By Anusha Ondaatjie & V. Ramakrishnan - Feb 7, 2013 12:00 AM GMT+0530
Sri
Lanka is encouraging lenders and companies to borrow in foreign currencies in
2013 as it seeks to revive economic growth from the slowest pace in three
years, Central Bank Governor Ajith
Nivard Cabraal
said.
One
state bank is already preparing to sell international bonds guaranteed by the
government as part of a plan to tap overseas capital markets to supplement
domestic savings and fund expansion, he said in an interview in his Colombo
office on Feb. 5. Policy makers are aiming for a 7.5 percent increase in gross
domestic product this year, compared
with an estimated 6.8 percent last year that would be the slowest since 2009.
“We
are looking at expansion of the economy so we don’t fall into the middle-income
trap,” said Cabraal. “We have identified that, for the growth momentum we are
looking at, we need to have a certain quantum of savings. That quantum of
savings is certainly not going to materialize locally.”
The
island nation’s economy grew an average 8.5 percent annually in the two years
after the end of a civil war in 2009, before decelerating in 2012 as a global
slowdown hurt the nation’s exports. Sri Lanka’s government sold $1 billion of
10- year dollar-denominated bonds last year at a record-low yield, which was
its fourth global offering since the three-decade old conflict came to an end.
The
Bank of Ceylon, People’s Bank and National Savings Bank are the three biggest
state-owned banks in Sri Lanka.
“We
have upfront stated the sovereign won’t be moving into the markets this year,”
said Cabraal. “So we provide the entire space to the corporates as well as the
banks.”
Debt Ratings
The
government sold dollar bonds due July 2022 at 5.875 percent in 2012, lower than
an initial guidance of 6.125 percent and the 6.25 percent rate it paid on
similar-dated debt a year earlier. Standard & Poor’s rates the notes B+ and
Moody’s Investors Service ranks them B1, both four steps below investment
grade.
“Debt
investors have locked in rates which suggest their perception is much better
than our ratings would suggest,” said Cabraal, adding policy makers are
stepping up efforts to almost double the size of the economy to $100 billion in
three years. “Although there is very good response, our credit rating is not as
high as we would like it to be.”
The
yield on Sri Lanka’s 2022 securities climbed 29 basis points, or 0.29
percentage point, this year to 5.26 percent, according to data compiled by
Bloomberg. The average yield on Asian dollar debt added 31 basis points in the
same period to 3.73 percent, according to HSBC Holdings Plc data.
IMF Loan
Local
lenders raised $973 million in long-term dollar loans in the first 11 months of
2012, according to central bank data. Sri Lanka, which last year received the
final tranche of a $2.6 billion loan from the International Monetary Fund, is
in talks for a so-called extended fund facility.
“Our
preference will be that we would have an area of budget support which certainly
would be cheaper than if we go to the markets,” said Cabraal.
The
governor said the outlook for the nation’s monetary policy has turned “dovish” as
the pace of consumer-price gains is expected to slow to “mid-single digits” by
the end of 2013. Sri Lanka’s inflation was 9.8 percent last month, the highest
among 17 Asia-Pacific economies tracked by Bloomberg. Cabraal kept interest
rates unchanged at a January review after cutting them by a quarter percentage
point in December.
“We
don’t want to have a yo-yo effect in our policy and want to manage it in a
steady manner,” said Cabraal. “The overall view is that this is a time to relax
policy. We will make a careful call on the timing.”
