Island nation to revisit US dollar bond market

Sri Lanka is likely to return to the US dollar market despite the government in its 2013 budget indicating there would be zero foreign commercial borrowing.
 
Meanwhile,  Standard Chartered Bank (SCB) in a report, noted a new IMF programme would boost confidence.
 
A credit alert on Asia titled ‘Asia sovereign credit comparator’, published by Standard Chartered Bank (SCB), says they expect US$ 10.25 billion of hard currency issuance by Asian sovereigns in 2013, a little higher than 2012, with Indonesia and the Philippines dominating, according to Daily Financial Times. 
 
It said that as usual Sri Lanka and Mongolia would likely revisit the US$ market and added the Asian space more interesting for investors with issuance from Thailand and potentially Bangladesh.
 
Sri Lanka undertook various policy initiatives in early 2012 (abandoning the de facto currency peg, tightening monetary and credit policy) which helped re-establish macroeconomic stability, SCB said maintaining a stable credit outlook on Sri Lanka.
 
While gradual fiscal consolidation is underway, looking ahead, political stability would help the authorities to push through reforms.
 
However, given the country’s modest FX reserves and high external debt stock, the current account deficit remains large and the external position could come under pressure, it said adding that a fresh round of IMF funding could help to stabilize the external situation while exports are unlikely to pick up and FDI flows would remain anemic. 
 
The SCB credit alert stated that as Sri Lanka relies on foreign borrowings to finance its large fiscal deficit, a new IMF program would improve investor emotion and act as a positive catalyst for the bonds.
 
It remains Underweight on the region’s high-beta sovereigns (Vietnam, Sri Lanka, Mongolia and Pakistan) said the SCB report.
 
The report further added that they expect the fundamental backdrop to remain challenging in the next 6 to 12 months which could lead to instability.  
 
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