Banking system stable, Sri Lanka says as $1.4bn bonds near maturity date

Sri Lanka’s state-owned banks are functioning well and the banking system is stable, the island nation’s central bank said on Thursday, in response to concerns raised by an opposition lawmaker.

Thursday’s remarks in parliament came against the backdrop of about $1.4 billion in Sri Lanka development bonds set to mature this year, more than two-thirds of that before March, with domestic banks holding about 89 %, according to central bank data.

Sri Lanka is facing an economic crisis as it struggles to pay for essential food and fuel imports after a 70% drop in foreign exchange reserves since January 2020 led to a devaluation of the currency and efforts to seek help from global lenders.

“The Ministry of Finance and the Central Bank of Sri Lanka wish to assure the public and all other stakeholders that the banking system is stable,” the central bank said in a statement.

The operations of the state banks went smoothly, contrary to statements to the contrary, he added.

Three sources familiar with the matter said the central bank missed a payment on a Sri Lanka Development Bond (SLDB) owed to the People’s Bank, the main public lender, which in turn failed to honor a swap made with two other commercial banks.

“You have to eat half of it”: the Lankans suffer

Thusitha Hadaragama stood this week at a convenience store near his home in the town of Minuwangoda in Sri Lanka and surveyed what groceries to buy for his family of five, including two school-aged children, who live with his monthly salary of 50,000 rupees ($181.82). “Prices have gone up again. I will buy some,” said the driver, who works in Colombo, 40 kilometers away. “We will have to eat half of what we ate before.”

Across Sri Lanka, families like Haragama’s are feeling the growing pain of the country’s worst economic crisis in years, which has driven up the prices of basic necessities and triggered shortages.

Historically weak public finances, mistimed tax cuts and the Covid-19 pandemic, which has hit the tourism industry and foreign remittances, have wreaked havoc on the economy.

The country finds itself with foreign exchange reserves of about $2.31 billion in February alone, even as it faces debt payments of about $4 billion for the rest of the year.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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