Harsha says country risk premium on the decline

By Yohan Perera and Sanath Desmond  
The risk premium which Sri Lanka had to pay during its recent foreign borrowings has come down to 3.9 percent this year from 4.37 percent in 2012, and would come down  further in the future, Deputy Minister of Policy Planning and Economic Development, Dr. Harsha De Silva said.  
 
Dr. De Silva said the risk premium had been reduced as the foreign lenders had recognized that Sri Lanka had become more credible when it comes to borrowings and handling of the economy. 

He said the risk premium would be reduced further in the coming weeks as and when an election is held and a stable government is elected. 
Justifying the recent decision by the Central Bank to raise US $ 650 million through 10-year international sovereign bonds at 6.125 percent, the Deputy Minister said one should understand that the interest rate could further reduce as the global interest rates are more or less floating. 
He said the interest rate which Sri Lanka may have to pay could reduce if global interest rate reduced.  
However the opposition charged that the recent US $ 650 million was raised at a much higher rate than when it raised US $ 1.5 billion in early part of 2014 in two separate sovereign bonds,  burdening the public more. 
In January 2014, the then government raised US $ 1 billion through a 5-year international sovereign bond at a yield of 6 percent per annum. 
 Later in April 2014, the government raised a further US $ 500 million through a 5-year sovereign bond at 5.125 percent per annum, the lowest rate at which Sri Lanka tapped international capital markets since it issued its first sovereign bond in 2007. 
It is expected that the global interest rates to move up with the increase in the United States’ (US) government securities by the Federal Reserve before the end of this year with the strong jobs report and the improving US economy.