Sri Lanka sells sovereign bonds first to repay mounting debts

Sri Lanka has met the scheduled repayment of the maturing International Sovereign Bond of US$ 1 billion last month. By end January 2019, gross official reserves stood at $ 6.2 billion, which was sufficient to finance 3.4 months of imports, Central Bank ( CB) Governor Indrajit Coomaraswamy told reporters in Colombo on Friday.

Another $ 400 million has been raised through a swap arrangement with the Reserve Bank of India ( RBI) and arrangements are underway to raise $ 1 billion more from swaps.

The CB had also secured a $300 million loan from the State Bank of China, which would be increased to $1 billion.

“We are very eager to receive this money into our reserves by the end of the month so that the foreign reserves will inculcate sufficient confidence to markets,” Dr. Coomaraswamy said, outlining plans to raise $5 .6 billion by the end of March. Sri Lanka also has a further debt repayment of $ 500 million in April.

In the first quarter, Sri Lanka has to repay $2.6 billion in total, he said adding that the CB will sell US dollar sovereign bonds first and find other alternatives later as yields of sovereign bonds have come down and external market conditions improved, he revealed.

The bulk of the $2 billion to be raised will come from a $ 1 billion or $ 1.5 billion in bonds if market rates are favourable, the Governor has said.

The CB is also considering the possibility of issuing Panda and Samurai bonds to fill the gap, he added.

Having had its plans disrupted during the 52- day political impasse, the CB repaid $ 1 billion in debt recently from its reserves, and has reached out to India and China to bolster reserves to acceptable levels by the end of January, informed sources said.

It used $650 million from the Hambantota Port venture and funds left over from the $1 billion received from China Development Bank in October for the $ 1 billion bond repayment.

The Monetary Board on Friday decided to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of commercial banks by 1 percentage point to 5 per cent with effect from March 1.

This action will release Rs. 60 billion into the banking system, Dr. Coomaraswamy said revealing that Sri Lanka has a liquidity shortage of over Rs.100 billion in the inter bank market.

He noted that there will not be any pressure on the rupee as liquidity will still be short of Rs.40 billion. (BS)