The overall Capital and Financial Account of the Balance of Payments (BOP) situation saw a significant improvement in the first quarter of 2012, with the deficit narrowing down to US dollars 251 million compared to a deficit of US dollars 1,695 million in the last quarter of 2011, stated the Central Bank.
The lower trade deficit, the improved surplus in the services and current transfers and the lower deficit in income account, helped narrow the current account deficit, the Bank further said.
In relation to the BOP, there has been a substantial inflow of foreign exchange, reflecting enhanced global investor confidence in Sri Lanka as an emerging market. Foreign direct investments (FDI) recorded an inflow of US dollars 220 million during the first quarter of 2012, compared to US dollars 197 million over the same period last year, the Bank added.
Further, FDI inflows amounted to US dollars 308 million by the first week of May 2012.Portfolio investments, including investments in the Colombo Stock Exchange (CSE), also increased significantly to US dollars 159 million, on a net basis.
In addition, foreign borrowings by commercial banks increased, led by the recent international bond issue of US dollars 500 million by the Bank of Ceylon (BOC), which recorded an oversubscription of 7.7 times and a total order value of US dollars 3.86 billion in May 2012.
With respect to inflows to other commercial banks, long-term borrowings amounted to US dollars 353 million, and short-term borrowings amounted to US dollars 414 million, by the second week of May 2012. A significant increase has also been shown in foreign investments in Government securities, with net inflows to treasury bills and bonds increasing to US dollars 406 million in the first quarter of 2012, from US dollars 79million during the first quarter of 2011. This can be mainly attributed to the increase in threshold for foreign investments in December 2011.