By Uditha Jayasinghe

COLOMBO, (Reuters) – Sri Lanka is certain that it will not default on its debt repayments. The finance minister Basil Rajapaksa stated on Saturday that Sri Lanka would work to gradually improve its foreign currency reserves. This statement came a day after he presented the annual budget for 2022.

In his Friday speech, the finance minister stated that the government would reduce its deficit budget to 8.8% of GDP in 2022. The deficit target was increased to 11.1% for 2021.

Rajapaksa stated that Sri Lanka had never fallen behind in its past and will continue to maintain this record.

Even though parts of our reserve are borrowed, we plan to improve the quality gradually over next year until 2024. He said that we were confident in our ability to increase our reserves and make debt more sustainable by 2024.

Sri Lanka faces a significant debt problem as its foreign currency reserves have dropped to $2.27 Billion by October.

Rajapaksa stated that both remittances as well as tourism have been negatively affected by COVID-19 and it is now more difficult to attract investors.

“But, we want to lower borrowings. He added that he was certain the $1.54 trillion owed up to July 2022 would be repaid.

Analysts don’t know if budget announcements will instill confidence among investors, rating agencies, and other market participants.

Trisha Perry, Frontier Research’s head of economic research said, “Overall the budget is unlikely” to significantly improve the economic situation. It also does not offer any clear indications of how it plans to fulfill its debt obligations in the future or what it will do about the declining reserves.

Her comments were that “there is not clear evidence of any move toward the IMF” and she said they are continuing to search for multilateral support as well as bilateral support, echoing the Central Bank of Sri Lanka roadmap.