Govt denies foreign currency crisis

Saturday, 27 February 2016 00:00 -     - {{hitsCtrl.values.hits}}

 By Ashwin Hemmathagama – Our Lobby Correspondent

The Government yesterday refuted in Parliament allegations by Opposition members of a foreign currency crisis in the country. 

State Minister of National Policies and Economic Affairs Niroshan Perera rejecting Opposition criticism told Parliament that foreign currency reserves stood as US$ 7.7 billion as at 9 January 2015.

 “The estimated foreign exchange reserves position as at 26 November 2015 was US$ 7.3 billion. This is a decline of US$ 0.4 billion. It was caused due to foreign debt payments, settlement of the matured international sovereign bond, payment made to the IMF under the stand-by arrangement facility, and the supply of liquidity to the domestic foreign exchange market,” the State Minister said.

Despite the decline, the Government has taken steps to protect and increase foreign exchange reserves by entering into a currency swap of US$ 1.5 billion with the Reserve Bank of India, issuing two international sovereign bonds amounting to US$ 2,150 million, entering into new foreign currency swap arrangements with local commercial banks amounting to US$750 million, allowing greater flexibility in the determination of the exchange rate on the demand and supply conditions, reserving the right to intervene to curtail any excessive volatility from 4 September 2015, reducing loans to value ratio to 70% for loans and advances in respect of motor vehicles with effect from 1st December 2015, and revising the method of computation for the customs valuation of motor vehicles for the purpose of calculation of excise duty at the time of import.

However, UPFA Joint Opposition member Udaya Gammampila disagreed with the Minister’s response. 

“Foreign direct investments fell short in 2015. Added to this, foreign selling was high compared to purchases at the Colombo Stock Exchange. These are the issues that affected the foreign reserves. The Central Bank has issued a new regulation to question the source of income from all those who bring in over Rs. 200,000/- into Sri Lanka. But some time ago, the Finance Minister informed this House that no questions would be asked about the source of money brought into Sri Lanka, having the intension of building the reserve base,” he said.

 In response, the State Minister explained the volatility in global markets, which is not an exception. 

“There are many reasons for foreign reserve fluctuations. The key issue was that a father borrowed money some time ago. Since the death of this father we are burdened with debt. I am sure MP Gammampila forgot this issue. We are bound to service the debt regardless of the aircrafts landing at Mattala and the ships calling at Hambantota Port. We have to pay our dues regardless of us playing cricket at Sooriyawewa stadium built from borrowed money. On the other hand, the Government follows rules and regulations in terms of inward and outward foreign currency flows. The Prime Minister clarified in Parliament that Sri Lanka is also affected in 2016 by the global issues,” he said.

 Making use of the supplementary question, the UPFA joint opposition member Bandula Gunawardane informed Parliament of rumours of Fitch Ratings revising the ratings on Sri Lanka. 

“Parliament possess authority over public finance. On 31 December 2015, foreign currency reserves stood at US$ 7.3 billion. Unfortunately, the reserves came down by US$ 1 billion to US$ 6.3 billion by the end of January 2016. Added to this, we are supposed to pay back a US$ 1.1 billion loan we took from India. Aggravating the issue, Fitch Ratings was attempting to change the national rating from positive to negative. We all know that the Central Bank has requested Fitch to hold the report,” said MP Gunawardane.

 UPFA joint opposition member Dinesh Gunawardane meanwhile said, “the Prime Minister has informed Parliament several times about the situation in the country. But Fitch Ratings which was positive has now turned into negative during the last 48 hours. The unlimited amount of our foreign exchange getting drained out of the country is the key reason for this.”

 In response, Minister of Higher Education and Highways and Leader of the House of Parliament Lakshman Kiriella criticised the Rajapakse regime for borrowing at astronomical rates to fund their pet projects. 

“We don’t have reserves but a collection of moneys borrowed from internationals. You ruined the country for 20 years where the foreign reserves came down to alarming levels of US$ 1000 million. So, you borrowed money at 8% - 9% from wealthy tycoons abroad. You should be ashamed to call these moneys ours. Almost 90% of the reserves are nothing but money borrowed at high rates,” added Minister Kiriella.