Deal with IMF beneficial for SL: Moody’s

Tuesday, 3 May 2016 00:01 - - {{hitsCtrl.values.hits}}

Moody’s has said the Government’s deal with the International Monetary Fund (IMF) is beneficial to Sri Lanka.

Moody’s Senior Vice President, Sovereign Risk Group Marie Diron said Sri Lanka’s recently announced agreement with the IMF of a $ 1.5 billion Extended Fund Facility, will have three benefits for Sri Lanka’s external financing profile.

Firstly, program disbursements together with forthcoming multilateral and bilateral loans will provide external liquidity to ease immediate financing pressures. This could reverse the decline in official foreign-exchange reserves and reduce Sri Lanka’s vulnerability to a sudden stop in capital inflows.

Secondly, the financing will likely be at more favourable terms than Sri Lanka can avail of through the market, which alleviates debt servicing cost pressures.

Thirdly, if the agreement restores investor confidence in Sri Lanka’s policy framework, it could ultimately support more stable private external inflows, such as FDI.

Diron said the agreement comes as Sri Lanka’s sovereign credit profile is increasingly under pressure from its large fiscal deficits, high debt levels and poor debt affordability. “If the program supports Sri Lankan authorities’ efforts to boost tax revenues and better manage state owned enterprises, it would address constraints on economic growth and reduce fiscal imbalances, thus improving the sovereign’s credit profile. However, we expect bumps in the fiscal consolidation path due to difficulties in implementing revenue raising measures and the possible crystallisation of some contingent liabilities,” Diron added.

Sri Lanka aims to be South Asia yuan clearing hub: CB Chief

Hong Kong (Reuters): Sri Lanka wants to become the yuan clearing hub of South Asia, its Central Bank Governor Arjuna Mahendran said on Saturday as the country plans to issue Chinese Panda bonds – yuan-denominated bonds sold by overseas entities in China – for cheaper borrowing.

Sri Lanka is waiting to assess the deal with the International Monetary Fund (IMF) on Friday for a $1.5 billion loan, Mahendran told Reuters in Hong Kong.

“It is a good time to get more Chinese investments as they are moving manufacturing closer to markets. We are also discussing possibility of a Panda bond issue,” he said.

“We have a yuan swap agreement with PBOC (People’s Bank of China) and we are in discussion for a line to make it easier for importers to pay in yuan. The objective is to make Colombo the yuan clearing hub for South Asia.”

President Maithripala Sirisena’s coalition Government has allowed many infrastructure projects to go ahead, including a $1.4 billion property development project, after suspending them on corruption allegations.

China has lent Sri Lanka around $8 billion, mainly for infrastructure projects. Sri Lanka has asked China to swap some of the money it owes Beijing for equity in infrastructure projects and offered to sell stakes in its companies to Chinese firms.

Sri Lanka has already decided to issue international sovereign bonds and raise up to $3 billion including Chinese Panda and Dim Sum bonds - bonds issued outside China but denominated in Renminbi.

Mahendran said the Central Bank would appoint lead managers for a dollar bond issue in the next couple of weeks and banks with presence in Sri Lanka will be preferred.