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By Chathuri Dissnayake
Central Bank Governor Dr. Indrajit Coomaraswamy yesterday expressed confidence in Sri Lanka’s economy making a full recovery following the slowdown in the aftermath of the Easter Sunday attacks as the manufacturing sector remains untouched.
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Central Bank Governor
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“There is enough of the economy untouched for us to have a robust bounce back, once the security situation is normalised… and once business confidence is ready,” Dr. Coomaraswamy said, speaking at an event organised by the Chartered Institute of Management Accountants (CIMA).
Citing International Monetary Fund (IMF) approval of the fifth review of the extended fund facility as “an extremely constructive endorsement the country has received,” Dr. Coomaraswamy noted that it meant that economic fundamentals of the country were in “reasonable shape”.
“They have indicated that they are confident Sri Lanka is not likely to have any risks in terms of refinancing its debts. They are confident that we will be able to meet our obligations,” he said.
The Governor spoke confidently of the country’s ability to access financial markets with backup swaps being arranged with three different countries including China, India and Qatar amounting to $ 3.1 billion with 65% of external debt obligations for the year having already been met.
However, as backup the country also has assurances from friendly nations to assist in raising international bonds.
Both the Japan Bank for International Cooperation and People’s Bank of China have offered guarantees to raise Sakura bonds and Panda bonds respectively. Further the World Bank has also given assurance to give a policy-based guarantee as well to assist us following the attack enabling Sri Lanka to borrow up to $ 1 billion with guarantee.
"They have said that they will cluster the reforms that we have already done or we are close to completing to make us eligible for this guarantee. What this guarantee does is they will set aside a certain amount of exposure. It seems the limit is about $ 250 million that can be leveraged about four times over, so that’s a billion dollars. We can borrow not from an international bond but from a loan from an international bank, we can borrow up to $ 1 billion on the World Bank’s AAA guarantee," he said.
According to the Governor, the country is in “okay shape” mode despite a slowdown in the economy from a growth rate of 3.4% in 2017 to 3.2% in 2018 due to the contraction in the construction industry by 2.1% during the year.
This year the Central Bank forecast was set for 4% with the IMF forecasting 3.5% growth. However, following the attacks, the tourism sector and retail sector will be affected negatively with growth being further affected by drop in demand but a very large slate of the economy has been untouched.
Since the Easter attacks, in all six Treasury Bills auctions in the Government securities market, the yields on Government security bills auctions have come down; in the one-year benchmark Treasury bill rate, yields have come down by 102%-103%, the Governor noted.
“We had the largest bond auction ever, Rs. 180 billion, again the yields went down. You look at our International Sovereign Bonds; on 18 April, we issued dual tranches – five-year and 10-year ISBs in March; 10-year issuance yields were down by about 80 basis points, five-year about 65; now they have widened and are about 10 basis points below the issuance price. However, despite everything, the price is still inside the cost at the time of issuance, which is an indication to us that these markets are still open to us,” he noted, adding that the impact on the financial markets had been contained.
The current account deficit grew from 2.6% of GDP to 3.2% last year, due to multiple causes, including exogenous and domestic pressures such as increased oil imports and vehicle imports. However since then external conditions are stabilising and with domestic conditions being managed, the trade deficit has reduced.
Further he said although the economy underwent serious capital flight 2018 amounting to about $ 1 billion, “This year despite everything that has happened the outflows so far have been $ 77 million,” leading to the rupee strengthening by 3.6% compared to end last year.
The Central Bank predicts the current account deficit will come down from 3.2% of GDP last year to “something a little less than 3% of GDP”: “Maybe 2.7% to 2.8% of GDP. So despite all this we should get a better outcome than last year,” he said.
The country is on a stable footing to service external debt with reserves as well, the Governor said, with ability to access markets to borrow $ 2 billion as planned before the attack.
