High interest ...

He pointed out that a possible local debt restructuring with a possible haircut is already factored into the government security yields.

“With the monetary policy tightening, T-bonds and T-bills reached over 30 percent. Today, you may be borrowing at 24-29 percent. So, it’s not sustainable. The reality is that there’s a haircut factored in T-bond and T-bill prices. So, the market is saying something,” he said.

With the Central Bank moving away from money printing in order to contain inflation, Thewarathanthri noted that there’s severe rupee deficit in the market.

“Even when you have the dollars, the government organisations sometimes don’t have rupees to buy the dollars. There’s a massive rupee shortage. With tax hikes coming into effect from December increasing revenue to the government, this will ease a bit in January,” he added.

For the next year, the government is planning to borrow Rs.1.8 trillion domestically to finance the projected Rs.2.8 trillion budget deficit. Standard Chartered Bank projects the government’s interest cost to rise to around Rs.800 billion next year which is more than the defense and public security expenditures combined.

“This is not sustainable. We as a bank are heavily pushing back on local debt restructuring,” Thewarathanthri remarked.

According to him, the co untry is likely to see inflows of around US$ 1.3 billion from multilateral lenders next year, including initial tranche from the IMF.