RIYADH: Sri Lanka is hoping for an infusion of US$ 1 billion in the next few months from Saudi banks to prop up sagging foreign reserves.
The offer came during discussions a delegation of Sri Lankan bankers led by Central Bank Governor Arjuna Mahendran held with the Saudi Arabian Monetary Agency (Central Bank) and other banks in assisting Colombo in various ways.
Mr. Mahendran told the Sunday Times that the $1 billion would be a loan with a grant component and would take a few months to finalise.
“It will take several months to negotiate and to get Cabinet approval,” he said, declining to give details including interest rates or whether this is a government-government contract.
The Central Bank has been discussing with various sources options to raise foreign funds. Economists have warned that foreign exchange reserves were low – now at $6 billion — while Sri Lanka has huge, annual bills to pay this year in terms of loan repayment and debt servicing, totaling more than $4 billion.
Concern has also been expressed by local experts and international speakers including billionaire George Soros and Nobel Laureate Joseph Stiglitz at this week’s Sri Lanka Economic Forum that China’s economic crisis plus the swing of funds back to the US following the hike in interest rates would make it harder for countries like Sri Lanka to access cheap international credit.
Separately, speakers at the Forum urged Sri Lanka to sharply increase tax revenue, a fundamental flaw in the economy, instead of dependence on foreign borrowings if foreign investors were to be attracted to the country. Analysts say the tax base eroded in the past decade under the watch of former Treasury Secretary P.B. Jayasundera.
Sources close to bankers who took part in the visit to Saudi Arabia said the delegation met three to four banks there to whip up support for syndicated loans to Sri Lankan banks.
Syndicated loans are credits granted by a group of banks to a borrower which allow the group to share the credit risk and this process is gradually becoming popular in Sri Lanka as a resource for local banks to foreign funds.
“Saudi banks have a lot of money (to lend). Remember it costs just around $10 per barrel of oil to the Saudi’s and even at a low $30-40 per barrel in the market, they are still making huge money after unbelievable returns when oil was trading at $140 a barrel,” one banker said. More syndicated loans will also swell Sri Lanka’s foreign exchange coffers, he said.
