Country Set to Default on Sovereign Debt: Sri Lanka Latest
Sri Lanka is set to default on $12.6 billion of overseas bonds as its new prime minister struggles to stabilize an economy spiraling into chaos fueled by a lack of dollars and surging inflation.
(Bloomberg) -- Sri Lanka is set to default on $12.6 billion of overseas bonds as its new prime minister struggles to stabilize an economy spiraling into chaos fueled by a lack of dollars and surging inflation.
The South Asian nation is set to blow through the grace period on $78 million of payments Wednesday, marking its first sovereign debt default since it gained independence from Britain in 1948. Its bonds already trade deep in distressed territory, with holders bracing for losses approaching 60 cents on the dollar. The government said last month it would halt payments on foreign debt.
Prime Minister Ranil Wickremesinghe, appointed last week, is yet to choose a finance minister, who will help lead talks with the International Monetary Fund over badly needed aid. He warned on Monday that the country was down to its last day of gasoline supplies, as it didn’t have the dollars to pay for shipments aboard tankers anchored just offshore. He also said it would need to print money to pay government salaries, a move that will worsen inflation already running near 30%.
Key Developments
- Default Looms in Sri Lanka But Traders Focused on Recovery Value
- Sri Lanka Default Hints at Trouble Ahead for Developing Nations
- Selling Troubled Flag Carrier a Tough Task for New Sri Lanka PM
- Sri Lanka’s Shattered Economy Awaits New Finance Head, Rate Hike
All times local:
Stocks Close Lower (2:30 p.m.)
The Colombo All-Share Index fell 0.5%, snapping four sessions of gains. Still, its rebound of over 20% from last month’s low seems to suggest that equity investors have priced in the worst.
No Forex to Pay For Even a Day’s Fuel, Minister Says (2:00 p.m.)
“There is a petrol ship in our waters,” Energy Minister Kanchana Wijesekera told parliament Wednesday as the country asked citizens not to line up at fuel stations. “We do not have the forex.”
Sri Lanka “hopes” to release the ship “today or tomorrow,” the minister said. The nation also owes the same supplier $53 million for an earlier shipment of gasoline, he added, without elaborating.
The prime minister has said the government is working to obtain dollars in the open market to also pay for three ships with crude oil and furnace oil that have been anchored in Sri Lankan waters. He told parliament Wednesday that the administration was in discussions with the World Bank to channel part of the $160 million aid provided for social welfare, for fuel imports.
Stocks Keep Rallying While Dollar Bonds Are Mixed (10:56 a.m.)
The Colombo All-Share Index jumped as much as 3.5% to the highest level since April 6, before paring about half of that advance. Still, the key index was on course for a fifth session of gains. Its rebound of over 20% from last month’s low seems to suggest that equity investors have priced in the worst.
Sri Lanka’s dollar bonds traded mixed as the nation formally goes into a default for the first time. The debt due this July was indicated 0.24 cents higher on the dollar, while the securities maturing in 2030 was 0.22 cents lower.
Gold Could be Last Resort For Sri Lankans Scrambling For Funds (10: 45 a.m.)
Sri Lankans may sell as much as 20% more gold this year as people in extreme distress sell their jewelry to raise funds, according to Chirag Sheth, a consultant at London-based Metals Focus Ltd. Citizens had sold about 7 tons in 2021, he said. Demand for the precious metal had dropped by a third in the island nation from the pre-pandemic years as tourism took a hit.
While old gold sales are “very strong,” the metal is also turning out to be the last resort for people who do have some money to park their funds as “you cannot put your money in stocks, banks interest rate is lower and your local currency is depreciating,” Sheth said.
Oil Company Says Gasoline Stocks Running Very Low (9:30 p.m.)
The state-run Ceylon Petroleum Corporation has sufficient stocks of diesel at hand but there is a “severe” shortage of petrol, the company’s director-general of marketing Krishantha Wickramasinghe told reporters in Colombo.
He said the crisis could ease with the arrival of another shipment Wednesday.
Opposition Leader Asks Diaspora to Send Money Via Banks (1:30 p.m.)
Opposition leader Sajith Premadasa asked Sri Lankans overseas to send money home to their families using the formal banking channels as a way to support the country through its dollar shortfall.
Government Lawmakers Vote Down Attempt to Censure President (1:20 p.m)
Ruling party legislators also voted down an opposition proposal for a debate on Tuesday that was aimed at censuring the president for the plight of the nation. The opposition could manage only 68 supporting votes compared to 119 against it.
Main Opposition Party Won’t Hold Cabinet Positions (07:20 a.m.)
The main opposition party will continue to look at ending the “Rajapaksa rule,” which is the first step in rebuilding the country, its leader Sajith Premadasa said in a tweet. The Samagi Jana Balawegaya party plans to not take up any cabinet positions.
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