Sri Lanka has repaid a billion US dollar international sovereign bond (ISB) that was due for settlement this week, the Central Bank said on Saturday.
The ISB repayment on Friday came days after Moody’s on Monday downgraded Lanka's sovereign credit rating by two notches, saying the South Asian nation would be hard-pressed to secure funding to service its huge foreign debt.
Sri Lanka was pushed down from "B2" (high credit risk) to "Caa1" (very high credit risk), as the coronavirus pandemic compounded the economic woes of the island nation.
"This settlement reconfirms the government's unwavering commitment to honour its foreign liabilities, thereby bolstering investor confidence and dispelling any concerns foreign investors may have in relation to the government’s ability and willingness to maintain its unblemished debt servicing record,” the Central Bank said in a statement.
"The domestic foreign exchange market has already reacted positively to this settlement and other recent positive developments in the Sri Lankan economy.
"With the envisaged inflows to the domestic foreign exchange market supported by proactive measures taken by the government and the Central Bank of Sri Lanka, the market sentiment is expected to further strengthen in the period ahead,” it said.
The Sri Lankan government said with the settlement of the one billion dollar ISB, the country now has no large debt payments before July 2021.
The government had dismissed the downgrade by Moody's as premature and unfair.
The government defended its ability to meet its debt repayments, citing a currency swap with India's RBI (Reserve Bank of India) and anticipated Japanese and Chinese bonds, in addition to a syndicated loan from China.
The Moody's had said Sri Lanka only had limited secured funding sources to meet its material external debt service payments over the coming years.
Following Moody's downgrading of Lanka's sovereign credit, the Opposition parties called for urgent economic reforms through collective efforts.