BOC, People’s Bank and others allowed to borrow $ 300 m for Govt.

By Chathuri Dissanayake

The Government yesterday announced moves to raise funds up to a maximum of $ 300 million through Foreign Currency Banking Units (FCBUs) or off-shore banking units of domestic banks.

The Finance Ministry has already initiated discussions with both Bank of Ceylon (BOC) and People’s Bank (PB) to raise up to a maximum of $ 300 million through their FCBU or offshore banking units with plans to fully or partially retire Sri Lanka Development Bonds maturing in 2018.  

Stressing on the need to diversify country’s options for mobilising funds at a low cost due to the uncertainty faced by the emerging economies including Sri Lanka due to global trends, Acting Finance Minister Eran Wickramaratne told Cabinet that options should include Foreign Currency Term Financing Facilities, FCBUs or off-shore banking unit loans from domestic banks.

According to Wickramaratne, who presented a Cabinet paper to this effect, retiring of relatively high cost SLDBs will allow the Government to reduce its cost of debt servicing as there has been almost 36% increase in the LIBOR rates and fixed interest rates of loans or credit facilities around 4.5% to 5.0%.

Wickramaratne pointed out borrowing in the domestic market at present will further pressurise the interest rates to increase given that the interest rates in Government securities is projecting an upward trajectory, despite them declining by almost 130 basis points in year 2017. 

Wickramaratne warned that there was high probability that yields of the Government securities market would see a significant increase creating a high benchmark which would have a negative impact on the cost of borrowing of the Government, if the Government borrowed from the domestic market in the first quarter of the year.

Stressing on the need to carefully select Government financing options as almost 58% of the total debt repayments and servicing is due during the first half of the year, he said that any move to reissue or roll over the SLDBs that are maturing in 2018 would have be at a higher interest rate due to global market trends also projecting a higher interest rate.

Further, Wickramaratne told Cabinet members that although Budget 2018 proposed a borrowing limit of Rs. 1,895 billion for the year, Rs. 480.8 billion of Treasury bills and bonds are due to mature during the first quarter itself, together with $ 889.8 million of Sri Lanka Development Bonds, while foreign loan debt servicing and repayments are estimated to be around $ 731.9 million during the first quarter of 2018, which includes repayments amounting to $ 433 million and Interest and other fees of $ 298.9 million.