Sri Lanka awaits legal approvals, better terms from China for new debt
Apr 10, 2019 05:50 AM GMT+0530 | 0 Comment(s)
ECONOMYNEXT- Sri Lanka's central bank is awaiting legal approvals and better terms on a delayed loan from the Bank of China, Governor Indrajit Coomaraswamy said.
"The job of the central bank is to expect the worst, and we're going into an election year, so premium would be attached to raising money relatively quickly," he told reporters on Monday.
"We want to raise money which would look after much of our obligations up to mid-2020."
"We have some plans, but we need some things first."
The central bank in February had said that Samurai and Panda bonds would follow the March International Sovereign Bond (ISB).
Further approvals from the Appropriation Act are required for normal debt raising activities, Coomaraswamy said on Monday.
He said the Active Liability Management Act (ALMA) needs to be activated as well.
ALMA was approved in parliament last year to enable the central bank to raise debt above the limit of the Appropriation Act to meet maturing debt obligations.
Sri Lanka is currently in the peak of a foreign debt repayment cycle, which would last till 2022.
"We have to activate ALMA, and for that, we need the debt number for the previous year," Coomaraswamy said.
"That will be finalized on the 31st of May."
Sri Lanka had been planning to raise up to one billion US dollars through a loan from the Bank of China in February.
However, the loan never came through.
Coomaraswamy said the Bank of China had offered a three year loan at higher rates tentatively, which was not as competitive as the 5-year and 10-year 2.4 billion US dollar March ISB.
"In the first quarter, ISB rates had gone through the roof after 26th October and the developments during that time, including the downgrading."
"Yields were extremely high, and there was some doubt if we could go to the market and raise funds through ISBs."
"ISBs were our first choice, and we needed at least a 5-year tenor, but people were worried if we could."
"Once we repaid the one billion ISB maturing on January 15, things started to improve."
"We had talked to the Reserve Bank of India about a swap, which we didn't use, and the China loan also we didn't use."
"Right now, we don't need that money."
"We went for the ISB in the longer term."
Coomaraswamy said the local branch of Bank of China had initially offered 300 million US dollars, but Sri Lanka needed 1 billion US dollars, which required head office approval.
Bank of China had also not offered a firm term sheet.
The central bank is still open to a loan from China, at better rates, Public Debt Department Superintendent M. Z. M. Aazim said.
"We have asked them to come with better terms," he said. (Colombo/Apr10/2019)