Sri Lanka’s risk premium for a default jumped, reflecting concern that the pandemic is damaging the nation’s ability to fill its foreign-exchange coffers ahead of at least $2.5 billion in dollar debt due in the next 12 months, Bloomberg reported in an article titled ‘Asia’s Highest Default Risk Spotlights Sri Lanka Debt Worry.’
“The nation’s five-year credit default swaps rose to 1,553 basis points on Monday, the highest since March 1. A separate gauge of one-year default probability was at 27.9%, the steepest in Asia, up from around 13% over six months ago, according to a Bloomberg model where a reading above 1.5% signifies high risk of failure to pay,” said in the article.
“The first test comes July 27, when the South Asian nation must repay a $1 billion bond to investors. President Gotabaya Rajapaksa’s administration tightened capital controls last week, limiting how much foreign currency can leave the country, and speculation is growing that it may need to turn to the International Monetary Fund for additional finances after securing assistance from countries including China.”
The article further says that the investors are also expressing concern about Sri Lanka’s capital controls, which are seen as a way for the economy to shun reliance on foreign borrowing, and more importantly ward off interference from the IMF, whose aid comes with strict conditions.
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