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MF warns Sri Lanka of debt crisis
MF warns Sri Lanka of debt crisis
Sunday December 02, 2007
Sri Lanka plans to raise more money from overseas investors, officials said despite the International Monetary Fund warning that the island could be heading for a foreign debt crisis.
Sri Lanka's Central Bank said Sunday it had lifted the ceiling on foreign holdings of government rupee bonds, allowing overseas investors to buy into more than 500 million dollars worth of new debt.
Foreigners who were earlier allowed to buy up to five percent of government bonds, had picked up 460 million dollars worth of debt paper, the bank said, adding the move would further relax capital account transactions.
"This measure will enhance the development of the capital market by broadening the investor base," the Central Bank said.
The announcement came a day after the island's powerful treasury secretary Punchi Banda Jayasundera disclosed plans to raise up to 300 million dollars in sovereign bonds carrying maturities up to 10-years.
The government hopes to raise the money by next April, after its maiden 500 million dollar bond issue was three times oversubscribed in October, Jayasundera said.
"We are also hoping to reduce the interest cost of some of our foreign borrowings," Jayasundera said despite the IMF warning Sri Lanka to change its recent habit of borrowing commercial dollars to bridge high budget deficits.
The island's budget deficit was expected to hit is 7.8 percent of GDP this year, the Fund said.
"Directors noted the significant risk of public debt distress in Sri Lanka, arising from heavy reliance on dollar-denominated, short-term commercial debt," the global financial lender said in a statement last week.
By end-2006 the government's commercial debt burden reached 1.6 billion dollars or six percent of gross domestic product, the IMF said.
Sri Lanka has never defaulted on its debt repayments, but the IMF said the island should opt for longer-term bond issues.
"They (the directors) stressed the need to lengthen... the maturity profile of the debt to reduce rollover and liquidity risks, including through capital market refinancing, and to improve debt management in general."
Fijilive
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