Sri Lanka gross borrowings to rise by Rs85bn next year

Oct 10, 2007 (LBO) – Sri Lanka will have to borrow 740 billion rupees in 2008, to bridge the budget deficit and roll-over existing debt in 2008, a bill put before lawmakers this week showed. Last year the government got parliamentary nod to raise 655 billion rupees but lack of cheap concessional debt has pushed up 3-month treasury yields to 18.4 percent by this month.

Since April the government printed money or borrowed heavily from the central bank driving average inflation to a 17-year high of 17.5 percent.

Critics say the cash-strapped government has also dipped into the country's international reserves.

In order to recoup lost reserves, economic analysts say the central bank then has to keep the Sri Lanka rupee down and prevent its appreciation.

Sri Lanka is now trying to raise around 500 million dollars through a sovereign bond.

Sri Lanka had been warned by the International Monetary Fund not to borrow too much as the national debt was already over 90 percent.

The government said it was hoping to spend 925 billion rupees in 2008.

The 2007 budget planned expenses of 834 billion but the government later sought permission for additional spending