According to a research report by JP Morgan, Sri Lanka’s National Savings Bank (NSB), is expected to raise a US $ 1 billion bond to fulfill Government funding needs with several other private banks to follow suit, as the government is not inclined to issue a new dollar bond in 2013.
JP Morgan forecasts that several of the bond issues are likely to hit the market over the next 1 to 2 months, before Sri Lanka faces the United Nations Human Rights Council in March.
According to analysts, it is unlikely that the private sector in the country will have the appetite for the large sums of funds raised from overseas sources, and predicts that majority of the money would likely to be channeled to the government mainly by way of swap arrangements.
However, some analysts are of the view that banks raising dollars through bond issues would mitigate the crowding out effect in the private sector to a certain extent if these funds were drawn by the government through investments in treasury bills and bonds with the forex risk being underwritten by the government until these funds were put in to intended use.
This is particularly important at a time when the total domestic financing of the Budget 2013 is estimated to rise 62 percent Year-on-Year to Rs.421 billion probably due to non-bank borrowings (consisting largely of Treasury bonds and bills) of Rs.289 billion (vs. an avg. of Rs.62bn over the past two years) indicating the government’s desire to rely more on domestic financing to bridge the deficit.