Analysts say int’l finance costs down at least 200bps with renewed confidence

By Chandeepa Wettasinghe
Sri Lanka’s cost of international financing has gone down by at least 200 basis points (bps) so far this year, owing to confidence on the appointment of Central Bank Governor Dr. Indrajit Coomaraswamy, and the bailout funds from the International Monetary Fund (IMF), an analyst said this week.

“We have much better management at the Central Bank. We have an independent governor, with a very strong set of skills, who is taking the right approach. Discussions with international investors suggest that he is highly acclaimed by investors. This is reflected in our cost of borrowings,” Frontier Research CEO Amal Sanderatne said.
Speaking at an event organized by Sampath Bank, he noted that interest rates Sri Lanka attracted in foreign markets, which were upwards of 8 percent, had fallen by 2 percent in recent months. 
The US$ 1.5 billion dual tranche sovereign bond which was issued in July just days after Dr. Coomaraswamy’s appointment attracted 5.75 percent and 6.825 percent in coupon rates, well below the 6.125 percent and 7.125 percent guidance rates.
Sanderatne also noted that the balance of payments relief provided by the IMF had also helped ease any worries international investors had about Sri Lanka. The country has to opt for foreign borrowings, since local savings are quite low, and the country can no longer attract developmental, low-interest funding and large foreign aid that sustained the country in the past despite economic mismanagements, due to being in the cusp of becoming an upper middle income country.
Sanderatne pointed out that while the current account deficit has halved over the past 5 years, the same period saw US$ 1 billion in debt repayment nearly quadruple to the current levels.The previous regime had borrowed heavily to finance public infrastructure projects, some of which are thought to be poor investment decisions.

However, Sanderatne said that the newfound investor confidence would make refinancing future maturities cheaper, although rolling over debt is not the most sustainable solution.

“Now this is not a problem as long as our international investors have confidence in our market. So the fact that (our) interest rates overseas have come down suggests that confidence levels have improved,” he said.
Even though the election of Donald Trump in the US had seen investors divesting their portfolios in emerging markets such as Sri Lanka, Thomson Reuters Client Specialist Ritika Siddavaram noted that since interest rates in emerging markets are always higher, investors would eventually return.
Dr. Coomaraswamy was appointed by President Maithripala Sirisena as the Governor of the Central Bank in the aftermath of massive bond scandal that shattered the public and investor confidence towards the monetary authority. 
While Dr. Coomaraswamy was well received by all sections of the political spectrum, the leading party in the unity government is now exerting pressure on him to give up the Central Bank’s inherent autonomy.