Sri Lanka says US$500 million bond has been used to repay debt

Nov 13, 2007 (LBO) – Sri Lanka’s finance ministry confirmed Wednesday that the proceeds of its biggest ever foreign bond issue had already been spent to repay short term debt. The government originally said a 500 million dollar sovereign bond issue raised in October would be used for infrastructure development projects.

A Sri Lanka finance ministry statement said out of 56 billion rupees in bond proceeds, 30 billion had been spent to repay Treasury bills, about 20 billion had been spent to settle bank borrowings and 6 billion rupees spent on unspecified payments in November.

The money arrived in the country on October 24.

Sri Lanka’s central bank printed tens of billions of rupees to buy Treasury bills from April as the government ran out of cash, driving its Treasury bill portfolio to about 80 billion and inflation to 19.6 percent in October.

Though the government originally said that the bond issue would be used to fund infrastructure projects, the claim was widely disbelieved.

But the finance ministry is now saying that 28 billion rupees had been spent on past infrastructure projects which were originally financed with local borrowings.

In another development the finance ministry said treasury bills were retired as a prudential move because their interest costs were high.

The statement said 22 billion rupees of the treasury bills could be re-issued for infrastructure development, but did not mention whether the balance Treasury bills or the bank debt could not also be re-borrowed for infrastructure. .

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