Foreign sentiment signals confidence in Lankan economic performance: CB
View(s):Sri Lanka’s Central Bank (CB) has stepped in to defend the Government against negative vibes and criticism of the economy.
In a lengthy statement it said that in recent days, serious concerns have been expressed regarding the performance of the Sri Lankan economy.
“In this context, it is instructive to gauge the level of external support for the Sri Lankan economy from international capital markets. This would be an independent barometer of the health of the Sri Lankan economy as international capital markets are hard-nosed in their assessments,” it said.
Referring to several positive endorsements of the economy, the bank cited the following:
- An International Sovereign Bond (ISB) amounting to US$2.5 billion (the largest ever) was successfully issued. It was 2.6 times over-subscribed. Large orders were placed by some of the world’s largest and most reputed investment funds.
- With the receipt of ISB proceeds, gross official reserves have increased to $9.9 billion which is historically the highest level.
- There has been a very favourable response to the RFP for a term loan of $1 billion. The Government is considering upscaling this loan and to utilise the incremental proceeds to repay more expensive existing debt.
- There have been foreign portfolio investments in equity, through primary and secondary market investment in the Colombo Stock Exchange to the tune of $9.6 million to-date in 2018. In 2017, inflows amounted to $278.5 million.
- FDI flows of $1.9 billion in 2017 were an all-time record, albeit from a low base.
In addition, staff-level agreement has been reached on the 4th Review of the IMF EFF, subject to Cabinet approval of the automatic fuel pricing formula. The 5th tranche of the IMF facility is expected in June 2018.
“After June 2017 the IMF has issued several positive statements regarding improving macroeconomic stability and outlook. Last year two ratings agencies namely S&P and Fitch changed the outlook to stable from negative,” the CB said.
“The above reflects positive sentiment regarding the performance of the Sri Lankan economy and its prospects on the basis of independent assessments made by external parties who have backed this by inflows of their money into the country. It is imperative to build upon this by persisting with sound macroeconomic policies:
fiscal consolidation, prudent monetary policies and a flexible exchange rate which supports the competitiveness of the economy. This should be supported by the acceleration of structural reforms to strengthen factor markets; improve the investment climate; boost investment promotion, introduce trade facilitation measures; and complete trade negotiations,” the statement said.