Foreign currency surplus to bring $ to Rs. 110?

Govt. predicts rupee to remain stable for one year

Analysts think otherwise
Economists were however, of the view that it would be temporary since there is a foreign currency surplus in the country right now and not sure as to how this money will be disbursed.
Many analysts think that this would be used for debt serving in 2007 after the two year moratorium given to tsunami affected countries in 2004.

By Rathindra Kuruwita
The foreign currency surplus is likely to bring the dollar to Rs. 110 , highly placed government sources predicted yesterday. He said that it would stabilise the country’s money market which was falling apart due to inflation.
He told The Nation that the dollar is likely to remain between Rs. 110 to Rs. 111 for a period of 6-12 months which would enable the Central Bank to maintain financial stability for some time.
Although it can be brought down further, he said the government has decided to stabilise the exchange rate at this level due to concerns over the rupee value of the export earnings.
He said that there is a great possibility that the US $ 500 million bond will be realised by October 24 and was also optimistic that the influx of dollars will be a boost to the country’s economy.
Out of the US $ 500 million, the government has decided to infuse at least US$ 150 million to the Treasury. This would mean that the government could pay back money raised through local Treasury Bills. That capital will go back to the local banks and will be available to Sri Lankan entrepreneurs at a lesser interest rate and boost local businesses he said.
The remaining US $ 350 million will be used to restart US $ 3800 million worth foreign funded projects which are at a standstill due to the lack of local component, he added.
“Since Sri Lanka is in the middle income group countries, the World Bank and the Asian Development Bank will only give us a certain percentage of the loan required for infrastructure projects. For example the outer circular road, encompassing Kaduwela, Kadawatha and Katunayake areas, has been stalled because the Sri Lankan government does not have the funds to acquire land and pay compensation accordingly,” he said.
He added that the Bond issue will be listed in the Singapore stock market shortly.
The government held road shows in Singapore, Hong Kong, London, Los Angeles, New York and Boston and finalized the deal in New York.
Central Bank governor Nivard Cabraal made presentations at these road shows to lure prospective investors.
The banking consortium, which was selected out of 11 facilitators, comprised Morgan of United States, Barclays of the United Kingdom and HSBC of Asia while Bank of Ceylon was a co partner in Sri Lanka.
There were two offers, mainly five to ten years and it was oversubscribed by 3 folds. The Central Bank governor and the Treasury selected 30% from the Asian market, 30% from Europe and Middle East and the balance from the American market.
The interest was fixed at 8.25% with the government securing the US$ 500 million bond.
Already the Treasury bonds invested have been reduced by 0.22% which means that they would be enough to meet the interest that will be accrued owing to the 8.25% interest rate on the US$ 500 million dollar bond.