Balance of payments under pressure

Sri Lanka could face balance-of-payments pressure due to foreign outflows from government securities, a government document showed, even as the island nation is in the process of raising up to $2.5 billion from foreign borrowing.

The central bank is aiming to tap the international market for up to $1 billion through a syndicated loan and up to $1.5 billion via a sovereign bond.

A document submitted by the Finance Ministry this week for the approval of the sovereign bond said a possible US rate hike, exchange rate volatility, and rising domestic interest rates could induce foreigners to sell government securities “prematurely to minimise any capital losses”.

The total net foreign outflow from the government securities in 2016 was $324.3 million, while offshore investors have sold a net 22 billion rupees ($146 million) worth of securities in January alone, the document seen by Reuters showed.

“If this continues expected level of foreign investment in T-bills and T-bonds would not be materialised,” it said. “As a result, foreign investment in T-bonds and T-bills is expected to be further withdrawn by foreign investors in 2017, creating pressure on the balance of payments by a net foreign currency outflow.”

Finance Minister Ravi Karunanayake said the foreign outflow was mainly due to sell off by a single US-based foreign fund.

The Finance Ministry has said the economy has recovered after facing BOP and debt crisis in 2015 with $1.5 billion loan from the International Monetary Fund (IMF) approved last year. (Reuters)