Sri Lanka targets US$500mn from diaspora: CB Governor

Feb 02, 2009 (LBO) – Sri Lanka is planning to sell 500 million dollars of government securities to the diaspora community in 2009 with a road show to be kicked off this month in 11 countries, Central Bank Governor Nivard Cabraal said. The money will be channeled into the country through a forex account which will be free of exchange control. Officials feel the time is right to strike because interest rates in some developed countries are low.

“Low interest rates and depreciation of currencies of many countries has hurt investors,” Cabraal told reporters Monday.

“There is also a great feeling of patriotism and interest rates here are also attractive.”

Cabraal says in 2008, expatriate Sri Lankans had remitted about 3.0 billion dollars to the country.

When the government securities market was opened to foreign investors, about 650 million US dollars had come in, with little active marketing.

But about 400 million dollars had flown out in late 2008 as investors took money back to their own countries.

Cabraal says the central bank wants to bring in more stable forms of foreign money. Expatriate money is likely to be more stable. “Sri Lankan expatriates have more faith in the country and also have more knowledge,” he said.

Cabraal says about 1.5 million Sri Lankans are either foreign residents or migrant workers.

The money will come in via a special account, called TIERA-D (Treasury bill/bond Investment External Rupee Account – Deshabhimani) which will be free of exchange controls.

There will only be a 10 percent withholding tax on securities, and no stamp duty.

Deputy Governor W A Wijewardene says the central bank will build a separate sinking fund equal to 100 percent of the investments to be able to meet any demands for outflows.

He says the move is another step in liberalizing the capital account of the island. The money is expected to boost foreign reserves and the rupee proceeds will fund government expenditure.

Sri Lanka’s official reserves fell to 2.0 billion dollars in November from from 3.4 billion in September.

The roads shows will start off on February 04, the day Sri Lanka celebrates independence from colonial rule.

State-run Bank of Ceylon, People’s Bank and National Savings Bank; private-listed Commercial Bank of Ceylon and Sampath Bank, HSBC Sri Lanka and National Wealth Corporation, a primary dealer, will manage the sale.

Central Bank will have separate marketing teams on road shows in Asia (including Australia and New Zealand), North America (USA and Canada), Europe and two teams in the Middle East.

The Sri Lankan diaspora in North America, Europe and Australia are estimated to have higher levels of savings than migrant workers in the Middle East, though professional workers in countries like Dubai are also targeted.

From February 01, the government will also give a ‘bonus interest’ equal to 20 percent of the yield on foreign currency deposits of local banks. The extra interest will be paid in rupees.