‘SL bonds held in high esteem in int’l capital market’

Indunil Hewage

Sri Lanka has improved investor sentiments with regard to government bonds traded in the international capital market, said Central Bank Deputy Governor Dr Nandalal Weerasinghe in an interview with Daily News Business.

He said Sri Lankan government bonds were been traded in the international capital market at a rate of 5 % in comparison to 8-7 % interest rates that Sri Lanka raised in the past. The international community had placed their confidence in Sri Lanka’s growth story and investors were willing to lend us at a lower rate; which is a clear indication that the country was improving its yields in international capital market.

The Central Bank needs to make sure that overall macro economic fundamentals were strong to support desired level of economic growth in the country. In Sri Lanka, domestic savings were still not sufficient to finance the level of investments in the country. Domestic savings including foreign remittance were calculated at 25% of GDP. If the country needs to support the 7.2% of economic growth this year; investments to GDP has to be around 30-31% . Accordingly, we have a saving investment gap of at least 5-6 %. Consequently, Sri Lanka has to borrow money from external sources in terms of FDIs, commercial borrowings, portfolio investments to fill the saving investment gap in the country.

When asked whether Sri Lanka would have to rely on high interest rate loans from international donor agencies in the future, Dr Weerasinghe said that Sri Lanka had graduated from low income level status to a middle income level status in 2010. Once the country is elevated to a middle income level status, it was no longer eligible for same quantum of concessional financing from all other multilateral agencies as well as from bi-lateral governments.

“We have to remember that all concessional loans are only given to low income countries. Toady investors are willing to lend money at a rate of 5 % which is obviously higher than the rates of concessional financial loans. The recent budget has also allowed the private sector as well as the banking sectors to go for external borrowings in a bid to fill the investment gap and to supplement the desired level of economic growth in the country.