By Ishara Gamage

Sri Lanka is waiting for the opportune moment to sell up to US$ 2 billion International Sovereign Bonds in 2018, a top Central Bank of Sri Lanka (CBSL) official told Ceylon FT.
“We already selected five (after completion of the tender procedure) lead Managers/Book Runners to the proposed issue. With Cabinet approval for the selected parties, we are ready to tap into international capital markets, most probably as early as next month”, he said.

The Banks are Citigroup, Deutsche Bank, HSBC, Standard Chartered Bank and Morgan Stanley who have direct knowledge of the deal, told Ceylon FT.

“However, the selected parties currently evaluating the global market conditions which were tough at the moment with the signs of robust recovery in advanced economies”, official said.
US Treasury Bills rose almost 60 basis points in the recent past.

According to international Media reports, the recently-appointed chair of the Federal Reserve, Jerome Powell is set to address Congress on Tuesday (yesterday), and is set to shed light on the current state of the US economy and monetary policy.
“Global Market-watchers will closely watch the testimony to see if Powell provides any calm on the recent tug-of-war seen between Bonds and equities as higher interest rates continue to shake up sentiment. His testimony will be worth watching for markets in the US and overseas,” international Media reported yesterday.

The proposed Sovereign Bond issue is to be Sri Lanka’s 12th US dollar ($) benchmark offering in the international Bond markets since 2007.
This will be the first attempt in Sri Lanka’s series of international fund arrangements scheduled for this year, as per the recently gazetted Active Liability Management Bill.
The Bill authorizes the raising of loans in or outside Sri Lanka for the purpose of Active Liability Management to improve public debt management in Sri Lanka.

“Despite opposing views and the recent Court procedures against the proposed Act, it is vital to get parliamentary approval as soon as possible for the Bill to reduce the national debt burden under more favourable market conditions”, the official said.
Sri Lanka has several large external debt repayments due between 2019 and 2022, and this proposed Act will provide a required pre-financing authority to settle upcoming debt maturities.

This Bill will provide the required legal provisions for the Government to exceed the annual approved statutory Budget borrowing limits for the refinancing and pre-financing of the Government’s public debts.
Therefore, it will provide the required legal provisions to raise an additional out-of-Budget borrowing of up to 10% of the total outstanding national debt as a loan at the end of the preceding financial year, whether in or outside Sri Lanka.
Currently, Sri Lanka’s total national debt stock value is equal to Rs 10 trillion, while the 2018 Budget will limit this year’s statutory borrowing requirements up to Rs 1.9 trillion.

The objective of this Act is to manage public debt, ensuring the Government’s financing needs and payment obligations are met at the lowest possible cost over the medium- to long-term, consistent with a prudent degree of risk.
Sri Lanka’s Foreign Reserves recovered at comfortable levels, supported by heavy inflows through a US$ 1.5 billion Sovereign Bond issue in May 2017, the Hambantota Port Sale, the Central Bank’s dollar buying process and net inflows into the Equity and Government Securities market. The Central Bank also completed a US$ 1 billion syndicated loan in two tranches.
However, analysts warned that growing imports have resulted in an increase in the minimum amount of reserves required (four months of imports) to US$ 7 billion. Further foreign reserve accumulation will need to continue amidst the continuous rise in foreign debt payments and balance of trade deficit.

Sri Lanka’s debt-to-GDP ratio reached 80 per cent in 2017. However, economists predicted that with the support of large equity investments led by Private-Public-Partnership deals, the debt level will begin to reduce to 78 per cent in 2018 and continue to decline.

“Sri Lanka will expect double-digit (10billion dollar) reserves this year with the flows from asset leasing and some divestment from state assets,” Governor of the Central Bank, Dr. Indrajit Coomaraswamy said recently.
The International Monetary Fund (IMF) urged CBSL to rebuild foreign reserves while maintaining exchange rate flexibility.