Despite the overwhelming response received for the US$ 1 billion Sovereign Bond issue, which recorded a tenfold oversubscription, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal stated that 2013 will not see another sovereign bond issue.
“There won’t be any new sovereign bond issues for this year,” Cabraal told Ceylon FT.
Commenting on queries regarding the contribution of US$ 1 billion Sovereign Bond to the unanticipated Balance of Payment (BoP) Surplus of US$ 151.4 million, he went on to state that the income received from the bond issue, though primarily was for the purpose of capital expenditure, will be used as a cushion to fill in the overall budget deficit which is a combination of capital and recurrent expenditures.
Showing a deficit of US$ 1,060.6 million in 2011, the positive balance of payment figure came amidst dire predictions of a BoP crisis. The Central Bank attributed this achievement to policy measures and various inflows to the government that amounted to US$ 2.3 billion, inclusive of the US$ 1 billion sovereign bond.
Private inflows have also seen a significant rise as well as net flows to commercial banks, however net foreign inflows have faced a decline of 9.2%. The overall performance, as per the Central Bank, is a result of its policies implemented alongside the government to strengthen the external sector, as well as the surpluses in the capital and financial accounts.
Despite claims of not issuing additional sovereign bonds since December 2012, a development bond issue of US$ 60 million was done last February. In essence, a ‘Sovereign Bond’ is a bond issued in a foreign currency with the intention of sourcing national finance.
“The improvement in the trade balance and increased inflows from trade in services and current transfers helped restrain the current account deficit of the BOP,” the Central Bank said in its Annual Report for 2012.
“Accordingly, the current account deficit was contained at US$ 3.9 billion (6.6% of GDP) in 2012 from US$ 4.6 billion (7.8% of GDP) in 2011. In the capital and financial account, inflows to the private sector as well as to the government were substantial in 2012. The narrowing of the external current account deficit and increased inflows into the capital and financial account resulted in a surplus in the BOP, amounting to US$ 151 million in 2012, thereby boosting external reserves of the country.”
The receipt of the last two tranches under the IMF Stand-by Arrangement (IMF-SBA) obtained in 2009 and proceeds of the fifth international sovereign bond led to a sizeable increase in gross official reserves to a comfortable level in 2012, thereby improving the resilience of the economy to external shocks. Gross official reserves (excluding ACU balances) increased to US$ 6.9 billion by end 2012 from US$ 6 billion in 2011. Meanwhile, total international reserves of the country increased to US$ 8.4 billion from US$ 7.2 billion in 2011.