The reserves are currently $ 7.5 billion with pre-Easter Sunday attack projection for end-year reserves being $ 8.2 billion, which was predicated on Sri Lanka borrowing $ 2 billion from the commercial markets abroad. However, Sri Lanka will still be able to maintain $ 6.3 billion even after taking into account the loss due to the setback sustained by the tourism industry, Dr. Coomaraswamy said.
“That is not a wonderful level of reserves but is nowhere near crisis levels,” he said.
Monetary Fund (IMF) approval of the fifth review of the extended fund facility as “an extremely constructive endorsement country has received” Dr. Coomaraswamy noted that it meant that economic fundamentals of the country was in “reasonable shape.”
“They have indicated that they are confident that Sri Lanka will is not likely to have any risks in terms of refinancing its debts. They are confident that we will be able to meet our obligations,” he said.
The Governor spoke confidently in the country’s ability to access financial markets with back up swaps being arranged with three different countries including China, India and Qatar amounting to $ 3.1 billion with 65% of external debt obligations for the year having already been met.
However, as back up the country also has assurances from friendly nations to assist in raising international bonds. Both the Japan Bank for International Cooperation and People’s Bank of China has offered guarantees to raise Sakura bonds and Panda bonds respectively. Further the World Bank has also given assurance to give a policy based guarantee as well to assist us following the attack enabling Sri Lanka to borrow up to $1 billion with guarantee.
“They have said that they will cluster the reforms that we have already done or we are close to completing to make us eligible for this guarantee. What this guarantee does is they will set aside a certain amount of exposure. It seems the limit is about $ 250 million that can be leveraged about four times over, so that’s a billion dollars. We can borrow not from an international bond but from a loan from an international bank, we can borrow up to $1 billion on the World Banks AAA guarantee,” he said.
According to the Governor, the country is in “ok shape,” mode despite a slowdown in the economy from growth rate of 3.4% in 2017 to 3.2% in 2018 due to contraction in the construction industry by 2.1% during the year.
This year the Central Bank forecast was set for 4% with IMF forecasting 3.5% growth. However following the attacks the tourism sector and retail sector will be affected negatively with growth being further affected by drop in demand but a very large slate of the economy has also been untouched.
Since Easter attacks, in all six Treasury Bills auctions in the Government securities market the yields on Government security bills auctions have come down where in one year bench mark treasury bill rate the yields have come down by 102%-103% the Governor noted.
“We had the largest bond auction ever Rs. 180 billion again the yields went down, you look at our international sovereign Bonds, on 18 April, we issued dual trench - 5 year 10 year ISBs in March, on the 10 year issuance yields were down by about 80 basis points five year about 65, now they have widened there are about 10 basis points below the issuance price. However despite everything the price is still inside the cost at the time of issuance which is an indication to us that these markets are still open to us,” he noted adding that the impact on the financial markets have been contained.
The Current account deficit grew from 2.6% of GDP to 3.2% last year, due to multiple causes including exogenous and domestic pressures such as increased oil imports and vehicle imports. However since then external conditions are stabilizing and with domestic conditions being managed, and the trade deficit has reduced.
Further he said although the economy underwent serious capital flight 2018 amounting to about $ 1 billion, “this year despite everything that has happened the outflows so far has been $77 million,” leading to rupee strengthening by 3.6% compared to end last year.
Central Bank predicts the current account deficit will come down from 3.2% of GDP last year to “something little less than 3% GDP.” “Maybe 2.7% to 2.8% of GDP. So despite all this we should get a better outcome than last year,” he said.
The country is in stable footing to service external debt with reserves as well, the Governor said with ability to access markets to borrow $ 2billion as planned before the attack.
The reserves are currently $7.5 billion with pre-Easter Sunday attack projection for end year reserves is $8.2 billion which was predicated on Sri Lanka borrowing $ 2 billion from the commercial markets abroad. However, Sri Lanka will still be able to maintain $6.3 billion even after taking into account the loss due to set back sustained by the Tourism industry, Dr. Coomaraswamy said.
“That is not a wonderful level of reserves but that is nowhere near crisis levels,” he said.
