2 Minutes Read (Adds details, fund manager quotes, background) Reuters, LONDON, July 2 – Sri Lanka announced on Friday that it would prolong foreign exchange controls for another six months in an effort to protect the country’s diminishing currency reserves. The limits, which were published in the country’s official gazette, aim to limit the amount of money that Sri Lankans and local businesses can send out of the country. The restrictions come as concerns about the government’s ability to repay its obligations persist, despite ministers and officials’ assurances that it will. Market pressure has increased as a result of the prolonged COVID-19 outbreak, apparent hostility to IMF support, and patchy demand in recent local debt auctions. The country’s government debt markets had their worst day since October on Friday, with one bond slated to mature in July plummeting more than 4 cents and many others falling between 2 and 4 cents. “In the near run, Sri Lanka needs an IMF program to assist stabilize expectations of fiscal consolidation,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management. Ricardo Adrogue, head of Barings’ Global Sovereign Debt and Currencies Group, noted that the government’s determination to avoid default was encouraging. “That’s a tremendous plus, but the (debt) numbers are eye-opening,” he said, pointing out that the country spends about half of its earnings on debt payments. Marc Jones and Tom Arnold contributed reporting, while Karin Strohecker and Jonathan Oatis edited the piece./n
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