Sri Lankan assets slide as election result puts IMF loan at risk
Dissanayake has vowed to reopen negotiations with the IMF over its $3 billion bailout, which comes with spending cuts and tax hikes that proved deeply unpopular with voters
Sri Lanka's dollar bonds and stocks slid as leftist candidate Anura Kumara Dissanayake's victory at the presidential election puts the nation's bailout by the International Monetary Fund and debt deals at peril.
Bonds maturing in March 2029 declined 3.1 cents, the biggest drop in about two years, to 50.2 cents on the dollar on Monday. The S&P Sri Lanka 20 Index of blue-chip stocks slid 2% in early trading. The rupee traded steady.
Dissanayake has vowed to reopen negotiations with the IMF over its $3 billion bailout, which comes with spending cuts and tax hikes that proved deeply unpopular with voters.
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"A Dissanayake win is the worst possible outcome for Sri Lanka's bonds," Tellimer strategists Hasnain Malik and Patrick Curran wrote in a note Sunday.
Sri Lanka's 2029 dollar notes are set for a nearly 15% slide this quarter, a spectacular turnaround after handing investors a return of close to 70% last year, one of the best in emerging markets.
It raises question marks not only for the IMF program but also whether a new administration would honour the agreement reached with creditors, with a risk that Dissanayake will compel creditors back to the negotiating table, they wrote.
The country last week reached an agreement in principle with bondholders to restructure about $12.6 billion in debt. Some members of Dissanayake's National People's Power coalition had opposed the debt restructuring terms.
Market sentiment will depend on the new government's actions in relation to the economy and debt negotiations, among other things, said Navin Ratnayake, head of research at Colombo-based John Keells Stock Brokers. Stocks have mostly factored in the outcome of the presidential election, he added.
