Sri Lanka is experiencing a debt overhang - World Bank

Colombo (News 1st); The world bank says, Sri Lanka is experiencing a debt overhang, as its public and publicly guaranteed debt level is forecast to reach 115 percent of GDP in 2021.

In its spring edition of South Asia’s Economic Focus, the world bank warns that Sri Lanka’s debt sustainability is at risk, as a credit to the government from the banking sector has been rising fast to take care of large deficit financing needs. On a year-on-year basis, credit offered to the government by banks in Sri Lanka increased by 63 percent in January 2021. According to the report, credit to the government from the Central Bank increased by 176 percent, compared to the previous year. The treasury bills stock held by the Central Bank, which partially reflects how much money has been printed, rose to a record high of LKR 810 billion by February 28. According to the World Bank, Public and publicly guaranteed debt is expected to have exceeded 109.7 percent of GDP in 2020, exacerbating debt sustainability concerns. The World Bank also warns of Sri Lanka’s widening fiscal deficit, which stood at 12.6 percent of GDP in 2020. The report adds that Sri Lanka’s fiscal sustainability was challenging even before the pandemic and has been leading to significant foreign exchange shortages amid high debt service due. The World Bank expects Sri Lanka’s Real GDP to grow by 3.4 percent in 2021, and 2 percent in 2022.