Sri Lanka Treasuries yields flat

ECONOMYNEXT - Sri Lanka's Treasuries yields were flat at Wednesday's auction with Rs13.39 billion of bills sold, data from the state debt office showed, against an estimated Rs31.6 billion of maturing bills.

The three-month yield edged up 2 basis points to 8.82 percent with Rs1.6 billion of bills sold and the six-month yield rose 01 basis point to 9.76 percent with Rs9.6 billion of bills sold.

The 12-month yield also rose 1 basis point to 10.53 percent with Rs2.0 billion of bills sold.

This week an estimated Rs31.6 billion of bills are maturing.

It is not clear whether the balance bills were already held by the Central Bank. If the bills are already held by the Central Bank, rolling over them will not add new rupee reserves to the banking system and drive credit and imports up.

Over the past year, the Central Bank printed over Rs200 billion to generate a balance of payments crisis and bust the currency. Its bill holding was Rs448 billion as of this week.

Last week, after 'squaring up' day, the Central Bank's bill holding rose to Rs248 billion on June 1, from Rs222 billion as banks borrowed from its overnight window.

Market participants have borrowed Rs21.6 billion from the overnight printed money window, but plus liquidity banks have deposited Rs35.7 billion in the excess liquidity window as of yesterday.

The Central Bank in the past has generated balance of payments trouble by permanently accommodating liquidity shortages by bill purchases at the auction.

Sri Lankan shares end steady; turnover slumps to over 2-1/2 mth low

Reuters: Sri Lankan shares closed steady on Wednesday as positive sentiment after an IMF loan approval was offset by concerns over rising interest rates and foreign fund outflows.

Turnover was 390.8 million rupees ($2.68 million), the lowest since March 19, and nearly half of this year's daily average of around 782.5 million rupees.

The benchmark Colombo stock index ended 0.03 percent higher at 6,526.12.

"We don't expect a lot until the interest rates are down," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

Treasury bill yields have risen between 16 and 36 basis points to near three-year highs in the last three weekly auctions through Wednesday despite the central bank leaving key policy rates steady for a third straight month on May 20.

The International Monetary Fund's (IMF) executive board approved a three-year $1.5 billion loan to support Sri Lanka's economic reform agenda, the global lender said on Saturday.

Investors are concerned about foreign outflows, with overseas investors offloading a net 38.2 million rupees worth of shares on Wednesday, extending the year-to-date net foreign outflow to 5.7 billion rupees.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate (AWPR) edged up 8 basis points to 10.23 percent in the week ended June 3.

Ceylon Cold Stores Plc rose 1.90 percent, Ceylon Tobacco Company Plc gained 0.91 percent, Sri Lanka Telecom Plc added 0.76 percent, while conglomerate John Keells Holdings Plc increased 0.32 percent. 

($1 = 145.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Sri Lanka appoints four foreign banks as lead managers for eurobond

COLOMBO, June 7 (Reuters) - Sri Lanka, which last month announced plans to raise $1.5 billion from the sale of a 10-year sovereign bond, has mandated four foreign banks as lead managers, Finance Minister Ravi Karunanayake said on Tuesday.

The banks are Citigroup, Deutsche Bank, HSBC and Standard Chartered, Karunanayake told Reuters.

"We have mandated the same banks we did last year and we are looking at the maximum we can go," he added.

The funds raised will be used to fund a budget gap and reschedule some expensive short-term loans, the government has earlier said.

Chinese visitors to Sri Lanka up 32-pct in May

ECONOMYNEXT – China remains Sri Lanka’s fastest growing tourism market with the number of visitors up 31.5% to 16,004 in May 2016 from a year ago, tourism office statistics show.

The number of Chinese tourists visiting the island, including those from Hong Kong, were up 42.7% to 112,890 in the five months to may 2016 from the same period last year, the fastest growth of all tourism markets.

Total tourist arrivals rose 10.1% in May 2016 from the year before with arrivals up 18.4% in the January-May period.

India remains the biggest source of visitors, up 7.9% to 34,259 in May 2016 from a year ago and up 21.9% in the five months to May.

Arrivals from traditional markets like the United Kingdom, Germany and France also showed double-digit growth rates in the five month period but visitors from Russia fell.

Sri Lankan shares edge up; rising interest rates weigh

Reuters: Sri Lankan shares ended slightly firmer on Tuesday, rising for the first time in seven sessions on positive sentiment after an IMF loan approval, but concerns over rising interest rates and foreign outflows dented sentiment.

Turnover was low at 596.6 million rupees ($4.10 million), well below this year's daily average of around 786.3 million rupees.

The International Monetary Fund's (IMF) executive board approved a three-year $1.5 billion loan to support Sri Lanka's economic reform agenda, the global lender said on Saturday.

