Asia Edge: Debt buybacks and inflation risks

Research evidence excerpt

Asia Edge: Debt buybacks and inflation risks

al bonds maturing over the next few forecast are tilted to the upside and stem from oil prices, sup-

years, including a US$965mn amortizing Past Due Interest ply-chain disruptions, adverse weather, and the delayed pass-

(PDI) bond due in 2028 and several macro-linked bond through of the rupee depreciation in May and June. We expect

(MLBs)s, the first of which matures in 2030. Any debt opera- the Central Bank of Sri Lanka to remain on hold for now, but

tion could seek to smooth the maturity profile and potentially see a need for rate hikes if inflation persists at current levels

reduce funding costs. Earlier this year, Zambia, another sov- or accelerates further.

ereign debt restructuring case, undertook a debt repurchase

financed by an African Development Bank loan and its own Figure 1: Sri Lanka's inflation

resources (link). A renewed market engagement would also %oya Headline

be timely ahead of Sri Lanka’s exit from the IMF program in 8

Core

March 2027. The program’s financing projections assume 6

external market issuance of US$1.5bn in each of 2027 and 4

2028. 2

Separately, S&P affirmed Sri Lanka’s sovereign rating at Jan-24 Jun-24 Dec-24 Jun-25 Dec-25 Jun-26 -2

‘CCC+’, with a stable outlook. The agency’s commentary

-4

was notably upbeat for a sovereign in the CCC category. It

highlighted robust economic and revenue growth as partly -6

Source: Sri Lanka Department of Census and Statistics, J.P. Morgan

offsetting heightened external uncertainty, pointed to the sig-

nificant improvement in the fiscal position, and assessed the Figure 2: Contributions to Sri Lanka's annual inflation

effects of the Middle East war and Cyclone Ditwah as tempo-

%oya Food & beverages Housing & utilities