The International Monetary Fund on Tuesday warned Sri Lanka against building foreign currency reserves by borrowing from foreign investors.
Sri Lanka's central bank announced this month that foreign reserves hit a historic high of four billion dollars, sufficient to cover over four months of imports.
"We don't want Sri Lanka to borrow its way to build reserves," head of the IMF mission to Sri Lanka, Brian Aitken told reporters here after a two-week review of the island's economy.
The bank said reserves were boosted by foreign investors buying rupee-denominated treasury bills and bonds and the government selling dollar bonds.
"The central bank has been building a war chest of reserves lately through debt. We would prefer if Sri Lanka built up reserves from exports and from remittances and not by borrowings," Aitken said.
Central bank governor Nivard Cabraal said the bank raised more than 1.2 billion dollars in cash by selling government debt to foreigners.
Sri Lanka's reserves fell to cover just over one month's imports earlier this year as security forces pushed their final offensive against separatist Tamil Tiger rebels.
The island's reserves were also boosted by 322.2 million dollars, the first tranche of a 2.6 billion dollar IMF loan, in July, higher remittances and donor funds for ongoing development work.
The dangerously low reserves earlier this year pushed the Sri Lankan government to ask for the IMF bailout to help stave off its first balance-of-payments deficit in four years.
Colombo's foreign reserve stock depleted last year during the height of the global financial meltdown when foreigners withdrew over 600 million dollars invested in government bills and bonds.
Aitken said it was encouraging that foreigners were back investing in government treasuries, especially long-term bonds.
He said the second tranche of IMF funding was due by the end of October once the fund's executive board approved it.
The Washington-based lender is also re-opening its offices in Colombo in October to keep a close watch on its lending programme there, after shutting down the office in January 2007 when there was no lending to the island.
AFP
Sri Lanka’s 2009 Economic Growth Target Raised by IMF
The International Monetary Fund said it raised Sri Lanka’s growth target and is “cautiously positive” on prospects as it reviews the island’s economy for the release of a second payment in its $2.6 billion aid package.
The Washington-based lender expects growth of 3.5 percent in 2009, up from a July estimate of 3 percent, as the $41 billion economy is showing signs of “bottoming out,” Brian Aitken, the IMF’s Mission Chief for Sri Lanka, said in the capital Colombo today.
“We will assess developments in the next two weeks also and if all goes well will take a decision on seeking approval for the release of the second tranche,” Aitken said.
The IMF aid package approved in July and improved confidence after the end of the island’s 26-year civil war in May have revived investment and driven up foreign-exchange reserves to unprecedented levels. Gross domestic product expanded 2.1 percent in the three months to June 30, the first acceleration in economic growth in four quarters.
Sri Lanka’s reserves rose to over $4 billion, the highest on record, the central bank said on Sept. 14. Reserves have climbed 71 percent in four months and are above the level stipulated in the IMF loan agreement, the bank said Aug. 4.
The IMF provided Sri Lanka with $322 million when approving the 20-month package. Aitken said the second payment would likely be worth about $320 million.
Declining Reserves
Aitken in July said the IMF loan was aimed at helping Sri Lanka avert a balance of payments crisis after foreign-exchange reserves fell to an eight-year low of $1.27 billion in March.
Central Bank Governor Nivard Cabraal, who’s cut benchmark interest rates to a three-year low to support growth, said last month the economy is on the “right track.”
The central bank in July raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent, citing increased investment and reconstruction projects. The IMF expects growth in Sri Lanka’s economy to accelerate in 2010.
In return for the IMF loan, Sri Lanka agreed to reduce its budget deficit to 5 percent of gross domestic product by 2011, from 7 percent this year, and maintain flexibility in the exchange rate in order to build foreign reserves to cover 3 1/2 months of imports and bolster the economy.
Aitken said Sri Lanka’s deficit target for this year was “ambitious” and would require constraints on expenditure while raising revenue with growth.