The benchmark Colombo stock index ended 0.08 percent up at 6,524. It declined 0.8 percent last week, losing for the third straight week after gaining six consecutive weeks.

"We believe the market will start moving up. But it will take time since the net foreign numbers are not that good," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

"Investors are still cautious about interest rates."

Treasury bill yields rose between 4 and 35 basis points to near three-year highs in the last two weekly auctions through Wednesday despite the central bank leaving key policy rates steady for a third straight month on May 20.

Investors are concerned about foreign outflows, with overseas investors offloading a net 25.5 million rupees worth of shares on Tuesday, extending the year-to-date net foreign outflow to 5.66 billion rupees.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate (AWPR) edged up 8 basis points to 10.23 percent in the week ended June 3.

Shares of Bukit Darah Plc jumped 3.98 percent while shares of John Keells Holding Plc rose 0.19, pushing up the overall index.

Shares in biggest listed lender Commercial Bank of Ceylon Plc rose 0.55 percent.

($1 = 145.6500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

Sri Lankan shares end steady; rising interest rates weigh

Reuters: Sri Lankan shares ended steady on Monday as concerns over rising interest rates and foreign outflows erased early gains from positive sentiment after an IMF loan approval.

Turnover was very low at 476.2 million rupees, well below this year's daily average of around 788 million rupees.

The International Monetary Fund's (IMF) executive board has approved a three-year $1.5 billion loan to support Sri Lanka's economic reform agenda, the global lender said on Saturday.

The benchmark Colombo stock index, which gained 0.46 percent in early trade, ended flat at 6,518.98. It declined 0.8 percent last week, losing for the third straight week after gaining six consecutive weeks.

Treasury bill yields rose between 4 and 35 basis points to near three-year highs in the last two weekly auctions through Wednesday despite the central bank leaving key policy rates steady for a third straight month on May 20.

"Market was up in the morning due to the IMF news," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

"With high interest rates, investors are still on a wait and see approach and the biggest issue is the foreign outflow."

Investors are concerned about foreign outflows, with overseas investors offloading a net 92.3 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 5.64 billion rupees.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate (AWPR) edged up 8 basis points to 10.23 percent in the week ended June 3.

Shares of Lion Brewery Plc fell 5.85 percent while shares of John Keells Holding Plc fell 0.19, dragging the overall index. 

($1 = 146.8000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

Reform or relapse IMF warns SL with $ 1.5 b cash

Urgent reforms for revival of an economy showing signs of strain is the emphatic message from the International Monetary Fund (IMF) for Sri Lanka with the former’s approval of $ 1.5 billion cash support under a three year program.

The IMF’s Executive Board on Saturday approved a 36-month extended arrangement under the Extended Fund Facility (EFF) with Sri Lanka for an amount equivalent to SDR 1.1 billion (about US$1.5 billion, or 185% of quota) to support the country’s economic reform agenda.

The decision by the Government to seek an EFF from the IMF stemmed from both external and domestic developments.

The IMF said the arrangement aims to meet balance of payments needs arising from a deteriorating external environment and pressures that may persist until macroeconomic policies can be adjusted. It is also expected to catalyze an additional US$650 million in other multilateral and bilateral loans, bringing total support to about $2.2 billion (over and above existing financing arrangements).

The IMF Executive Board’s decision will enable an immediate disbursement of SDR 119.894 million (about US$ 168.1 million), and the remainder will be available in 6 instalments subject to quarterly reviews.

The Central Bank said the interest rate applicable on the EFF, the basic rate of charge is equivalent to the SDR interest rate, which currently stands at 0.05% per annum, plus 100 basis points. Hence, the interest rate of the EFF facility is significantly lower than the prevailing market rates.

Following the Executive Board discussion on Sri Lanka, IMF Deputy Managing Director and Acting Chair Min Zhu said: “Despite positive growth momentum, Sri Lanka’s economy is beginning to show signs of strain from an increasingly difficult external environment and challenging policy adjustments. The new government’s economic agenda, supported by the Extended Fund Facility, provides an important opportunity to re-set macroeconomic policies, address key vulnerabilities, boost reserves, and support stability and resilience.”

“A return to fiscal consolidation, targeting a reduction in the overall fiscal deficit to 3.5% of GDP by 2020, is the linchpin of the reform program. Rebuilding tax revenues through a comprehensive reform of both tax policy and administration will be key in this regard, supplemented by steps toward more effective control over expenditures and putting state enterprise operations on a more commercial footing.

