Mon Sep 23 22:07:27 UTC 2024: ## Sri Lankan Bonds Plunge After Election Win of New President
**COLOMBO, SRI LANKA** – Sri Lankan dollar bonds plummeted on Monday, following the election victory of Anura Kumara Dissanayake, raising concerns about potential renegotiation of the country’s IMF bailout and debt restructuring plan.
Dissanayake, who won the presidential election on Saturday, pledged to bring change to the island nation, which is recovering from its worst economic crisis in over 70 years. His victory sparked fear among investors, particularly regarding the country’s $2.9 billion IMF loan arrangement, a crucial factor in Sri Lanka’s economic recovery.
The National People’s Power (NPP) party, led by Dissanayake, has expressed its intention to renegotiate aspects of the IMF program, while some party leaders have voiced dissatisfaction with the terms of the debt restructuring. Although the new president has committed to repaying debts, investor concerns remain.
Shorter-dated bonds were particularly affected, with some experiencing drops of over 4 cents on the dollar in early Asian trading. The 2025 maturity bond, for instance, fell by 2.125 cents, its largest daily drop since mid-April.
The IMF, while welcoming the previous government’s agreement in principle with international bondholders, expressed its readiness to work with the new administration. The fund is scheduled to conduct a regular review of reform progress on October 1, which, upon approval, would trigger the release of a funding tranche.
A separate source of anxiety for investors is the possibility of renegotiating a debt deal finalized with bondholders last week. Some analysts believe Dissanayake’s victory could jeopardize the agreement and impact the IMF program.
Despite the bond market turmoil, Sri Lanka’s currency and stock markets fared better on Monday. The rupee strengthened by 0.3% against the dollar, while the main stock index gained more than 1%.
While Sri Lankan stocks have risen by over 4% this year, the recent uncertainty surrounding the election has resulted in a near 9% loss over the past quarter.
The situation remains fluid, with the impact of the new administration’s policies on the country’s economic recovery and debt obligations yet to be fully understood. The IMF has indicated a willingness to work with the new government, but investors will be closely watching for any developments regarding the IMF program, debt restructuring, and the future of Sri Lanka’s economic recovery.
First Piper 