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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ »  Banks seen raising funds for government

Banks seen raising funds for government

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics

The Sri Lankan government appears to be using both state and private sector banks to raise funds on its behalf to fulfill funding needs, without directly accessing international capital markets.

According to a recent research report by JP Morgan, Sri Lanka’s National Savings Bank (NSB), a quasi sovereign is expected to raise issue a US $ 1 billion bond with several other private banks to follow suit, as the government is not inclined to issue a new dollar bond in 2013.

Mirror Business a few days back reported that National Development Bank (NDB), a designated development financier which also carries out operations of normal licensed commercial banks, is planning to raise US $ 250 million via a corporate bond issue shortly.

The Budget 2013 proposed a window for NDB and DFCC, the other designated development financier in the country, to raise long term foreign development finance up to US $ 250 million each, to provide long term funding for Small and Medium Enterprises (SMEs), plantations, construction industry and other manufacturing industries.

President Mahinda Rajapaksa as the country’s Finance Minister stated that the underwriting foreign exchange risk of such bond issues will be borne by the government.

JP Morgan forecasts that several of the bond issues are likely to hit the market over the next 1 to 2 months, before Sri Lanka faces the United Nations Human Rights Council in March.

According to analysts, it is unlikely that the private sector in the country will have the appetite for the large sums of funds raised from overseas sources, and predicts that majority of the money would likely to be channeled to the government mainly by way of swap arrangements.

However, some analysts are of the view that banks raising dollars through bond issues would mitigate the crowding out effect in the private sector to a certain extent if these funds were drawn by the government through investments in treasury bills and bonds with the forex risk being underwritten by the government until these funds were put in to intended use.

This is particularly important at a time when the total domestic financing of the Budget 2013 is estimated to rise 62 percent Year-on-Year to Rs.421 billion probably due to non-bank borrowings (consisting largely of Treasury bonds and bills) of Rs.289 billion (vs. an avg. of Rs.62bn over the past two years) indicating the government’s desire to rely more on domestic financing to bridge the deficit.

Responding to a question raised by Mirror Business,the IMF last week said the achievement of the projected budget deficit of 5.8 percent of GDP for 2013 would be extremely challenging amidst overly optimistic and the falling revenue targets currently at the lowest in the region at 11.5 percent of GDP.

Early part of this month, the government turned down an IMF-follow up program amounting to over US $ 1 billion as a result of IMF’s refusal to provide funds as budget support.
http://www.dailymirror.lk/business/economy/25936-banks-seen-raising-funds-for-government-.html

sriranga

sriranga
Co-Admin

Foreign holdings of Sri Lankan government securities have exceeded the Central Bank’s maximum limit of 12.5 percent of total outstanding Treasury bills and bonds, the monetary authority’s latest data showed on Thursday.

The Central Bank’s latest weekly economic indicators showed total foreign holdings of government securities was at 471.1 billion Sri Lanka rupees ($3.70 billion) as of Feb. 13, which was 13.85 percent of the total 3.4 trillion rupees.

Net foreign buying in government securities increased by 18.7 percent or 74.2 billion rupees ($582.65 million) in the first seven weeks of this year through Feb. 13, the data showed.

Sri Lanka’s central bank has in the past raised the foreign holding limit in government securities when the island nation struggled for foreign inflows to boost reserves and bridge budget deficits.The International Monetary Fund did not agree to a budget support loan last week.

The 2013 budget had planned on borrowing 62 billion rupees through foreign investments in T-bills and T-bonds, to finance a 507.4 billion rupee budget deficit, which is estimated to be reduced to 5.8 percent of gross domestic product this year.

Nandalal Weerasinghe, deputy governor of the central bank, said the central bank has been accommodating foreign investments into T-bonds and T-bills in line with total requirements for 2013.

“As a policy, we haven’t increased the limit. This is due to accommodating huge foreign demand.

The 12.5 percent will be maintained based on the full year,” Weerasinghe told Reuters.

Sri Lanka’s government securities offer an attractive return of around 10 percent annually.

In Mumbai, Central Bank Governor Ajith Nivard Cabraal said on Thursday Sri Lanka was unlikely to relax foreign investment limits in government securities as the current level is appropriate.

The IMF said last week that Sri Lanka’s economy was facing risks of slower growth, high inflation, lower tax revenue and slow structural reforms.

(Source : REUTERS)
http://www.dailymirror.lk/business/economy/25934-foreign-holdings-in-govt-securities-exceed-limit-.html

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