“Medium-term growth prospects also need to be supported through a greater role for market forces and a decisive shift toward an outward orientation. A clear commitment to exchange rate flexibility will enable adjustment to a shifting external environment while allowing the central bank to rebuild foreign exchange reserves and focus more closely on its key mandate of price stability. The economic program also supports the government’s objective of boosting competitiveness and greater integration with regional and global markets through comprehensive trade reform and improvements to the investment environment. Steadfast implementation of these reforms should strengthen Sri Lanka’s ability to attract investment, improve prospects for sustained medium-term growth, and reduce fiscal risks.”

In response to the request for an EFF by the Sri Lankan authorities, a team of IMF officials visited Sri Lanka in March/April 2016, and conducted several rounds of discussions with the Sri Lankan authorities. The discussions with the senior staff of the IMF were continued by the Sri Lankan delegation to the IMF during its Annual Meetings in April 2016. Subsequent to the successful completion of technical level negotiations, meeting of the recommended prior actions by the government, and the signing of the Letter of Intent (LOI) by Sri Lankan authorities in May 2016, the EFF was approved by the Executive Board of the IMF on 03 June 2016.

Program Summary

The proposed new IMF-supported program aims to provide a policy anchor for macroeconomic stability and structural reforms, while strengthening external resiliency in a challenging global environment.

The key objectives of the program relate to fiscal policy and the balance of payments, and measures to:

(a) implement a structural increase in revenues,

facilitating a reduction in the fiscal deficit;

(b) reverse the decline in central bank foreign exchange reserves;

(c) reduce public debt relative to GDP and lower

Sri Lanka’s risk of debt distress; and

(d) enhance public financial management and improve the operations of state owned enterprises.

The program also aims to transition toward inflation targeting with a flexible exchange rate regime and to promote sustainable and inclusive economic growth.

To achieve these objectives, the program would envisage implementation of a set of reforms under six pillars:

(i) Fiscal consolidation;

(ii) Revenue mobilisation;

(iii) Public financial management reform;

(iv) State enterprise reform;

(v) Transition to flexible inflation targeting under a flexible exchange rate regime; and

(vi) Reforms in the trade and investment regime.
Central Bank says IMF program will ensure high and inclusive growth

The Central Bank on Saturday said the IMF program and its benefits will help facilitate high and inclusive growth in Sri Lanka, enabling the exploitation of Sri Lanka’s economic potential.

“The outcomes of the EFF supported economic program will result in improving macroeconomic stability, bolster market confidence, enhance competitiveness and outward orientation and strengthening external resilience in a challenging global environment. This, in turn, will help facilitate high and inclusive growth in Sri Lanka, enabling the exploitation of Sri Lanka’s economic potential,” the Central Bank said in its statement.

It also said the approval of the EFF by the Executive Board of the IMF signals its support for the government’s economic reform agenda over the medium term.

According to the Central Bank the government plans to introduce fundamental and comprehensive reforms to tax policy and administration, which will ease the burden of public debt and the pressure on the BOP while providing fiscal space for the government’s key social and development spending programs.

Accordingly, a steady reduction of the overall budget deficit to 3.5 % of GDP is expected by 2020. The reform agenda also focuses on transforming State Owned Enterprises (SOEs) into commercially viable entities, underpinned by cost reflective pricing mechanisms and transparent governance. The gradual building up of foreign reserves and maintenance of inflation at mid-single digit level are also expected under the EFF supported economic program.

Other key structural reforms include trade facilitation through the reduction of protection and the pursuit of new trade agreements. In the meantime, the Central Bank is expected to move towards introducing flexible inflation targeting as its monetary policy framework supplemented by the continuation of the flexible exchange rate policy.

The approval of the EFF is expected to attract additional funds from other multilateral and bilateral sources for the successful implementation of the reform agenda of the government.

The decision by the Sri Lankan authorities to seek an EFF from the IMF stemmed from both external and domestic developments. Externally, there has been renewed global economic uncertainty, particularly with the slowdown of the Chinese economy, fears of a Britain’s exit from the European Union, and adverse geopolitical developments in the Middle East. At the same time, the monetary policy normalisation in the United States prompted an outflow of funds from emerging market and developing economies, including Sri Lanka. Despite the low level of international commodity prices, the slowdown in the growth of demand in Sri Lanka’s traditional export markets and capital outflows exerted significant pressure on the external sector generating an overall deficit in the BOP. The government and the Central Bank adopted corrective measures to help dampen the pressure on the BOP and the domestic foreign exchange market. In particular, greater flexibility was allowed in the determination of the exchange rate, new macroprudential regulations were introduced as selective demand management instruments and monetary policy was tightened commencing end 2015.

Nevertheless, the structural issues in the fiscal and external sectors persisted, and the government was of the view that an IMF support would further strengthen the government’s efforts to address structural issues.
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