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By 2017-07-18

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By Ishara Gamage

Sri Lanka's foreign reserves have dropped to a new low of US$ 6.5 billion due to Asian Clearing Union (ACU) settlements, while the government plans to raise another US$ 500-1,000 million within the next month via syndicated loans through the Dubai fund arrangement to boost the weakened foreign reserves, government officials told Ceylon FT.
Speaking to 'Ceylon FT', Ministry of Finance and Planning Deputy Secretary to the Treasury, S. R. Attygalle said they were expecting to raise US$ 550 within the next month via a syndicated loan.

"We have successfully completed our 'Road Shows' and we hope that the syndicated loan could be finalized within the next month", he said.

The government earlier approved to raise US$ 1 billion via syndicated loans subject to this year's borrowing limits. The government has already raised US$ 450 via syndicated loans this year.

Meanwhile, another government source said they were also negotiating to raise US$ 500 via a Dubai- based fund. "Very soon we will finalize this Dubai deal and currently the Ministry of Development Strategies and International Trade and the Central Bank are negotiating the fund transfer arrangement", an official said.
However, they declined to comment about whether the Dubai fund arrangement procedure was a part of the proposed US$ 550 syndicated loan process or not.

Due to US market fears under President Donald Trump's economic policies, most of Middle East funds were now moving towards alternative low risk markets to invest their funds. According to sources, the repayment period of this proposed Dubai transaction might be around 10-12 years and the rate will be below 6%. "It will be a very attractive rate compared to the sovereign bond issues and our main aim is to raise US$ 500 within a few weeks", he said.

Sri Lanka's foreign reserves have now come down to the level of US$ 6.5 after the recent week's US$ 400 million Asian Clearing Union (ACU) settlement.

ACU is a payment arrangement whereby the nine-member participants settle payments for intra-regional transactions among participating Central Banks on a net multilateral basis.

Nearly five to six weeks ago, Sri Lanka's foreign reserves reached a new high of US$ 7 billion with the recently concluded US$ 1.5 B international sovereign bond issue and US$ 450M syndicated loan, Central Bank officials told Ceylon FT.
In addition, the Central Bank is bound to buy dollars from the market to meet the reserve target set by the International Monetary Fund under a $1.5 billion, three-year loan programme.

Meanwhile, the Government is expecting the International Monetary Fund to complete their final review this week and disburse the next tranche under its programme.
The Executive Board of the IMF is likely to meet this week.
According to Central Bank officials, so far this year the Central Bank had bought around US $800 million from the market, out of the $1.2 billion year-end target.
They said the Sri Lankan rupee was still overvalued and they will keep on buying dollars from the market to avoid further appreciation.

On the sidelines of the 20th Annual Meeting of the Asia/Pacific Group (APG) on Money Laundering in Colombo, Central Bank , Indrajith Coomaraswamy said the over-valued rupee was a subsidy to the foreign producer at the expense of the local producer.
The Sri Lankan rupee has fallen around 2.6 % so far this year and currency dealers expecting a further depreciation (up to 4% year end) of the rupee due to the Central Bank's non-intervention policy.

The Bank earlier said the Finance Ministry will keep the proceeds of a recent $1.5 billion sovereign bond in a special US dollar account to repay foreign borrowings.

Officials said with the recent sovereign bond proceeds, the proposed Dubai fund arrangement and syndicated loans and the Hambantota Port deal with China, Sri Lanka's foreign reserves may reach US$ 7.2 billion by the end of the year.



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