Avenues to raise funds via Panda and Samurai bonds still remain open for Sri Lanka: CB

The options to raise funds via Panda and Samurai bonds remain still open for Sri Lanka to shore up its foreign reserves, which fell to more than 11-year lows in July, before recovering last week after receiving US $ 1.2 billion in fresh inflows from multiple sources. 

According to Central Bank Deputy Governor N.W.G.R.D. Nanayakkara, who spoke on the alternative foreign funding sources available for the government, confirmed “the options are still available”. 

Sri Lanka has since 2018 been talking about its intentions to raise foreign moneys in non-dollar-denominated currencies to gain more flexibility in managing the country’s foreign debt. 

The authorities renewed their interest on these new avenues since last year, after the pandemic-induced economic hardships and the resultant sovereign downgrades impaired the country of its access to foreign debt capital markets. “The government is currently looking at the alternative conventional and non-conventional financial sources,” Nanayakkara said. 

“I think there will be clear indication from the government’s side because the borrowing decision is made by the government and the Central Bank is performing an agency function, executing the plans of the government,” he added. 

Originally under the previous government, the Central Bank was drafting plans to raise US $ 250 million by selling Renminbi-denominated Panda bonds in China and another US $ 250 million via Samurai bonds in Japan. But neither of them materialised. 

“I am sure these are alternative financing sources available for the government. Definitely, looking at the merits and also the other sources, these will be factored into their foreign financing plans, which will be clearly articulated in the upcoming budget for 2022,” Nanayakkara said. 

Sri Lanka last week took the receipt of US $ 1.2 billion worth of foreign inflows via the US $ 787 million equivalent Special Drawing Rights facility created by the International Monetary Fund, US $ 150 million from Bangladesh Bank as the first two tranches of a US $ 200 million swap line and the balance US $ 300 million tranche of the US $ 1.2 billion term loan facility from the China Development Bank. 

Another US $ 400 million is due from Reserve Bank of India, under the SAARC Finance SWAP facility. 

The Central Bank expects foreign currency reserves of US $ 4.0 billion by the year-end, which it deems as “relatively comfortable level”, amid the loss of about US $ 9 billion worth of inflows from tourism during 2020 and 2021 and another US $ 3.0 billion worth of direct investments under the most conservative estimates, which didn’t materialise during the two years. 

Sri Lanka further lost another US $ 6.0 billion worth of earnings from merchandise and services exports in 2020 and 2021, due to pandemic-induced market and supply chain disruptions. 

In comparison, Sri Lanka annually has about US $ 4.0 billion worth of foreign debt repayments through 2025.