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Sri lanka News – Sri Lanka’s stocks, rupee, and bond markets hardly moved according to a statement by State Minister Shehan Semasinghe who said the government has not decided yet on restructuring local debts.

The markets have been expecting the worst with regard to local loans in Sri Lanka’s debt restructuring process including haircut, both on the return, and deferment of maturity. Financial analysts have warned of a banking sector collapse in the country.

Some analysts say people might protest in street if their pension funds are slashed under the local debt restructuring.

“Government has not made any decision to restructure domestic debt as negotiations of treatments on external debt are still being discussed with external bilateral and commercial creditors,” State Minister Semasinghe tweeted on Thursday (17).

“GOSL (Government of Sri Lanka) has no intention to impose any treatment on domestic debt which will have adverse impact on domestic banking sector, insurance sector and superannuation funds. There is no basis for recent speculation announced on restructuring domestic debt.”

Analysts say local banks are concerned over possible local debt restructuring as many of them have invested most of their deposits in government securities.

The speculation has already resulted in primary dealers demanding over 33 percent return to lend via government securities due to speculation of debt restructuring, market dealers say.

“That has also forced the central bank to print more money to fund the government at lower interest rates,” a currency dealer told EconomyNext.

“At one point, the government said all creditors will be treated equally without saying whether they were referring only to foreign creditors. Now this minister says domestic creditors will be treated differently. The market does not have confidence in any of these statements.”

After the minister’s statement, the stock market index fell though turnover improved, stockbrokers said. However, both rupee and bond markets shrugged off the statement because they believe a local debt restructuring is inevitable, dealers said.

“Market is speculating on a haircut. How can only this minister say something like this? Why didn’t President Ranil Wickremesinghe say this in the budget last week and why both the central bank governor and finance ministry secretary are silent on this?,” a currency dealer said, asking not to be named.

“When there is uncertainty, the negative sentiment will prevail”

Local analysts said the market needs time to adjust if there is a decision to go for a local debt restructuring.

“Ambiguity of the debt restructuring proposals weighs on the market and the economy,” said Danushka Samarasinghe, Chief Executive Officer/Director at Nation Lanka Equities (Pvt) Ltd. (Colombo/Nov17/2022)

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