Central Bank sees country’s foreign debt costs declining

Friday, 11 April 2014 01:48 -     - {{hitsCtrl.values.hits}}

Reuters: Sri Lanka expects its foreign borrowing costs to decline even as the country’s growing wealth forces a shift towards commercial lenders as a source of funds, Central Bank Chief Ajith Nivard Cabraal said on Wednesday. Cabraal said borrowing costs had been falling, and that he expected they would continue to do so. “In the case of foreign borrowing, we have seen a substantial tightening of the interest rates,” Cabraal told the Reuters Global Market Forum. “Hence, we would probably see (interest costs) on a gently reducing phase rather than a spike.” Sri Lanka’s ability to borrow via ‘soft’ loans with easier terms has greatly reduced following its elevation by the International Monetary Fund to lower middle income nation status from lower income country. The country had foreign debt totalling Rs. 2.96 trillion ($22.67 billion) by 2013, the most recent Central Bank data shows. Of that, loans made on commercial or non-concessional terms totalled Rs. 1.47 trillion ($11.24 billion), a 93.7% jump in three years during which annual foreign debt service payments also more than doubled to Rs. 312.15 billion. In December, the IMF cautioned Sri Lanka over its high debt ratio, which was 78.3% of its $67 billion economic output last year, down from 81.9% in 2010. Rating agencies and economists have also warned of potential risks due to the increase in borrowing on commercial terms. Sri Lanka has borrowed in recent years from international capital markets and from China to repair infrastructure neglected during its 26-year war against Tamil Tiger separatists, which ended in 2009. On Monday, it sold a $500 million, five-year sovereign bond at a yield of 5.125%, marking a sharp in its cost of funding from January, when it placed a $1 billion bond of the same maturity at a yield of 6%. Sri Lanka first sold bonds internationally in 2007. “The bulk of Sri Lanka’s borrowing have been from local sources which had been at very high rates, which now have compressed quite substantially,” Cabraal said. Opposition politicians and some economists have criticised Sri Lanka’s economic data as unreliable, saying some figures have been manipulated by the authorities to help attract investment. The Government and Central Bank have rejected such claims.