IMF – Stand-by Arrangement: September Targets Achieved
The key targets and structural benchmarks as agreed with the IMF as at end September 2009 were comfortably achieved by the Sri Lankan authorities. The Net International Reserves (NIR) target was well exceeded with gross official reserves rising to US dollars 4.2 billion
(equivalent to 4.7 months of imports) by end September 2009. Reserve money was maintained within the targeted level of Rs. 280.4 billion,
while Net Domestic Financing (NDF) at Rs.302.5 billion was below the ceiling of Rs.305 billion. This follows the successful achievement of the targets set for July 2009 as well.
The improvements in the key macroeconomic indicators observed since the end of the conflict and the approval of the Standby Arrangement, continued. Inflation continued its downward trend and market interest rates declined further. Yield rates on Treasury bills continued to decline with the 91 day rate reaching below 10 per cent by end September 2009. A marked reduction in relatively long term Treasury bond yield rates was also observed. Meanwhile, market capitalisation in the Colombo Stock Exchange exceeded Rs 1 trillion on 6 October 2009, and average turnover has been at an all time high.
Sri Lanka withdraws bonus interest on forex deposits
Oct 08, 2009 (LBO) – The Sri Lankan government has stopped paying bonus interest on the interest earned on foreign currency deposits in banks, the Sri Lanka Banks’ Association said.
The Central Bank has withdrawn the payment of bonus interest in rupees on interest paid to foreign currency accounts from October 1, the association said in a notice to all resident and non resident account holders.
The scheme for the government to pay 20 percent bonus interest in rupees on the interest earned on foreign currency deposits in banks was introduced on February 1 this year
The move was aimed at promoting inward remittances and deposits of foreign currency and building foreign exchange reserves.
The tax-free bonus interest was credited to a rupee account opened in the account holder’s name or to any other nominated account.
Sri Lanka’s foreign reserves have swelled in recent months after the government got a stand-by loan from the International Monetary Fund and foreign investors also bought into government bonds.
Sri Lanka ‘B+’ rating confirmed, outlook raised to stable: Fitch
Oct 09, 2009(LBO) – Fitch Ratings said it has lifted the outlook on Sri Lanka’s ‘B+’ sovereign rating to ‘stable’ from ‘negative’ on the end of a war and a deal with the International Monetary Fund that has boosted foreign reserves.
At the same time, the agency said in a statement it has confirmed the long-term foreign and local currency IDRs and the country ceiling at ‘B+’, and the short-term IDR at ‘B’.
“The revision to Sri Lanka’s Outlook reflects positive changes in sovereign credit fundamentals following the end of the 26-year civil war, the approval of a 2.6 billion dollar IMF agreement and the return of private sector capital inflows,” said James McCormack, Head of Asia Sovereigns
“Official foreign exchange reserves were 4.3 billion dollars at end-September, which is a record high, and are expected to exceed five billion dollars by year-end, providing a substantial lift to the sovereign’s external financial position,” McCormack said.
Fitch said it believes there is a real opportunity for economic renewal as part of the post-war transformation of Sri Lanka.
“The agency believes that, with the fighting having ended, it is much more likely that a durable political consensus can be reached on constitutional change and other measures to allow for the sharing of power among different ethnic groups and across different levels of government.”
A more settled political backdrop should, in turn, allow policymakers to focus more on economic issues, including construction and development in areas directly affected by the war, some of which has already begun, Fitch said.
“In fact, the economic ‘peace dividend’ should extend to the entire economy, as the labour force effectively expands, and costs such as transportation and insurance decline.”
Concurrent foreign-currency inflows from international donors, investors and the Sri Lankan diaspora are expected to supplement domestic resources available for investment spending.
Increased tourism receipts offer additional potential foreign-currency income, and tourist arrivals have increased sharply on a year-on-year basis in recent months.
The current IMF programme calls for the fiscal deficit to fall to 7.0 percent of Gross Domestic Product in 2009 from 7.7 percent of GDP in 2008.
It is to decline further by one percentage point in 2010 and 2011.
“Based on historical fiscal performance and the clear need to increase government spending as part of reconstruction efforts, Fitch considers the
current fiscal targets to be ambitious, even after taking into account the anticipated increase in donor funding.”
From a ratings perspective, however, Fitch said the agreed targets with the IMF are less important than the emergence of a sustainable mediumterm
fiscal framework with a credible strategy for raising government revenue.