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Sri Lanka seeks Middle East funds to beef up BOP

ECONOMYNEXT – Sri Lanka is in a mission to the Middle East to secure funding to buffer the island’s external payments, Central Bank Governor W D Lakshman said as the island’s balance of payments was pressured by money printing.

“The present visit is to the Middle Eastern region and I think that there would be more positivity within the next few weeks,” Governor of Central Bank Lakshman told reporters in Colombo Friday.

Sri Lanka has fixed oil fuel prices in a long standing practice that hits the balance of payments with taxes being cut to widen non-oil consumption as global prices rise.

Meanwhile Governor Lakshman said for upcoming bond repayments more non-debt inflows are expected but there were also contingency plans including the 1.5 billion US dollar equivalent Renminbi swap.

In May a 693 million dollar Sri Lanka Development Bond held mostly by domestic investors would mature and in July a billion dollar sovereign bond matures.

In March Sri Lanka’s forex reserves had dropped to 4.1 billion US dollars from 4.58 billion a month earlier amid liquidity injections.

Sri Lanka is expecting to finalize a 700 million dollar loan from the China Development Bank shortly.

“There is a much delayed loan facility also coming from China Development Bank and there are positive signals for this to be realized soon,” Governor Lakshman said.

Sri Lanka met Bangladesh’s central bank Governor with a delegation.

Central Bank officials had met Bangladesh Central Bank Governor as part of a delegation that accompanied Prime Minister Mahinda Rajapaksa to the neigbouring country.

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“In visits like this they would not provide concrete numbers but we are currently proceeding with the required discussions which will be followed up by a visit to conclude the agreement,” he said.

He said an increase in foreign direct investment would increase non-debt flows, but for contingencies there had to be some loans and swaps.

Analysts however say FDI does not belong to the government and in order to get hold of any dollar proceeds flowing to parties other than the state, either they have to be taxed or the government has to sell Treasury bills to take the savings from the banking system, pre-empting private credit.

But Sri Lanka’s central bank has been injecting large volumes of liquidity to push credit and has also been financing the budget deficit with printed money ripping the balance of payments apart. (Colombo/Apr08/2021)

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