Amid growing pressure for foreign exchange for debt servicing and development projects, the Government has obtained Cabinet approval to raise US$1,000 million next year through international sovereign bonds under the supervision of the Central Bank, Daily Mirror learns.  

This amount is likely to be increased to US$1,500 later. These bonds will have a maturity period of ten years.  

President Mahinda Rajapaksa, in his capacity as Finance Minister, submitted the Cabinet paper on Monday.  The Cabinet paper empowers the Central Bank Governor to sign the agreements and other relevant documents after approval by the Attorney General.   The Central Bank will be authorised to pay the US$7 million associated with the bond issuances.

The Cabinet memorandum also mentions that the US dollar interest rate in the international markets is on the rise.

So far the government has issued five international bonds amounting to US$4,000 million -- US$ 500 million each in 2007 and 2009 and US$1,000 million each in 2010, 2011 and 2012. The government has repaid the first international sovereign bond which matured in 2012. The bond of US$500 million issued in 2009 will mature in 2015.

The proposed bond issue will be in line with the 2014 budget proposals to support several development initiatives. The Central Bank is of the view that it will help finance development projects without having a major impact on the domestic securities market.

The total cost of debt servicing is expected to rise to Rs.1,070 billion next year while external borrowings and debt service payments in foreign currency is expected to be around US$1,500 million.     

“It will aggravate the pressure on the domestic foreign exchange market and the official reserves of the country if these foreign currency requirements are to be met by the Government through borrowings in the domestic market and converted to US dollars,” the Cabinet paper stated. (Kelum Bandara)