Cabraal says economy on steady footing, chides Opp. for wanting to see Govt. fail

Wednesday, 7 October 2020 00:55 -     - {{hitsCtrl.values.hits}}

  • State Minister responds to queries by Opp. Leader on status of country’s economy
  • Says Govt. not seeking funds through IMF Rapid Financing Instrument
  • Asserts debt servicing has been effectively managed
  • Terms Moody’s downgrade of SL inexplicable, but talking to all rating agencies
  • Opines FDI inflow likely to increase with enactment of Port City legislation
  • Says foreign inflows to Govt. securities market showing signs of resumption
  • Alternate bond issuances in Samurai/Panda markets, foreign investments in Rupee-denominated Treasury bill/bond market envisaged
  • Liquidity facilitation arrangements for further $ 1b SWAP arrangement with RBI under discussion

By Chandani Kirinde

The Government has no intention of seeking funds through the International Monetary Fund’s (IMF) Rapid Financing Instrument (RFI), as debt servicing has been effectively managed, State Minister of Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal told Parliament yesterday.

“We have managed the finances effectively and there is no need to seek funds through the IMF’s RFI, as we have passed the emergency period about three months ago. It is only soon after an accident that a patient needs a blood transfusion, not three months later,” Cabraal said.

He was responding to several queries raised by Leader of Opposition Sajith Premadasa on whether the Government intended to seek funds through the RFI and what measures had been taken to improve the country’s ratings which were downgraded by Moody’s Investor Service recently.

Cabraal said that instead of understanding the economic turnaround as well as awaiting the Budget that was due in November 2020, Moody’s downgrade of Sri Lanka at the beginning of the economic revival was inexplicable, but said the Government would continue to have a dialogue with all rating agencies.

Cabraal said the Government had begun easing importation restrictions and foreign remittances the country had received during the past few months had been higher than expected. “Sri Lanka has been able to earn a considerable amount of funds through IT services during the past months. Hence the situation is going to be brighter than expected,” he said.

He said that Foreign Direct Investments (FDIs) which slowed in the first half of the year appeared promising looking ahead, particularly with the expected inflows to the Port City project and for new manufacturing projects.

“The expected finalisation of new legislation for the Port City within a month will result in the realisation of investment by those who have already completed due diligence on such investment. Other expected investments include import alternative industries as well as investments by international financial institutions,” Cabraal said.

He said that foreign inflows to the Government securities market had already shown signs of resumption and according to initial responses, were likely to increase in the coming months, particularly in the wake of the attractive SWAP arrangement offered by the Sri Lankan authorities.

The exchange rate has appreciated sharply since mid-April and remains stable at appreciated levels, allowing the CBSL to accumulate reserves through market purchases of foreign exchange and following Moody's decision, enabled the Central Bank to purchase $ 30 million from the forex market on 29 September.

Cabraal said during 2020, substantial savings from new debt contracts in domestic financing had been achieved with the significant reduction in interest rates. “Savings in the first eight months from T-bills and T-bonds alone amount to Rs. 115 billion and Rs. 200 billion savings is expected with expected issuances and other public debt contracts.

“Financing inflows envisaged for 2020 favour domestic market and strategic foreign financing with financing from foreign sources to include multilateral (World Bank and Asian Development Bank) and bilateral support expected to be around $ 1.2 billion, syndicate loans of $ 500 million from China Development Bank (CDB) in March 2020 and the second tranche of around $ 700 million in October 2020,” he said.

Alternate bond issuances in Samurai/Panda markets of around $ 500 million and foreign investments in the rupee-denominated Treasury bill/bond market of about $ 500 million are also envisaged, he said.

Among the liquidity facilitation arrangements are the $ 400 million SWAP arrangement with RBI entered into in August and a further $ 1,000 million is under negotiation along with an ongoing Repurchase arrangement with the Federal Reserve Bank of New York.

Cabraal added that recently introduced measures to attract foreign investors to the Government securities market and the real economy through an attractive foreign exchange SWAP arrangement were likely to help attract increased foreign currency inflow, noting that market inquiries were already pouring in for sizeable investment volumes.

Official reserves of the CBSL increased to $ 7.4 billion by the end August 2020. The recently-introduced measures to entice foreign investors to the Government securities market and the real economy through an attractive foreign exchange SWAP arrangement are likely to help enhance foreign currency inflows.

“It seems that the Opposition is enjoying some sinister fun seeing that we are confronting challenges. They may be dreaming to have the last laugh seeing that we are failing to manage the economy. Trust me, we will not give that chance to the Opposition. We will find solutions to these problems and we will prevail,” the State Minister said.


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