Sri Lanka’s dollar bonds took a significant hit following the election of leftist candidate Anura Kumara Dissanayake as president, raising concerns over the future of the nation’s $3 billion bailout from the International Monetary Fund (IMF). The country’s dollar bonds, particularly those maturing in March 2029, dropped by 3.1 cents to 50.2 cents on the dollar on Monday, marking the largest decline in nearly two years.
Dissanayake’s victory comes as Sri Lanka, still recovering from a severe economic crisis and a historic debt default, seeks stability. His election on September 21 is seen as a double-edged sword; while he has pledged to seek international support, his promises to renegotiate the IMF bailout, which includes unpopular austerity measures, have investors on edge.
Financial analysts are expressing deep concerns about the implications of Dissanayake’s presidency on Sri Lanka’s financial agreements. “A Dissanayake win is the worst possible outcome for Sri Lanka’s bonds,” noted strategists from Tellimer. The 2029 dollar notes are expected to face nearly a 15% decline this quarter, a stark contrast to last year’s nearly 70% return for investors, which had positioned Sri Lankan bonds among the best performers in emerging markets.
Despite the turmoil in the bond market, the S&P Sri Lanka 20 Index of blue-chip stocks saw a 2.2% increase after reversing earlier losses, and the Sri Lankan rupee appreciated slightly. Dissanayake emphasized the need for a collaborative approach, stating, “My government will work with all,” while reiterating the necessity to reopen negotiations with the IMF.
Experts are weighing in on the potential impacts of a shift in leadership. Dilshan Wirasekara, chairman of the Colombo Stock Exchange, expressed cautious optimism, asserting that “it’s pretty crucial that Sri Lanka sticks broadly to the reform part” of the IMF program. He remains hopeful that the new administration will adhere to existing agreements, although he acknowledged the possibility of some renegotiation of debt restructuring terms.
Source: Bloomberg
