Sri Lanka looking for alternative foreign financing: Central Bank

De 19, 2008 (LBO) – Sri Lanka is looking for alternative sources of foreign funding, the central bank said, as global financial markets remained in turmoil and risk premiums high despite unprecedented rate cuts by reserve currency central banks. The Central Bank says a major part of speculative capital that came into the government securities market had gone out of the country.

“The government is also exploring ways of raising external finances from alternative sources,” the Central Bank said in its December monetary policy statement.

“These measures are expected to be announced in January 2009.”

There has been speculation that Sri Lanka was looking at Islamic finance instruments to finance its budget.

The central bank said payments for a large stock of oil imported at high prices have been settled.

The state-run Ceylon Petroleum Corporation (CPC) had also borrowed heavily from Iran to buy oil in the past two quarters, running up a bill of about 1.1 billion dollars.

Sri Lanka’s exchange rate has taken a hit due to liquidity injections made by the central bank to cover up shortfalls when it tried to defend a peg with the US dollar.

The peg has since been abandoned allowing stability to come back to the count