Govt. borrows Rs 150 Billion

By Paneetha Ameresekere - Ceylon Today

Government and State Corporation local bank borrowings increased by Rs 149.7 billion or 9% to Rs 1.8 trillion as at end October on a year on year basis, latest Central Bank of Sri Lanka data showed.Market sources told Ceylon Today that among the reasons for such increases were new employment opportunities provided in these two sectors, which have upped their costs, coupled with having to take bank loans to make loss making institutions, such as the CPC, CEB, Railway and the SLTB which operate under this sector, functional.

Meanwhile, Government of Sri Lanka's (GoSL's) foreign debt servicing commitments in the 11-month period, ending October 2015, is envisaged to increase by US$ 1.2 billion or by 21% to US$ 6.9 billion, latest Central Bank of Sri Lanka (CBSL) data showed.

In the 12 months to November 2014, such commitments were envisaged to have been US$ 5.7 billion, according to CBSL.
This increase is equivalent to two thirds of Sri Lanka's tourism earnings in the first 10 months of the current year, which, according to CBSL, was US $ 1.8 billion. Matters are made worse when considering the fact that Sri Lanka's trade deficit, in the first 10 months of the current year, increased by 4.3% year on year to US$ 6.9 billion.

Market sources told Ceylon Today that the problem Sri Lanka is facing is the drying up of concessional loans and grants from its traditional friends, the West and Japan, and agencies controlled by them, such as the World Bank, ADB, and the IMF, due to the country's belligerent attitude towards them, vis-à-vis human rights allegations and the island veering closer towards China and Russia at the expense of its aforesaid traditional friends, which do not see eye-to-eye with Sri Lanka's new friends.
To tide over this crisis, the country is expected to raise five-year money worth US$ 1.5 billion at commercial rates from international markets next month.

They further said, Sri Lanka's external economic sector is further jeopardized by foreign funds which have invested in the government securities market (GSM) exiting from the same due to the uncertain political environment besetting the island.
Records showed that in the 15-week period to Wednesday (10 December), foreign funds to the value of Rs 46.9 billion had had exited from the GSM. This is equivalent to US$ 356 million on the basis that the current administered spot price is Rs 131.55/65 in two-way quotes to the dollar.

"There are more such exits to come in the coming days," sources said.
Such exits have had caused further pressure on CBSL's foreign reserves and also on the exchange rate (rupee). Latest records showed that CBSL's foreign currency reserves in the two-month period ended 31 October declined by US$ 304 million to US$ 7.8 billion.

Meanwhile, in the 15 week period to date, the rupee, vis-à-vis the dollar, has depreciated by 1%-1.4% (Rs 1.27-Rs 1.80) to Rs 131.90/132.00 in "spot next next" trades, thereby making imports more expensive to the consumer, made worse by the fact that Sri Lanka is an import dependent economy, even having to import its staple food, rice.
CBSL by a mix of moral suasion and offering dollars at discounted (administered spot) prices from its foreign currency reserves, is preventing the rupee from depreciating further.

Sources said if CBSL lets go of protecting the rupee, it would depreciate and settle down at the
Rs 134 level, a depreciation of between 1.5%-1.6% (Rs 2.00-Rs.2.10) from its current administered prices.