Sri Lanka halts repayments of airline bond, airport agency debt
– Sri Lanka has suspended interest payment on a 175 million US dollar sovereign guaranteed bond of the national carrier and loans taken to build a China-backed airport and expand a runway at the main airport, a Finance Ministry report said.
The bond was sold to fund losses after then President Mahinda Rajapaksa terminated a management contract with Emirates and re-nationalized the airline.
Interest on the bond is “on hold”, the report said.
Repayment on two loans by the Airport and Aviation Services Sri Lanka taken to expand at airport at the main Katunayake Airport in Colombo and loan from China to build an airport in Mattala in the South was also suspended.
Sri Lanka defaulted on its foreign debt after running out of reserves in the wake of seven years of aggressive open market operations under discretionary flexible inflation targeting and output targeting (printing money for growth).
The state was expanded rapidly under ‘revenue based fiscal consolidation’ where cutting costs (spending based consolidation) was abandoned, leading to spending as a share of GDP rising from 17 percent to 20 percent.
In December 2019 taxes were cut saying there was a persistent output gap after two currency crises reduced growth. The International Monetary Fund taught the central bank to calculate an output gap effectively encouraging it to print money to boost growth. (Colombo/July06/2022)
