COLOMBO: Arjuna Mahendran, Governor, Central Bank of Sri Lanka (CBSL) yesterday expressed hope that the country will easily be able to raise a quantum of $3 billion in the international debt market at lower interest rates, as things are seen as being on a new footing now.
The CBSL Governor made this comments in response to a question from the media at a news briefing held at the CBSL Auditorium, to explain the ‘Current State of the Economy”.
“Depending on the success of the Extended Fund Facility with the IMF on which discussions are currently underway in Washington D.C. other global lending agencies will look at us much more favourably in the coming months. Also, the People’s Bank of China has given us the authorization to go ahead and issue bonds in China in renminbi (the official currency of the People’s Republic of China). The regulatory process, due diligence activities, getting necessary Chinese ratings etc. will take about three months for this to become operative. When all combined raising $ 3 billion at lower interest rates will be quite easy, the Governor said.
“There’s a lot of liquidity in the market, but then there’s the question of price. We don’t want the price to get out of hand. Our secondaries are trading at 7-7.5% which were trading at 6.875% last year. If the IMF fund facility turns to be a done deal, yields will come down, and we” ll be able to raise money easily. But we have to discipline ourselves not to borrow exceedingly so that government finances will stay in pretty good shape, he noted.
The Governor further said,”In reality, government finances are out of sync. There is a chronic tax-shortfall. And as a consequence of the vast wage increase given to public servants, our recurrent expenditure has ballooned. Thus, the need for borrowing has increased. On top of that, the external environment is less benign for emerging markets. These factors have combined to create a volatile situation. Our borrowing rates are quite high. We still offer rates in the region of 5-8% or even 10% in the longer term. We can’t cripple the local economy by allowing this to go on. That’s why officials of the Public Debt Department occasionally cancel an auction or two when the bidders ask for exorbitant rates. With the new renminbi debt dynamic, Sri Lanka will be able to attract more Chinese investment for infrastructure projects and will also be able to partly fund such projects in a productive way, the Governor said.
