Sri Lanka repays US$125mn in foreign loans

June 19, 2009 (LBO) – Sri Lanka has repaid 125 million US dollars from a dollar loan arranged by Standard Chartered Bank last year, as lenders exercised an option, Central Bank Governor Nivard Cabraal said.

Under Sri Lanka’s monetary law, the Central Bank acts as ‘banker’ to the government. The government’s debt office is also a unit of the monetary authority.

Unlike in a peg defence cycle where forex market interventions affect reserves in the commercial banking system and puts pressure on the rupee when liquidity shortages are filled, de facto reserve appropriations to repay Treasury debt has no effect on the currency.

Sri Lanka’s reserves bottomed in March.

The Standard Chartered arranged a 150 million US dollar loan on June 13 last year, under ‘club deal’ priced at 250 basis points above the London Interbank Offered Rate.

“They (lenders) wanted 125 million and we have repaid them,” Cabraal said.

The 3-year loan had an option for lenders to get the cash at the end of each year.

“We had no problem paying them back,” Cabraal said.

Sri Lanka faced a balance of payments crisis until March 2009, when the rupee was floated ending a cycle of liquidity injections and dollar sales.

The Central Bank has since been wallowing in dollars.

From March to June 17, the monetary authority has bought 378 million US dollars, giving it enough foreign exchange to meet external fiscal obligations.