Aug 06, 2009 (LBO) – Sri Lanka’s central bank is expecting to close a “token” swap contract with China though the monetary authority is no longer in urgent need of dollars after an International Monetary Fund loan came through, Governor Nivard Cabraal said.
Under the 20-month program Sri Lanka’s government and the central bank can borrow 1,750 million US dollars, including swaps.
The central bank said it had exceeded the foreign reserve target for September set under the IMF program for September 2009, indicating that the Sri Lanka rupee would not move from its current position in the short term.
The reported gross official reserves do not correspond to the IMF’s definition of net international reserves (NIR) which excludes borrowings, including swaps and non-convertible currencies represented by a regional clearing arrangement.
It also excludes advances to local banks, which the central bank has been counting among gross reserves. The IMF program assumes that the 283 million dollar loan would be fully repaid to the central bank by the end of this year.
Sri Lanka beginning-of-the-year net international reserves were 1,424.9 million US dollars, according to IMF loan documents released by the government. In December 2008, gross official reserves were reported as 1,753 million US dollars.
Reserves fell until March, when the rupee was floated and the defence of a dollar peg ended allowing the central bank to collect reserves. In March, gross external reserves (without a 200 million advance to local banks), were 1,072 million US dollars.
Under the IMF program Sri Lanka has to collect 13 million dollars less than the beginning of the year net reserves by September.
The end of the year net reserve target (-7) is now an indicative target, which will be hardened to a performance criterion after the first review.
The target will be revised upwards if more foreigners buy government treasuries and extra loans come to the government.
Sri Lanka is also planning a 500 million US dollar bond or syndicated loan and a 300 million dollar facility is also under negotiation from the Asian Development Bank.
“We are going ahead with a token 25 million US dollar swap with China to build up relations,” Cabraal said.
“After the IMF loan we are very comfortable.”
The Central Bank also has a 200 million US dollar swap with Malaysia. Cabraal said the monetary authority would keep the contract going since it was on “attractive terms”.
Cabraal said following the IMF loan and inflows to the government treasuries market, plans to negotiate other alternative financing will be dropped.
“The IMF was plan A, and after it came we do not need to pursue alternatives,” he said.
The central bank has previously said it was chasing swaps with two countries. Market analysts believe the second country was India.
Sri Lanka’s gross reserves rose to 2.1 billion US dollars by the end of July 31, the central bank said Tuesday with a 322 million US dollar (206.7 special drawing rights) first tranche of a 2.6 billion dollar loan also coming into the country the previous week.