Sri Lanka secures US$ 1 billion syndicated loan from China at 5.25% interest

Sri Lanka secures US$ 1 billion syndicated loan from China at 5.25% interest

Colombo, July 6 (newsin.asia): The Sri Lankan government has secured a US$ 1 billion Chinese syndicated loan, the Governor of the Central Bank Indrajit Coomaraswamy told the media last week.

The eight-year loan carries an interest of 5.25% with a three year grace period.The loan is expected in two tranches of US$ 500 million, one in August and the other in October ,he added.

Dr.Coomaraswamy further said that the terms were better than the ones stated by other international lenders. According to him the China is willing to given the loan as it sees Sri Lanka as a key component of its Belt and Road Project.

China had stated its loan portfolio in Sri Lanka was $ 5.5 billion as of July 2018, that is, just over a tenth of Sri Lanka’s total external debt of US$ 51.82 billion.

Sri Lanka’s foreign reserves currently stands at US$ 8.4 billion and is expected  to rise to around $9 billion by the end of the year.

Dr. Coomaraswamy stated that if everything goes well another IMF loan of US $250 million is expected.

The government is also working towards a Panda Bond issuance before the end of the year.

Sri Lanka had gone ‘on a non-deal roadshow’ to show China that it is worth investing in.

The meeting with the Peoples Bank of China, which is China’s  Central Bank, was evidently encouraging. The Deputy Governor of the People’s Bank of China had  suggested that a Joint Task Force be set up to examine how Sri Lanka could explore on the Panda Bond market.

Dr. Coomarasway stated that the Government hopes to invest in Panda Bonds worth about US$ 250 million, and service about US$1.5 billion out of them.

By the end of the year, the country’s entire reserves is expected to be about $ 9 billion and that  will about price stability and external viability.

Debt Issues and Chinese Loans

The IMF which bailed out Sri Lanka in June 2016 with a humongous US$ 1.5 billion loan, has warned the government of its heavy debts.

But China has promised to continue to provide support, including much-needed funds for the development of Sri Lanka, as per a statement by the Chinese Embassy in Colombo in July.

 

Last year renegotiating loan repayment plans, Sri Lanka granted a 99-year lease on the Hambanthota port to Beijing over its inability to repay Chinese loans for the $ 1.4 billion project.

State of Economy

Sri Lanka’s economy has been on the mend since the IMF bailout, but growth in 2017 at 3.1% was the slowest in 16 years.

The Central Bank had forecast 2018 growth at between 4.0 to 4.5%, but Dr. Coomaraswamy revised his estimate for the calendar year to below 4.0%.

However, the Governor states that Sri Lanka is in a reasonably comfortable place.

The Governor also called on banks to reduce interest rates to incentivize investment and said the Central Bank would monitor progress on that front.

Private sector credit growth decelerated to 14.9% (year-on-year) in June from 15.1% in May, according to the latest Central Bank data.

Private sector credit is expected to grow by around 13-14% by end 2018, which would be about LKR  650 billion. Broad money (M2b) growth decelerated to 14.9% in June (y-o-y) from 15.0% in May, with the deceleration in private sector credit expansion and net borrowings by the Government from the banking system. Net outflow from government securities reached US$ 229 million up to 1 August.

(The featured image at the top is that of Dr.Indrajit Coomarswasmy, Governor of the Central Bank of Sri Lanka)