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Expansion in net foreign assets

There is an expansion in net foreign assets of the Central Bank. The balance of payments (BOP), which constitutes the Net Foreign Assets (NFA) component in reserve money is projected to record a surplus of US$700mn in 2010, Central Bank Governor Ajith Nivard Cabraal said at the Central Bank, Conference Hall recently.

The Central Bank

Making a presentation on Monetary and Financial Sector Policies for 2010, he said this surplus is due to several reasons.

The higher performance in the service account with an increase in inflows on account of transportation, travel and IT related services, and the expected recovery in the tourism sector, the higher remittances due to the end to the internal conflict and widened banking facilities mainly in liberated areas, and the higher capital inflows in terms of foreign direct investment, loan capital to the private sector, and portfolio investments with the expected global economic recovery are the main reasons for this surplus.

The increased foreign loan and grant disbursements to the Government with the effective and early implementation of projects also helped the Governor said. Cabraal said the main source of expansion in broad money is the combined outcome of an increase in both the NFA and the NDA of the banking system, which includes both the Central Bank and the commercial banks.

The NFA is expected to increase due to the surplus in the balance of payments and the NDA including net credit to the Government, credit to public corporations and credit to the private sector, is expected to increase in 2010.

Referring to the contraction in net domestic assets of the Central Bank he said that although the provisional advances to the Government by the Central Bank may increase by Rs 12 bn, a significant increase in holdings of Treasury Bills is not expected in 2010.

 

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