rebuild reserves and pay off external debt. .
In addition, the government was responsible for an additional 5.62 percent of the collateralized debt held by state-owned companies, bringing the total to 125.7 percent of GDP.
In a classic Latin American-style “inflation shock”, Sri Lanka’s nominal GDP increased from Rs 16.8 trillion in 2021 to Rs 24.1 trillion in 2022, increasing nominal tax revenues and lowering the debt-to-income ratio. GDP in rupees, reported The Island.
Despite taking on additional debt to cover deficits, as a result of high inflation and financial repression (IFR), the central government’s rupee debt decreased from 66% in 2021 to 55% in 2022.
Since there is no deadline for the restructuring of the internal debt under the International Monitory Fund (IMF) for debt resolution, Sri Lanka’s domestic interest rates are now between 20 and 30 per cent.
Surprisingly, domestic creditors are likely to continue to provide financing to the government as “major creditors” despite the possibility of default. Despite the fall of the rupee and the suspension of most new disbursements, the central government’s external debt rose from 39% to 61% of GDP, according to The Island.
The World Bank and the Asian Development Bank (ADB), two so-called additional major creditors whose debt is not restructured, reallocated approved financing to support humanitarian and urgent needs in 2022.
The United States, Japan, numerous European nations, China, and India have provided grants that will not increase debt.
The Sri Lankan rupee strengthened in March 2022 as consumption and domestic credit moderated, but fell again as a result of an ad hoc peg as central bank purchases appeared to have outpaced the excess dollars generated by the credit evolution, reported The Island.
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