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CBSL issues update on Road Map after Fitch criticism

27 Oct 2021

  • States CBSL and Govt. is in the process of securing over $ 1 b
  • Inflows include WCT and New Fortress Energy deals
  • Points at uptick in labour migration to Middle East
  • In talks with India and China for swaps
    Less than a week after Fitch Ratings stated that the Central Bank of Sri Lanka’s (CBSL) much touted Six-Month Road Map lacks precision about the sources and timelines for the inflows it has targeted, the CBSL has issued a statement specifying several sources of inflows and related timelines. The statement announced that the CBSL and the Government of Sri Lanka are in the process of securing over $ 1 billion inflows before the end of the year, which is the first half of the period covered by the Road Map. Titled “Progress of Securing Foreign Exchange Inflows as announced in the Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability”, the statement added that following the engagement with certain governments, central banks, financial institutions, as well as investors, they have entered into several Memoranda of Understanding (MOUs). This includes the two transactions involving the Chalmers Granaries land as well as the property behind One Galle Face, which alone amount to around $ 200 million. Thus, the CBSL said that an advance payment is expected within a shorter period.  Apart from that, an investment of $ 650 million has been finalised in terms of the West Container Terminal (WCT) by the Adani Group of India with John Keells Holdings, as the Sri Lankan counterparty, and the Sri Lanka Ports Authority (SLPA), the CBSL pointed out.  Additionally, a foreign inflow of $ 250 million is expected to be secured in terms of a partial divestment of the West Coast Power Plant to the US company New Fortress Energy Inc. Accordingly, the first tranche of the investment is anticipated to be made in December 2021. “Currently, ongoing discussions are taking place with the Reserve Bank of India, the People’s Bank of China, and several Middle Eastern central banks with the anticipation of expediting the finalisation of foreign currency swap arrangements,” the CBSL noted. Moreover, the CBSL stated that there was a notable increase in labour migration to the Middle East and recovery in tourism with a month-on-month increase in arrivals. Furthermore, the exports sector surpassed $ 1 billion of monthly earnings during the period from June to September this year, along with the repatriation and conversion of export proceeds during this month (October).  Although the Six-Month Road Map of the CBSL at the commencement of this month outlined the targeted forex inflows, Fitch Ratings last week stated that the Road Map has not indicated the details with regard to the sources as well as the timeline for those financial rollouts.  During the commentary that was made on Sri Lanka as a part of the “What Investors Want to Know: Emerging Market Sovereigns – 4Q21” report, Fitch Ratings Director – Sovereigns Sagarika Chandra said: “In a Six-Month Road Map published in October by the Central Bank of Sri Lanka, the authorities have outlined plans to secure funds through bilateral, multilateral, and other syndicated loans for 1Q22. However, the financing plans contain limited details, including the sources and timelines of financing arrangements.” She further mentioned: “As positive rating sensitivities we have flagged the need for more enduring improvements in the external and public finances.” The Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability, which was presented by CBSL Governor Ajith Nivard Cabraal on 1 October for the period from October 2021 to March 2022, demonstrated that the Government of Sri Lanka expects forex inflow of G2G (government-to-government) loans, multilateral loans,  syndicated loans, investment in Sri Lankan rupee (LKR)-denominated G-Secs (government securities), Sri Lanka Development Bond (SLDB) parcels, monetisation of under-utilised assets, other foreign direct investment (FDI) excluding the one of the Colombo Port City, and rollovers of offshore banking unit (OBU) loans, which is a generation of approximately $ 7,250 million.  Furthermore, it showed that the CBSL is anticipated to generate an inflow of $ 3,800 million from swaps with other central banks, domestic short/long swaps, sales to facilitate fuel, and essential imports, as well as purchases of remittances and export proceeds.  However, the Road Map has not presented details pertaining to other central banks bringing in foreign inflows.


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