CB to source funds from the Gulf
The Central Bank (CB) is in dialogue with certain Gulf countries including Oman for credit lines and loans to source dollars to battle the forex crisis.
The CB is in discussion with certain fund managers based in Oman with strong connections to the Omani government, officials told the Business Times.
Meanwhile CB Governor Ajith Nivard Cabraal held discussions with the Governor of Qatar Central Bank Sheikh Abdulla Bin Saoud Al-Thani in Doha seeking support for Sri Lanka’s economy.
Some officials are worried about the ‘terms’ of these credit lines and loans saying the country should not be exposed to excessive terms by the lenders. “We are downgraded in ratings and the terms will not be very favourable to us. Therefore, we need to beware. The terms such as the period of the loans, the rates at which they are given and the commissions involved etc have to be divulged,” an official told the Business Times.
An analyst close to the government said the CB is looking for about US$1 billion from Gulf countries.
As it is the global procurement agencies demand advanced payments from Sri Lanka to send goods. When opening letters of credit (LCs) Sri Lanka must pay high premiums. Recently two major spot trades for coal were cancelled due to non-receipt of bids. The reason is that the country is unable to conform to the international LC with over 3 per cent interest. The neighbouring nations are paying 0.5 per cent to confirm LCs. “We need to pay higher because of low foreign reserves and lower country ratings,” a second analyst pointed out.
Getting exporters to convert their dollars has also faced a certain stalemate. “We are converting at an artificially low rate of Rs. 203. Some of us who have to repatriate the cash into the country because most of our costs are here, find it very discouraging,” a software exporter said.
The CB is adamant that there will not be a currency depreciation this year. “If they do, the debt to GDP will skyrocket. Also, the liabilities will rise, and inflation will rise as well,” an economist said.
The country is trying to hang on to any straw just to keep the nose above water, Prof. Sirimal Abeyratne, Professor in Economics at the University of Colombo told the Business Times. “Apart from the bilateral arrangements the government is relying on tourism revival, sale of nonperforming assets etc to bring in dollars. With these, we may be able to get things going and avoid sinking but these are short-term solutions to long-term issues.”
He reiterated that the dollar crisis is not a result of the pandemic. “It is an issue that we have been nurturing for a long time by avoiding necessary reforms to bringing foreign direct investment and strengthening exports.”