Central Bank fills up funding gaps, reserves
Sri Lanka’s Central Bank said last Tuesday that they would be able to get the economy on the right track by improving foreign reserves through internal financing and raising revenues through renminbi bonds and IMF assistance to fill its US$2 billion funding gap for the year. The government will be searching for Lead Managers for the issuance of the Chinese currency bonds and the Central Bank is planning on carrying it out in a transparent manner in the Renminbi (currency), the Central Bank Governor Arjuna Mahendran told reporters. Monies accrued from these bonds would be in the range of $1 billion that would be used to bridge the funding gap of $2 billion for 2016.
He pointed out that the process involves going through a due diligence to get a rating in the China issuance market that would take about three months. Through these bonds, Mr. Mahendran said that they would be able to raise Renminbi financing at below a 5 per cent rate of interest that could be used to finance Chinese companies and even be used in funding projects that are partly funded by Chinese companies. The governor also said that last year there was a slowdown in Chinese investment activity in the country due to governance issues raised that were investigated by the authorities. In this respect, the issues have been resolved with the Chinese company and it was pointed out that “now we can re-commence those projects.”
He said that today the rate of growth is plateauing and the tightening of the monetary policy in January could be relaxed in future since the economy is expected to have a soft landing. Money supply growth has slowed down and imports are reducing. However, the country has to still develop its capital market, he pointed out raising concerns on the core inflation at 5.7 per cent. Future direction of the economic policy of the government would be to focus less on government investments on infrastructure through borrowings and depend on public private partnerships where equity would be used for funding, the governor said. Borrowings in time to come would be mainly to service old loans, it was noted.
Building up on the reserves, the Central Bank would be looking at obtaining monies through exports and remittances. The IMF has stated that the reserves need to be built up through internal financing and not through borrowings. A contraction in exports which is 14 per cent of GDP was observed over the last 10 years in the country which the governor blamed on the overvalued rupee. The exports were expected to pick up by mid this year, he noted. Remittances which fell marginally last year was expected to pick up from this year as the first two months were said to have picked up since the majority of workers in the Middle East are sending home money and oil prices are seen rising, the governor said.