Foreign interest back on govt. securities

Foreign holdings of Sri Lanka government securities have increased to-date during 2021, the official data showed.

Foreigners bought Rs.550 million worth of government securities in the week ended January 13, 2021, logging an 8 percent increase from a week earlier.

Foreigners sold Rs.1.7 billion or US$ 9 million worth of government securities following the sovereign rate downgrade by S&P on December 11, 2020, according to ICRA Lanka Ratings.  With the most recent additions, foreigners now hold Rs.7, 424.09 million worth of treasury bills and bonds issued by the government of Sri Lanka. 

This is about 0.10 percent of the total outstanding stock of government securities. This is nowhere near the end-2014 levels, where foreign holdings stood at 12 percent.

Artificially suppressed interest rates, bond scam and lower economic growth and high policy and political uncertainty during the 2015-2019 period may have prompted foreigners to exit Lankan securities. 

By end-2014 foreigners in absolute terms held treasuries worth of Rs.453 billion or US$ 3.5 billion, compared to the current Rs.7.4 billion. 

While no meaningful return of foreign investments into government securities was seen under the new government due to market turmoil caused by the pandemic, the new government has taken some bold steps towards attracting dollars into the treasuries market. 

They introduced up to two-year hedge via foreign currency swap for foreigners to invest in the treasuries without having to worry about the risk of foreign currency, a measure that came into effect last October in a bid to woo them back to the market.

Despite the surge in equities market, which started in June last year, foreigners have continued to be net sellers. They net sold equities worth of Rs.50 billion last year.