Following IMF approval announcement :

Excellent response from foreign investors

Charumini de Silva

“There was an excellent response from foreign investors, soon after the IMF approval announcement. The debt market, treasury bills and treasury bond markets have responded outstandingly, the stock market has also shown a great response”, Governor of the Central Bank, Ajith Nivard Cabraal told Daily News Business.

Q: Since we got the approval for the IMF Stand-by facility, will Sri Lanka get the same response for the Libyan loan?

A: With regard to the Libyan loan we are still in the process of consultation. Libya was the plan B if the IMF loan did not materialize and we would have activated that effectively. At the same time we still want to continue the relationship with Libya and work with them towards having a reasonable investment.

Q: Does Sri Lanka need to go for another facility similar to the IMF Standby facility?

A: This is a facility that is designed to take Sri Lanka to the next decade. We are very comfortable and we would be able to stabilize the economy, even it grows a lot more.

We are looking at the long-term stabilization measures and President Mahinda Rajapaksa is putting those stabilization measures into place. What we are doing now is to lay the foundation for the next ten years and this is one of the key platforms of that foundation.

Going for another facility such as the IMF is not necessary.

Q: What kind of a response did you get from foreign investors soon after Sri Lanka got the approval from the IMF?

A: We saw an excellent response from foreign investors, soon after the IMF approval announcement.

The debt market, treasury bills and treasury bond markets have responded outstandingly, the stock market has also shown a great response. So, we are quite happy with the way it has worked out and we anticipated this response and this would have an impact.

One of the reasons why we worked towards that was because we wanted to give a boost to economy. One major boost came with the end of the conflict and the other major boost has now come in.

We are confident that these factors will provide Sri Lanka the impetus and the momentum for the economy to grow and stabilize very well in the future.

Q: Is there an increase in the number of foreign investors?

A: The actual investment inflow will commence towards the latter part of this year and by the middle of 2010, because when people invest they will have many inquiries in the first stage and at present the number of inquiries is rising steadily.

In the mean time, we will see private remittances boosting the economy. The impact on the money market will have an overall reduction and we will have very liberal credit with greater confidence.

Q: Will the IMF monitor fund utilization?

A: The IMF will not monitor the fund utilization but they will be monitoring us, because the fund is with the Central Bank of Sri Lanka (CBSL) and they are confident of the CBSL’s safeguard systems.

There are certain features and we have already published them. The country has a clear economic path and the IMF has also accepted the Government’s program since it is well accepted.

The entire board of the IMF satisfied with the progress Sri Lanka has made in this very difficult circumstance. The last nine months especially have been extremely difficult, but Sri Lanka has come through in an extraordinary manner. Money is just one thing. The fact is that the international community of the entire world has said that Sri Lanka is on the right path.

We are very pleased to have this recognition, which is even more important than the money.

Q: How will be the loan disbursement be done?

A: The loan disbursement will be done in eight trenches.

The first one has already been received. The next one is due in September and the third in November with US$320 million each within this year.

In 2010 we are scheduled to receive four further trenches and the last one will be in 2011.

The repayment of this loan will commence in 2012 and it will be over four years.

Q: How will the Central Bank repay the IMF loan?

A: When we got the loan it added to our reserves and while it is with us it helps us to accumulate new reserves as well and that is important. In addition to the IMF money, Sri Lanka will also have more money coming in.

By the time of the repayment we will have more reserves as well and this will not have too much of an impact on our total numbers. That is how it has been designed.

The debt sustainability is normally measured by debt to the GDP ratio and how much of their debt repayments fall due. The debt repayment due in future years as a percentage of your exporting count are the different indicators that are being used in the world by general standards to determine whether a country is sustainable in its debts. In all those indicators Sri Lanka comes out well.

As a result, there is no risk and we have been able to have a clear debt sustainability path. In 2002 Sri Lanka’s debt to the GDP ratio was as high as 103 percent and we brought it down to 81 percent last year.

We had planned to bring down the debt sustainability to get in line with the international community. At present we are very much ahead of many other advanced countries that have much greater debt to GDP ratios. Hence we won’t have any risk for our repayments.

Q: What was the response of the road show?

A: It was a non-deal road show and the response was very good. Everybody was excited about Sri Lanka’s performance. The fact is that Sri Lanka was able to eradicate terrorism. Everyone was very optimistic and keen to be a part of Sri Lanka and at any time Sri Lanka goes into a market at any stage investors will respond quite well.

Q: What is the target for 2009?

A: We are targeting a growth of 3.5 percent this year, which I believe is achievable.

The first few months were a bit weak, but we hope that we will be able to catch up in the next few months. The Northern and Eastern provinces are also coming into the main stream of economic activities and that will also help the North to contribute positively towards economic development.

Putting all these factors together we think that the monetary policy has been put in place is a bit relaxed and the interest rates have come down. There is a 50 percent drop in interest rates and there is more space for economic activities. We will feel the difference particularly in the fourth quarter.

We are also confident that the tourism industry will pick up. The Tourism Ministry will launch programs, which will encourage the Sri Lankan diaspora to visit Sri Lanka. There are two million Sri Lankans abroad and if 10 percent of them visit Sri Lanka there will be more economic activity. We are looking forward to this type of resurgence.

Q: Is there anything else that you wish to elaborate on?

A: This is the time for all of us to get down and work. If we were not successful all these years we had an excuse.

The Government has clearly shown that even with the war development can take place.

All major projects were launched while the conflict raged. Today the conflict is over and the Government will continue its investment program. The private sector must also start their own economic activities. If that happens the take off will be much faster than we could imagine and we are very keen to see that progress.