ECONOMYNEXT – An exodus from Sri Lanka’s rupee bond markets was mainly caused by the Templeton Investment Group, Finance Minister Ravi Karunanayake said as the country’s rating outlook was upgraded by Fitch on improving state finances.
"When you say exit…you know very well it is one guy, that is Templeton," Karunanayake told reporters in Colombo.
He said Templeton came in at an interest rate of 14.85 percent. The group started to buy heavily into Sri Lanka rupee bonds after the 2008/2009 balance of payments crisis ended with a deal with the International Monetary Fund.
"Obviously, they are businessmen. We cannot keep them by force. We have to respond in a market-oriented way."
Karunanayake said 2016 state revenues had been boosted to over 13 percent of gross domestic product from around 10 percent and the budget deficit had come down, prompting Fitch Ratings to update the outlook on Sri Lanka’s sovereign rating to ‘stable’ from ‘negative’.
He said Sri Lanka’s finances are improving despite global turmoil, with Brexit and the prospect of higher interest rates in the US.
He said the economy was damaged during the Rajapaksa administration. It was easy to break something, but it had to be rebuilt brick by brick, he said.
The current administration had also come under fire for expanding state salaries, pensions and subsides, and cutting fuel prices.
The Central Bank then printed money to keep interest rates down and disastrously cut rates in April 2015, while state and private credit expanded, triggering a balance of payments crisis and speeding up an exodus from bond markets. (Colombo/Feb16/2017)