Sri Lanka plans to raise more money from overseas investors, officials said that despite the IMF warning that the island could be heading for a foreign debt crisis.
Sri Lanka's central bank said yesterday it had lifted the ceiling on foreign holdings of government rupee bonds, allowing overseas investors to buy into more than US$500 million worth of new debt.
Foreigners who were earlier allowed to buy up to 5 percent of government bonds, had picked up US$460 million worth of debt paper, the bank said, adding the move would further relax capital account transactions.
"This measure will enhance the development of the capital market by broadening the investor base," the central bank said.
The announcement came a day after the nation's powerful Treasury Secretary Punchi Banda Jayasundera disclosed plans to raise up to US$300 million in sovereign bonds carrying maturities up to 10 years.
The government hopes to raise the money by next April, after its maiden US$500 million bond issue was three times oversubscribed in October, Jayasundera said.
"We are also hoping to reduce the interest cost of some of our foreign borrowings," Jayasundera said despite the IMF warning Sri Lanka to change its recent habit of borrowing commercial dollars to bridge high budget deficits.
The nation's budget deficit was expected to hit is 7.8 percent of GDP this year, the fund said.
"Directors noted the significant risk of public debt distress in Sri Lanka, arising from heavy reliance on dollar-denominated, short-term commercial debt," the global financial lender said in a statement last week.
By the end of last year the government's commercial debt burden reached US$1.6 billion or 6 percent of GDP, the IMF said.
Sri Lanka has never defaulted on its debt repayments, but the IMF said the country should opt for longer-term bond issues.
"They [the directors] stressed the need to lengthen... the maturity profile of the debt to reduce rollover and liquidity risks, including through capital market refinancing, and to improve debt management in general," the fund said.
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