Interesting bit of news from Sri Lanka.
An unidentified investor has promised to park USD 1 billion in dollar deposits in Sri Lanka to help the island nation defend its currency, the finance minister told Reuters, in an unusual move that highlights the country’s precarious finances.
Finance Minister Ravi Karunanayake declined to reveal the identity of the investor. But he said the investor was Belgian and was working with a Sri Lankan partner. The investor has promised to transfer the money in two equal tranches from banks in Brussels and Luxembourg, the minister said.
“Instead of going for bonds and other borrowing, we are permitting it to take place,” Karunanayake said. “This is better than negative returns in Europe”, for investors, he said. The deposits, which pay an interest rate of 2 percent, are part of the ministry’s plans to raise USD 3 billion to USD 4 billion to shore up reserves and defend the rupee, which has hovered around record lows since the central bank floated it on Sept. 4.
SL economy is a mess:
Sri Lanka has run up a large budget deficit, forcing the government to borrow heavily and putting pressure on the rupee.
It is now also battling a growing balance-of-payments crisis.
Remittances from expatriate workers, worth about USD 5.8 billion in the first 10 months of last year, are expected to dry up because of the political turmoil in the Middle East.
Foreign reserves, which stood at USD 7.3 billion on Dec 31, are under pressure as USD 5 billion is expected to be repaid on foreign loans in 2016, according to central bank data.
Financial experts said bringing in so much money from an individual investor was fraught with risks. Karunanayake has already liberalised dollar remittances from foreigners into the country. “This allows room for money-laundering. Black money could easily come through this,” said Sirimal Abeyratne, an economics professor at the University of Colombo.
“Also, this money could go out quickly creating further volatility,” Abeyratne said.
Karunanayake said anybody who felt black money was coming in could take up the matter in the courts.
Crazy bit from the govt. They are simply saying to hell with all the criticism. I just need the money from whatever sources..