Active Liability Management Act activated to meet debt obligations

The Central Bank ( CB) has been empowered to raise debt above the limit of the Appropriation Act to meet maturing debt obligations following the enactment of the Active Liability Management Act (ALMA).

Sri Lanka’s foreign debt servicing schedules look daunting as the country is tasked with settling US$2.7 billion in 2018 and $ 3.6 billion on average per year over the four years from 2019 to 2022.

Amidst the urgent need of raising money relatively quickly, CB Governor Indrajit Coomaraswamy emphasised the current requirement of activating the ALMA as the country is currently at the peak of a foreign repayment cycle till 2022.

"We have to activate ALMA, and for that, we need the debt number for the previous year," he said adding that "it will be finalised on May 31”.

He made these observations when he outlined the current economic policy review at a media conference in Colombo on Monday.

Sri Lanka has repaid $ 1 billion International Sovereign Bond ( ISB) maturing on January 15, he said pointing out that things started to improve after that although the 3- year loan offered by Bank of China had not materialized due to high rates.

The CB was compelled to look for the 5- year and 10- year $ 2.4 billion ISB in March as it was more competitive than the Chinese loan, he revealed.

The CB purchased foreign exchange over $150 million on a net basis so far in 2019 (2018: net sales of $1.1 billion).

Gross Official Reserves, recorded at $6 billion at end February 2019, are estimated to have increased to $7.6 billion (end March 2019) with the ISB issuance and purchases from the market, he said.

Amidst high market interest rates, growth of credit extended to the private sector decelerated during the first two months of this year.

Private sector credit recorded a repayment of Rs. 4.3 billion in January 2019 followed by a marginal increase of around Rs. 7.6 billion in February 2019.

Private sector credit grew by 13.6 per cent (y-o-y) in February in comparison to 14.8 per cent (y-o-y) in January.

Credit to the private sector is expected to increase by around 13.5 per cent this year which is an increase of around Rs. 750 billion during the year.

With recent monetary policy and operational actions, there is space for market interest rates to reduce and the reduced short term rate structure must get transmitted to other market interest rates, he added.

In this context, the CB will consider and implement mechanisms for more effective transmission of the recent decline of the benchmark rates to other market interest rates.

Considering all economic factors, the Monetary Board decided to maintain policy interest rates at their current levels.

The Board was also of the view that, if the current trends in the global financial markets, trade balance, and credit growth continue, policy interest rates could be reduced in the period ahead, given well anchored inflation and inflation expectations.