COLOMBO (EconomyNext) – Sri Lanka was in no rush to float an international sovereign bond, as domestic borrowing rates are now low, Central Bank Governor Arjuna Mahendran said.
"I don’t want to jump into the bond right now because if you really look at dollar borrowing rates, even if the rupee depreciates, it means that we are paying more rupees to service our foreign debt," Mahendran said in an interview.
"Even if you re borrowing at 5 and three quarter (5.75 percent) that you have to add on may be 3 to 5 percent a year of depreciation of currency on average."
"So the effective rate is much more than 10 peent on our foreign borrowings."
The government’s total borrowings in the first quarter was lower than last year as a 1.5 billion US dollar sovereign bond was not sold as planned this year, he said.
"I am in no rush. If we can raise money locally at 6.0 percent we are doing right now, why should I go abroad?" Mahendran said.
He said Sri Lanka now also had a swap facility from the Reserve Bank of India, which could be used to repay oil bills or other purpose.
In Sri Lanka the Central Bank is in charge of raising debt for the Treasury, and sells both domestic and international debt.
The Central Bank’s agency functions however conflicts with the monetary policy objectives, some which may be taken out of it as part of planned central bank reforms.
In the past, the Central Bank has come under fire for financial repression as well as outright printing of money to monetize deficits, which had undermined its soft-peg with the US dollar generating high inflation and currency depreciation.
Some analysts have called for the abolition of the Central Bank altogether and a return to the pre-1951 currency board or hard peg to take away its ability to print money or release liquidity when credit demand goes up, torpedoing the exchange rate.