By Chandeepa Wettasinghe
The Central Bank already has plans to raise up to US $ 2.5 billion in debt through a syndicated loan and an international sovereign bond to build the country’s foreign reserves to US $ 7.5 billion by the end of this year, the Central Bank officials said yesterday.
“We should end the year with US $ 7.4-7.5 billion in reserves,” Central Bank Governor Dr. Indrajit Coomaraswamy said.
The country currently has approximately US $ 6 billion in foreign reserves, equal to four months of import protection. Sri Lanka is an import-based economy.
In order to meet the targets, the Central Bank has received the cabinet approval for a US $ 1 billion syndicated loan and a US $ 1 billion sovereign bond, according to Dr. Coomaraswamy.
“But we are requesting to raise up to US $ 1.5 billion through the sovereign bond,” he said.
While noting that this year’s foreign debt repayment is relatively high compared to the recent years, Dr. Coomaraswamy said that there is nothing to worry about.
Sri Lanka is required to have US $ 7.04 billion in net foreign reserves by the end of this year to remain eligible for the US $ 1.5 billion Extended Fund Facility of the International Monetary Fund, which is crucial to meet the country’s balance of payments.
Central Bank Deputy Governor P. Samarasiri noted that import pressure on foreign reserves is now easing due to the new loan-to-value ratios on motor vehicle financing. Further, despite the expectations to the contrary, global fuel prices are not increasing in the short term due to stronger supply from American shale producers, which would likely help, since fuel is Sri Lanka’s main import.
Meanwhile, Central Bank Deputy Governor Dr. Nandalal Weerasinghe said that the country has to meet US $ 2.6 billion in foreign debt repayment during 2017.
Since Sri Lanka’s foreign debt repayment is expect to spike above US $ 3.9 billion and US $ 3.4 billion in 2019 and 2020, respectively, Dr. Coomaraswamy said that now would be the best time to restructure the country’s liabilities, hinting at further debt issuances this year.
Analysts have also said that the government should go for rollover of foreign debt now, while Sri Lanka is able to obtain lower rates from international markets, since the rates would rise if the government goes to markets in desperation in 2019.
Dr. Coomaraswamy said that even though the local policy rates were kept unchanged this week, the government going for debt this year would result in the local market tightening, a fact which also contributed to keeping the rates steady.
However, he expressed some displeasure over the country not being able to raise non-borrowed financing through exports, foreign direct investments and portfolio investments to meet the deteriorating foreign reserves.
“We would get US $ 1 billion from China Merchant if the Hambantota agreement goes through and it’s not impossible to raise another US $ 1 billion by selling non-strategic investments. If we raise that money, we can do some liability management,” he added.
However, the sale of non-strategic investments has now been delayed for over one year and Finance Minister Ravi Karunanayake recently said that such sales cannot be rushed.
Further, the Hambantota port sale agreement to China has also been experiencing numerous delays.