Sri Lanka’s central bank says debt deals, land and sale of power plants underway
ECONOMYNEXT – The central bank of Sri Lanka has said that several lines of credit, land sales and the sale of a stake in a power plant are underway.
Meanwhile, the central bank has lifted price controls in bond markets, allowing money to be raised from real investors instead of being printed by central banks.
“In the domestic market, government bond yields have been allowed to adjust upward, easing pressure on the central bank to finance the government’s financing needs,” the central bank said.
“Investor behavior at weekly auctions indicates that market equilibrium has been achieved to a large extent, and greater stability in interest rates is likely to be observed in the coming period.”
A country with a soft-peg (now called a flexible exchange rate) can lose foreign exchange reserves and default on its external debt when the central bank purchases bonds and inserts rupee reserves into the banking system through bond purchases, either to finance the deficit or to sterilize interventions.
“The expected proceeds from the two transactions involving the Chalmers Granaries and the property behind One Galle Face alone amount to around $ 200 million, and a prepayment is expected shortly,” the central bank said.
“Details of the investment will be announced in the coming weeks.”
The sale of a stake in a power plant to New Fortress Energy, a US-based company under an unsolicited deal, is also expected shortly.
“Another key foreign investment that would transform the energy sector in Sri Lanka with the addition of LNG to the energy mix is the inflow of US $ 250 million in connection with a partial divestiture of the West Coast power plant. to US New Fortress Energy, and the first tranche of the investment is expected in November / December 2021.
The deal, however, is expected to be tied to a major unsolicited LNG supply contract that has sparked controversy.
The full statement is reproduced below:
Progress in securing foreign currency inflows as announced in the six-month roadmap to ensure the stability of the macroeconomic and financial system
The Central Bank of Sri Lanka (CBSL) would like to provide the following information to investors and the general public on the progress made by CBSL and the government in securing foreign currency inflows, as announced in the six-month roadmap to ensure macroeconomic and financial security System stability.
CBSL and the government have entered into a series of direct engagements with other governments, central banks, financial institutions and investors.
Several Memoranda of Understanding (MOU) have been concluded in relation to development projects in line with the initiative of monetization of underutilized and / or non-strategic assets.
The expected proceeds from the two transactions involving the Chalmers Granaries and the property behind One Galle Face alone amount to around US $ 200 million, and a prepayment is expected shortly. Details of the investment will be announced in the coming weeks.
In addition, the investment of 650 million US dollars in the West container terminal by the Indian group Adani, John Keells Holdings as a Sri Lankan counterpart and the Sri Lanka Ports Authority has just been finalized.
Another key foreign investment that would transform the energy sector in Sri Lanka with the addition of LNG to the energy mix is the inflow of US $ 250 million in connection with a partial divestiture of the West Coast power plant to US New Fortress Energy, and the first tranche of the investment is expected in November / December 2021.
Negotiations are also underway to speed up the finalization of currency swap agreements with neighboring central banks. Specifically, discussions are underway with the Reserve Bank of India, the People’s Bank of China and several central banks in the Middle East.
Meanwhile, the government is processing a US $ 1.5 billion long-term loan offer from an agency affiliated with a foreign government. In response to requests for proposals (RFPs) for government syndicated loan agreements, several proposals were also received, which are currently being processed.
Other areas that have shown notable progress in recent times include:
a) Exports, which exceeded USD 1 billion in monthly revenue between June and September 2021, as well as the notable improvement in repatriation and conversion of export earnings during the month of October 2021
b) Rapid increase in labor migration, especially to the Middle East
c) Continuation of the tourism recovery process with a notable increase in arrivals from month to month, and
d) Ongoing negotiations on oil-related lines of credit in the Middle East and other regional economies. These include a US $ 500 million Indian line of credit and an approximately US $ 3.6 billion long-term loan facility under negotiation.
In the domestic market, government bond yields have been allowed to adjust upward, easing pressure on the central bank to finance the government’s financing needs.
The behavior of investors during weekly auctions indicates that market equilibrium has been largely reached and that greater stability in interest rates should be observed in the coming period.
Domestic investment in the real sector has resumed, as evidenced by the behavior of the stock market as well as the flow of credit to the private sector. The All Share Price Index (ASPI) has passed the 10,000 mark for the first time in history. The increase in credit to the private sector by licensed commercial banks amounted to Rs. 625 billion in the eight months ending August 2021.
These developments also indicate that economic growth close to 5% in 2021 is very likely.