He said the government’s plan to raise $500 million from dollar-denominated sovereign bonds in overseas markets in October to help fund reconstruction was a “positive development.”
bloomberg
Sri Lanka's central bank announced this month that foreign reserves hit a historic high of four billion dollars, sufficient to cover over four months of imports.
"We don't want Sri Lanka to borrow its way to build reserves," head of the IMF mission to Sri Lanka, Brian Aitken told reporters here after a two-week review of the island's economy.
The bank said reserves were boosted by foreign investors buying rupee-denominated treasury bills and bonds and the government selling dollar bonds.
"The central bank has been building a war chest of reserves lately through debt. We would prefer if Sri Lanka built up reserves from exports and from remittances and not by borrowings," Aitken said.
Central bank governor Nivard Cabraal said the bank raised more than 1.2 billion dollars in cash by selling government debt to foreigners.
Sri Lanka's reserves fell to cover just over one month's imports earlier this year as security forces pushed their final offensive against separatist Tamil Tiger rebels.
The island's reserves were also boosted by 322.2 million dollars, the first tranche of a 2.6 billion dollar IMF loan, in July, higher remittances and donor funds for ongoing development work.
The dangerously low reserves earlier this year pushed the Sri Lankan government to ask for the IMF bailout to help stave off its first balance-of-payments deficit in four years.
Colombo's foreign reserve stock depleted last year during the height of the global financial meltdown when foreigners withdrew over 600 million dollars invested in government bills and bonds.
Aitken said it was encouraging that foreigners were back investing in government treasuries, especially long-term bonds.
He said the second tranche of IMF funding was due by the end of October once the fund's executive board approved it.
The Washington-based lender is also re-opening its offices in Colombo in October to keep a close watch on its lending programme there, after shutting down the office in January 2007 when there was no lending to the island.
AFP
Sri Lanka’s 2009 Economic Growth Target Raised by IMF
The International Monetary Fund said it raised Sri Lanka’s growth target and is “cautiously positive” on prospects as it reviews the island’s economy for the release of a second payment in its $2.6 billion aid package.
The Washington-based lender expects growth of 3.5 percent in 2009, up from a July estimate of 3 percent, as the $41 billion economy is showing signs of “bottoming out,” Brian Aitken, the IMF’s Mission Chief for Sri Lanka, said in the capital Colombo today.
“We will assess developments in the next two weeks also and if all goes well will take a decision on seeking approval for the release of the second tranche,” Aitken said.
The IMF aid package approved in July and improved confidence after the end of the island’s 26-year civil war in May have revived investment and driven up foreign-exchange reserves to unprecedented levels. Gross domestic product expanded 2.1 percent in the three months to June 30, the first acceleration in economic growth in four quarters.
Sri Lanka’s reserves rose to over $4 billion, the highest on record, the central bank said on Sept. 14. Reserves have climbed 71 percent in four months and are above the level stipulated in the IMF loan agreement, the bank said Aug. 4.
The IMF provided Sri Lanka with $322 million when approving the 20-month package. Aitken said the second payment would likely be worth about $320 million.
Declining Reserves
Aitken in July said the IMF loan was aimed at helping Sri Lanka avert a balance of payments crisis after foreign-exchange reserves fell to an eight-year low of $1.27 billion in March.
Central Bank Governor Nivard Cabraal, who’s cut benchmark interest rates to a three-year low to support growth, said last month the economy is on the “right track.”
The central bank in July raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent, citing increased investment and reconstruction projects. The IMF expects growth in Sri Lanka’s economy to accelerate in 2010.
In return for the IMF loan, Sri Lanka agreed to reduce its budget deficit to 5 percent of gross domestic product by 2011, from 7 percent this year, and maintain flexibility in the exchange rate in order to build foreign reserves to cover 3 1/2 months of imports and bolster the economy.
Aitken said Sri Lanka’s deficit target for this year was “ambitious” and would require constraints on expenditure while raising revenue with growth.
He said the government’s plan to raise $500 million from dollar-denominated sovereign bonds in overseas markets in October to help fund reconstruction was a “positive development.”
bloomberg
