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Thursday June 1st, 2023

Indian firms eye Sri Lanka projects using buyer’s credit

ECONOMYNEXT – Indian companies want to invest in Sri Lanka using buyer’s credit facilities from Indian Exim Bank where Sri Lankan firms can provide labour and up to a quarter of material, an official from a visiting business said.

“Sri Lanka is becoming a preferred destination for Indian investors due to its similar climate and close proximity to India,” said Praful Kumar Mutha, director of Mohan Mutha Exports Ltd, Chennai, who was leading a Confederation of Indian Industry (CII) delegation to Sri Lanka.

“We are interested in securing large scale projects in Sri Lanka such as refineries, IT parks, desalinisation plants, pharmaceutical zones, container terminals and vocational training facilities,”
Kumar said at a meeting the Minister of Industry, Commerce, Skills Development & Vocational Training Rishad Bathiudeen.

CII is India’s second largest industry chamber with more than 9,100 direct and over 300,000 indirect membership of firms from 291 national and regional bodies.

Kumar said many mechanisms are available in India for funding of such large projects overseas.

“We at CII can be a facilitator for such project funding in Sri Lanka as well. We can move in with funding from Indian Exim Bank. The Buyers’ Credit (BC) project funding mechanism of Indian Exim Bank is one such way.”

“Such funds are for Indian exporters entering into new foreign markets where deferred credit on medium or long term basis is more practical. Annual interest rates are also very low at LIBOR plus 1.25 percent for 8 years.”

In Buyers’ Credit, project execution is done by an Indian firm called the project exporter. Even though the fund recipient is an Indian company, from which 75 percent of the material for the project needs come, Sri Lankan contractors can supply the labour and also the 25 percent materials in the BC project, a statement said.

Average project length is three years and it takes about three to six months for initial background work.

High-value projects such as ports, bridges, highways, and IT parks are a good match for BC projects.

The statement said that since March 2018, Sri Lanka has been placed in the Positive List of Countries for Buyer’s Credit under India’s National Export Insurance Account (NEIA) by India’s Export Credit Guarantee Corporation (ECGC).
(COLOMBO, 19 Sep, 2019)

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Sri Lanka cuts policy rates 250 basis points

ECONOMYNEXT – Sri Lanka cuts policy rates 250 basis points lowering the rate at which liquidity is injected to markets to 14.0 percent to from 16.50 percent, saying inflation was falling faster than expected.

“The Board arrived at this decision with a view to easing monetary conditions in line with the faster than expected slowing of inflation, gradual dissipation of inflationary pressures and further anchoring of inflation expectations,” the central bank said in its May policy statement.

“The commencing of such monetary easing is expected to provide an impetus for the economy to rebound from the historic contraction of activity witnessed in 2022, while easing pressures in the financial markets.”

“Headline inflation (year-on-year), based on the Colombo Consumer Price Index (CCPI), continued the deceleration path, faster-than-projected earlier, supported by the lagged impact of tight monetary and fiscal policies, strengthening of the Sri Lanka rupee, reduction in fuel and gas prices, normalisation of food prices and the favourable impact of the statistical base effect.

“The full passthrough of the large appreciation of the exchange rate observed recently is yet to be
reflected in the price levels, and it would quicken the disinflation process, as the prices of
imported goods are expected to decline further in the period ahead.”

Sri Lanka’s balance of payments has been surplus for several months and the central bank has allowed the rupee to appreciate. When the BOP is in surplus and as long as the central bank can buy dollars and generate liquidity rates tend to fall.

Market rates however has been high amid expectations of a domestic debt re-structuring and mainly government borrowings, with private credit negative and state enterprises also cutting losses.

“With greater macroeconomic stability being achieved through corrective policy measures, particularly in terms of faster-than-expected deceleration of inflation thus far during 2023 and the benign inflation outlook and the easing of the BOP pressures, the Monetary Board of the Central Bank of Sri Lanka, upon carefully assessing the current and expected developments, decided to relax the stance of monetary policy and reduce the policy interest rates.”

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Sri Lanka exports down in April, trade deficit up from March, rupee stronger

ECONOMYNEXT – Sri Lanka’s exports fell 12.6 percent from a year ago to 849 million US dollars in April 2023, amid weaker external demand, while imports were down 15.8 percent to 1,431 million Us dollars, central bank data showed.

Exports also fell 1,037 million dollars in March 2023, amid seasonal effects.

The trade deficit expanded to 583 million US dollars in April from 412 million US dollars in March 2023. Imports were at 1431 million US dollars in April from 1,450 million dollars in March.

Imports can pick as tourism, worker remittances and net inflows to government go up.

The rupee continued to appreciate.

“Exchange rate showed a notable appreciation during April 2023 with the continued improvement in liquidity in the domestic foreign exchange market, the discontinuation of the daily guidance on exchange rates,” the central bank said.

Up to April exports were down 9 percent to 3.8 billion rupees and imports were down 28 percent to 5.2 billion rupees and the trade deficit was 1.4 billion rupees.

Investment goods imports were down in April amid a contraction in credit.

“Almost all types of goods listed under the three main investment good categories, namely machinery and equipment, building material and transport equipment, recorded a decline,” the central bank said.

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Sri Lanka President discusses debt restructure, program progress with IMF

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

State Minister of Finance Shehan Semasinghe, Senior Advisor to the President on National Security and Chief of Presidential Staff Sagala Ratnayake was also in the meeting.

Secretary of the Ministry of Finance Mahinda Siriwardena, Central Bank Governor Nandalal Weerasinghe, Deputy Director of the International Monetary Fund Anne Marie Gulde, and Resident Representative IMF in Sri Lanka Sarwat Jahan, attended this event. (Colombo/June01/2023)

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