Sri Lanka's exposure to foreign exchange risk has significantly declined as the island nation's net external commercial debt has declined by $255 million, the central bank said on Tuesday.
The government's external commercial net debt stock has declined by around 27.5 percent to a total of $673 million in both external foreign currency commercial loans and foreign investments in securities, the central bank said in a statement.
The central bank comments come after Standard & Poor's Ratings Services lowered Sri Lanka's sovereign rating from B-plus to B on Dec. 15, five notches below investment grade, on declining foreign currency reserves and a high fiscal deficit.
The International Monetary Fund (IMF), last month noted the risks in public debt distress arising from the increasing reliance on dollar-denominated, short-term commercial debts.
"The government's external commercial net debt liabilities stock has declined by about $255 million during the year 2008, thereby substantially reducing the government's exposure to foreign exchange risk," the central bank said.
The government has borrowed $150 million in foreign currency commercial loans this year, while it has paid $175 million and reducing the net borrowing to $460 million, the statement said.
Foreign investment in rupee denominated securities has fallen by around 48 percent to $213 million from a year earlier, the bank said.
But analysts said the country badly needs foreign currency.
DESPERATE FOR DOLLARS?
"The government is desperate for dollars," said an analyst on condition of anonymity in line with his organisation's policy.
"The central bank wasted $1.1 billion in just two months to protect the rupee from the reserves, while now they are trying to save dollars. Why should it save dollars with all efforts, if the government's forex risk is significantly reduced?"
Foreign currency reserves fell around a third to $2.37 billion by end-October, enough to cover only 2 months of imports from the end of August, after heavy defence of the rupee. Economists estimate they fell to $1.9 billion last month.
The central bank by allowing limited and gradual depreciation of the rupee since Oct. 30, has permitted it to fall around 5 percent citing export competitiveness.
The rupee hit an all time low of 113.80/114.00 on Monday, but recovered a little on Tuesday as the central bank ordered commercial banks to reduce their net long dollar positions. [nCOL271192].
The central bank has already imposed several measures to cut down non-essential imports to preserve dollars.
Analysts say the central bank is letting the rupee fall because the International Monetary Fund would demand a weaker currency as a condition of any financial assistance. However, the central bank said last week there was no such move.
With a hefty trade deficit, slowing export growth, declining worker remittances due to job cuts in rest of the world in the face of global recession, analysts say Sri Lanka's options to attract more dollars in future would be limited.
The central bank has already admitted that securing foreign loans has become very difficult in the present financial crisis.
The central bank has said it could have a balance of payments deficit in 2008 after some of planned borrowings failed to materialise due to global financial turmoil.
reuters
The government's external commercial net debt stock has declined by around 27.5 percent to a total of $673 million in both external foreign currency commercial loans and foreign investments in securities, the central bank said in a statement.
The central bank comments come after Standard & Poor's Ratings Services lowered Sri Lanka's sovereign rating from B-plus to B on Dec. 15, five notches below investment grade, on declining foreign currency reserves and a high fiscal deficit.
The International Monetary Fund (IMF), last month noted the risks in public debt distress arising from the increasing reliance on dollar-denominated, short-term commercial debts.
"The government's external commercial net debt liabilities stock has declined by about $255 million during the year 2008, thereby substantially reducing the government's exposure to foreign exchange risk," the central bank said.
The government has borrowed $150 million in foreign currency commercial loans this year, while it has paid $175 million and reducing the net borrowing to $460 million, the statement said.
Foreign investment in rupee denominated securities has fallen by around 48 percent to $213 million from a year earlier, the bank said.
But analysts said the country badly needs foreign currency.
DESPERATE FOR DOLLARS?
"The government is desperate for dollars," said an analyst on condition of anonymity in line with his organisation's policy.
"The central bank wasted $1.1 billion in just two months to protect the rupee from the reserves, while now they are trying to save dollars. Why should it save dollars with all efforts, if the government's forex risk is significantly reduced?"
Foreign currency reserves fell around a third to $2.37 billion by end-October, enough to cover only 2 months of imports from the end of August, after heavy defence of the rupee. Economists estimate they fell to $1.9 billion last month.
The central bank by allowing limited and gradual depreciation of the rupee since Oct. 30, has permitted it to fall around 5 percent citing export competitiveness.
The rupee hit an all time low of 113.80/114.00 on Monday, but recovered a little on Tuesday as the central bank ordered commercial banks to reduce their net long dollar positions. [nCOL271192].
The central bank has already imposed several measures to cut down non-essential imports to preserve dollars.
Analysts say the central bank is letting the rupee fall because the International Monetary Fund would demand a weaker currency as a condition of any financial assistance. However, the central bank said last week there was no such move.
With a hefty trade deficit, slowing export growth, declining worker remittances due to job cuts in rest of the world in the face of global recession, analysts say Sri Lanka's options to attract more dollars in future would be limited.
The central bank has already admitted that securing foreign loans has become very difficult in the present financial crisis.
The central bank has said it could have a balance of payments deficit in 2008 after some of planned borrowings failed to materialise due to global financial turmoil.
reuters
