Central Bank on wrong news item

COLOMBO: It has been brought to the notice of the Central Bank that there is a news item alleging that the Government is planning to borrow a sum of US$ 150 million through Sri Lanka Development Bonds (SLDBs) at exorbitant rates thereby committing a national crime. The Central Bank wishes to make a clarification on this erroneous news item, states a Central Bank press release.

The news item refers to the proposed borrowing of US$ 150 million through SLDBs on 18 August 2006. This is not a new development. The Government borrowed funds by issuing SLDBs for the first time in 2001 and subsequently in 2002, 2004 and 2006. All these borrowings were raised within the Government borrowing limit approved by the Parliament. The proposed issue of SLDBs is also contained within the borrowing limit of the Government in 2006, approved by Parliament.

The purpose of this new issue is partly to rollover the maturing SLDBs issued in 2004 amounting to US$ 50 million which were also rolled over in 2004 and to settle the maturing bonds issued in 2002.

It is important to note that the contributions to SLDBs predominantly come from FCBUs of local and foreign commercial banks. In this manner, by issuing SLDBs, the Government has provided a very safe investment opportunity for NFRC funds and also a good opportunity for those NRFC holders to contribute to the development of the country.

The competitive margins on the recent SLDB issue on 28 June 2006 was significantly lower than the rates offered at the previous SLDB issues. On behalf of the Government, the Central Bank raised US$ 300 million worth of SLDBs on 28 June 2006 at a rate of 6 month LIBOR plus a competitive margin of 130 basis points for 2 years bonds and 6 month LIBOR plus a competitive margin of 140 basis points for 3 year bonds. In the previous issues during 2001-2004, the comparable margins were in the range of 163.5-225 basis points for 2 year maturities. Accordingly, the Government will accept proposed SLDB issues at reasonable rates.

Therefore, the news item that the Government is planning to borrow a sum of US$ 150 million through SLDBs at exorbitant rates thereby committing a national crime is not correct.