Sunday, 25 October 2020 11:31

Foreigners get forex risk cover in investing Treasury bonds

The flowing of foreign exchange into Sri Lanka’s rupee-denominated securities market is to be made a flooding by providing tax and other incentives by the Finance Ministry and the Central Bank, a senior official of the State Ministry of Finance disclosed.


The government has identified the need to facilitate non-resident .investors’ investments in government securities and other sectors to encourage the inflow of foreign currency into the country.

Appropriate action has already been taken to inculcate confidence on the economic revival in the country following Covid-19 set back among foreign investors, and nonresident Sri Lankan expatriates and investment firms in overseas to invest in Treasury bills and Rupee bonds.

Treasury bonds (rupee bonds) and Treasury bills market has now been opened for foreign investors to meet Sri Lanka’s budgetary requirements and reduce the nation’s dependence on foreign debt amid the Covid-19 crisis, a senior official of the State Ministry said.

Another intention was to minimise the interest cost of the domestic borrowing programme by maintaining an appropriate mix between domestic and foreign sources of financing.

The Finance Ministry has introduced this short term debt instrument for foreign investors in a bid to ease the reliance on commercial borrowings, he added.

The Central Bank is offering this facility to insure investors against foreign exchange risk, by allowing domestic currency proceeds from qualified investments in treasury bonds to be converted at the same exchange rate as prevailed at the time of initial investment he revealed.

A forex risk cover will be given by the Central Bank, to foreigners who will invest in rupee bonds up to two years.

This facility has been offered to them as a concession of the government in its efforts towards wooing dollar investments into Treasury bills and bonds to lessen the reliance on commercial borrowings and supporting the currency, he pointed out.

Finance State Minister Ajith Nivard Cabraal disclosed in in Parliament that the government will be providing the foreign exchange risk cover for foreigners as an incentive to them to buy rupee bonds.

The Monetary Board of the Central Bank has introduced US Dollars/Sri Lankan Rupee buying and selling exchange facilities for one or two years.

It will be conducting the initial foreign exchange transaction and subsequent exchange transaction at the same exchange rate.

Concerning the foreign exchange transactions prior to the maturity of the investment, The CB will grant permission to exchange at the same foreign exchange rate subject to a penalty.

This facility is applicable only if there is foreign exchange inflow to the country and subject to a minimum investment of US$ 25 million and a maximum of US$ 1000 million.

In the case of depreciation of the exchange rate of the US Dollar against the Sri Lanka Rupee during the applicable period, the Central Bank will compensate the loss incurred when transferring its dividends to the Treasury in the future.

This is because any loss that could be incurred to the Central Bank is considered as a cost to the Treasury.

(LIN)

 

 

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