Sri Lanka mulls yen and renminbi bonds to strengthen reserves, for debt financing

The Central Bank of Sri Lanka (CB) may be opting for renminbi and yen denominated bonds to shore up foreign reserves and for debt financing needs of the country this year, CB Governor Arjuna Mahendran said.

“There are various sources we can use. The dollar bond is one. There are also opportunities to raise renminbi and yen. The Japanese government is quite keen to lend to Sri Lanka now. And of course the Sri Lanka Development bonds which we raise in our domestic markets in dollar form,” he said.

With the Chinese internal economy taking a dive, Chinese are more likely to look towards foreign investments, while the renminbi was recently included in the International Monetary Fund’s basket of currencies.

Mahendran was responding to exactly how and when CB will raise funds to increase the foreign reserves of the country from the current US$ 7 billion to the US$ 10 billion target stipulated in the Budget. 

CB went for a US$ 1.5 billion bond issue last November to shore up the reserves.

“We will do it from time -to-time. All these options are available. There is some element of timing. We want to see that we don’t just borrow for the sake of it and park it in our coffers, where we have to pay interest to those we’re borrowing from,” he added.

The country’s foreign reserves have been weak for some time, with CB defending an artificially hiked up rupee for most of last year to keep up the new regime’s policy to boost consumption and lubricate the import-driven economy.

Further, the speculation of the US Federal Rate hike and the eventual realization of the speculation had resulted in significant foreign outflows from both the Colombo Stock Exchange as well as government securities.

Meanwhile, Mahendran noted that to roll over maturing debt, CB will anticipate when a cluster of debt repayment deadlines are coming up, in order to issue new bonds.

“Debt management is something we’re building up in the Central Bank to smooth out the inflows and outflows, to make it regular,” he said.

However, debt repayment is unlikely to be regular this year, as Prime Minister Ranil Wickremesinghe last month said that a Contingent Liability Bill will be enacted this year to raise money for surprise debt maturations, since the past regime had not documented all of its borrowings.

The budget said that interest on known borrowings for 2015 was estimated at Rs.492 billion, which will increase to Rs.520 billion in 2016.


CB to introduce Purchasing Mangers’ Index
The Statistics Department of the Central Bank (CB) is currently working on a Purchasing Managers’ Index (PMI), an indicator to gauge the health of the country’s manufacturing sector, Central Bank Governor Arjuna Mahendran said.  

The index is supposed to provide details of what purchasing mangers all around the country are seeing in terms of their order book. 

“That tells you what the country’s future production is going to look like. It is something very exciting,” Mahendran said. 

According to him, the Central Bank has already started compiling the data for the index to be set up. 

“We have already started compiling the data, we are waiting for about a year, so we can have comparative data with a year before.”

A PMI is generally based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
Meanwhile, Mahendran said the Central Bank was in process to improve the quality and the timeliness of its data.

Sri Lanka last year subscribed to International Monetary Fund’s special data dissemination standard, an upgrade from the general data dissemination standard which the country subscribed to in 2000.