- Shrugs off forecasts by Moody’s which ruled out reserves growing beyond US $ 7.5bn
- Says buying US $ 200mn every month; reveals plans to go to int’l capital markets
- Reserves have currently crossed US$ 8 billion mark with IMF and H’tota port lease proceeds
- Says will end 2017 with US $ 7.5bn in reserves due to some payments due next few days
By Chandeepa Wettasinghe
The Central Bank yesterday said that Sri Lanka’s foreign reserves may reach up to US$ 10 billion next year, discrediting concerns raised by ratings agency Moody’s earlier this month.
“You’ll have to buy me a meal if the reserves go up to US$ 10 billion next year,” Central Bank Governor Dr. Indrajit Coomaraswamy said on a lighter vein following a question raised by Mirror Business at yesterday’s Monetary Policy Review press briefing.
Moody’s said, “while we expect foreign currency reserves to rise to about US$7.5 billion in 2018 following the completion of the Hambantota port sale, we do not expect reserves to rise materially thereafter”, in its ratings update for this year, where it maintained the ‘Negative’ outlook on Sri Lanka, unlike its peers Fitch and S&P who upgraded their outlooks on the country to ‘Stable.’
Dr. Coomaraswamy said that Moody’s concerns are misplaced, and that the Central Bank does not foresee any difficulty in increasing reserves.
“We’re buying roughly US$ 200 million a month at the moment. So that is US$ 2.4 billion (a year). On top of that we are planning to go out and raise money from international capital markets,” he said. He added that although the exact timing for raising funds would depend on prevailing global market conditions, the intent is to go to the market as soon as possible for two reasons.
“One is the tightening cycle of the US interest rates, and the consensus seems to be about three increases of 25 basis points each, so the longer you wait, the higher the cost would be. Second thing is, what I’ve learned in the short time in my job is, if you’re able to bring money into the economy, it takes the pressure off the exchange and interest rates,” he said.
Dr. Coomaraswamy further said that with the foreign direct investment expectations for the next year, reserves would build up further.
Reserves have currently crossed the US$ 8 billion mark after receiving the US$ 292.1million first tranche of the US$ 1.12 billion Hambantota port lease to China and the US $ 251.4 million fourth tranche of the US$ 1.5 billion Extended Fund Facility of the International Monetary Fund.
“I think, last night, if I’m not mistaken, there was US$ 8.1 billion, and we’re likely to finish the year at US$ 7.5 billion because of a couple of payments we have to make in the next few days,” Dr. Coomaraswamy said.
Central Bank Senior Deputy Governor Dr. Nandalal Weerasinghe said that since reserves have increased to the current level after receiving just the first tranche of the Hambantota port sale to China, Moody’s has lost credibility.
Sri Lanka will have to repay US$ 13.8 billion in bunched up foreign debt maturities between 2019-2022, with 2018 being the buffer year in which the Central Bank can build up reserves cheaply. Dr. Coomaraswamy said that with government fiscal discipline being maintained for the first 10 months of this year, it has reduced the need for foreign debt to be channelled to the fiscal sector, which has also helped the reserves and exchange rate situation.
He also said that exchange rate with respect to the US dollar remained at Rs.152.60, depreciating just 1.9 percent so far this year. This was compared to the expectations early this year of the exchange rate falling to Rs. 160, which Dr. Coomaraswamy said showed the robustness of the economy. However, he showed some concern over worker remittances for the first 10 months falling by 7.9 percent year-on-year (YoY) to US$ 5.52 billion.
The trade deficit too increased to US$ 7.59 billion over the same period compared to US$ 6.99 billion YoY, although the trade deficit contracted in October as the four-month export rally continued.
Govt. set to meet IMF fiscal targets for 2017
The government is poised to meet the fiscal target for 2017 under the IMF programme, despite the overall fiscal performance slipping slightly during the first 10 months of this year, according to Central Bank data.
The primary account surplus—the different between revenue and expenditure, sans interest payments—which is required to be met under the IMF reform programme, was on target, with a primary surplus of Rs. 21.9 billion by the end of October, compared to a Rs. 39.8 billion deficit YoY. The current deficit, which is the difference between revenue and recurrent expenditure, declined to 0.8 percent of Gross Domestic Product (GDP) compared to 0.9 percent of GDP YoY.
The Central Bank said that increased domestic interest payments, and flood and drought relief measures had contributed to higher recurrent expenditure. The overall budget deficit for the 10 months increased marginally to Rs. 586.9 billion or 4.5 percent of GDP, compared to Rs. 547.5 billion or 4.4 percent of GDP YoY.
Total revenue increased to 11.3 percent of GDP from January to October 2017, compared to 10.8 percent of GDP YoY. Estimates are for revenue to increase to 14.7 percent of GDP by the year end, compared to 14.3 percent YoY.
Expenditure meanwhile increased to 15.8 percent of GDP over the first 10 months compared to 15.3 percent of GDP YoY, while estimates place expenditure for this year reaching up to 19.9 percent of GDP, compared to 19.7 percent of GDP in 2016.