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Tuesday April 23rd, 2024

Audi agent in Sri Lanka eyes stronger sales in 2020, pleads for stable policies

ECONOMYNEXT – Drive One (Pvt) Ltd, agents for Germany-based Audi in Sri Lanka is expecting a revival in the vehicle market, which could boost sales to around 300 units, with stable policies vital for businesses to expand, an official said.

The firm had sold around 200 units in 2019, halving from 2018 as import restrictions were slapped after the rupee collapsed to 182 to 153 to the US dollar amid liquidity injections and a rate cut from the central bank.

The currency collapse and restrictions came just as the economy recovered from 2015/2016 currency collapse which sent the rupee down from 131 to 150 to the US dollar.

“Just after we launched in 2018, we sold almost 400 units,”, Drive One (Pvt) Ltd Chief Operating Officer Anushka Polonowita told EconomyNext.

“But last year we ended up with less than 200. This year too we are not sure, with the general elections and policy changes.”

“If there is a standard long term policy it is easy to hit our numbers. So, for the next year the target we have given to Germany is less than 300.”

In 2018 and 2019, the automobile sector was buffeted by a series of policy changes and restrictions as well as shocks to consumer confidence.

“There was a tax change, taxes for luxury was introduced. And then the Easter Sunday attack,” Polonowita recalled. “Then the presidential election came, so because this series of events, it was not good for everyone.”

Cars (and gold) and imports in general are favourite targets of policy makers when Sri Lanka’s soft-peg with the US dollar comes under pressure from liquidity injections (printing money), triggering a currency crises.

Analysts have pointed out that monetary instability from the soft-peg has been a key driver of both policy instability and restrictions on the economic freedoms of the people.

Drive One had invested in a showroom in Nawala, a suburb of Colombo, to help drive sales, which opened on January 29.

The new showroom facility at Nawala comprises of three floors and has been built to Audi standards using materials sourced from Audi-approved suppliers.

Along with the showroom an Audi workshop facility is also built in Wattala with a space of 100,000 square feet.

Polonowita says stable policies are vital for businesses to operate and recover investments.

“The challenge we have is, it is difficult to plan because there is no consistence policy” Polonowita said.

“If policy makers can give us even a four to five-year policy, then we can plan and work accordingly. Here every six to seven months policies change one way or the other, taxes change and import policies change, so it is very difficult to plan.”

Drive One is selling five models in their new showroom; the Q2 at 9.7 million rupees upward, A3 Sedan 9.5 million rupees, the 1.4 litre A4 Sedan at 13.5 million rupees, A5 Sportsback from 13.8 million rupees upwards and Q5 model 24.5million rupees.

Later in 2020 the firm wants to add three more models; the latest the Audi Q3, eighth generation Audi A6, and Audi Q7.

“This year we are looking forward to the new A6 which we are hoping to introduce at the end of March,” he said. The new generation Q3, which is in production at the moment will be here in April. Towards the end of the year we have the new A7 coming.”

The firm also has plans to move into electric cars in the future. Audi’s e-tron introduced in 2019 has sold over 18,000 units globally. (Colombo/Feb03/2020)


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Sri Lanka single borrower limits cut to 25-pct of bank capital, SOEs also included

ECONOMYNEXT – Sri Lanka’s central bank has issued directions limiting loans to a singe borrower or a group of connected customers to 25 percent of Tier I capital, with state enterprises which turned out to be the biggest borrowers, also included.

In a 2007 direction, banks were allowed to give loans up to 30 percent of capital for a single customer and 33 percent for a group but the rules were widely violated in the case of state enterprises, which were used as off-budget vehicles to give energy and other subsidies.

Banks will have to limit exposures to 25 percent starting from January 2026.

According to transitional provisions published in the direction seems to indicate that some banks may have single borrower exposures of 85 percent or more.

They will be required to bring exposures down to 60 percent by 2027 and 25 percent by 2028.

Download the direction from here Sri-Lanka-single-borrow-limit-direction-2024

Energy utilities were made to borrow from state banks to run off-budget subsidies under plan avoid a price formula during the Rajapaksa regimes.

Sri Lanka’s state banks ended up with large debts to Ceylon Petroleum Corporation partly due to flexible inflation targeting (printing money to cut rates as soon as inflation fall triggering forex shortages) even when fuel was market priced in 2018, analysts have shown.

When rates were cut with inflationary open market operations, triggering forex shortages, CPC was barred from buying dollars and forced to get suppliers’ credit denominated in dollars.

The suppliers’ credits were later converted to dollar loans from state bank loans, usually after the currency collapsed from the inflationary rate cuts or inflationary open market operations to sterilize interventions or both, analysts have shown.

The CPC loans have since been taken over by the government.

Banks have also funded roads and other state projects.

“Licensed banks shall gradually reduce the exposures to Public Corporations to meet the maximum limit,” by December 2030 according to the direction.

“Public corporation shall mean any corporation, board or other body which was or is established by or under any written law other than the Companies Act, with funds or capital wholly or partly provided by the Government.”

Many of the newer state enterprises however have been suddenly set up under the Companies Act, unlike earlier where a specific act was passed by the parliament to set up corporation or a statutory authority.

Borrowings of CPC and CEB eventually hit the financial stability of state banks while actual bad loans were under-reported. Now the bad loans are being covered with a state capital injection.

Under an International Monetary Fund and World Bank backed program, the so-called ‘sovereign bank nexus’ is being severed to protect the banking system.

Government securities, central bank sterilization securities, loans guaranteed by multilateral lenders or high rated foreign banks are excluded. (Colombo/Apr23/2024)

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Sri Lanka exceeds tax revenue target by 6% in first quarter

ECONOMYNEXT – Sri Lanka’s revenue collecting bodies have outperformed and exceeded tax revenue target by 6 percent for the first quarter ended on March 31, State Revenue Minister Ranjith Siyambalapitiya said.

“After many years of difficult challenges, it has been possible to exceed the expected state revenue in the first quarter of 2024,” he said in a statement.

The government expects a revenue collection of 4,106 billion rupees in 2024.

“The reason for the economic crisis in the past period was the reduction in the level of government revenue. Considering the achievement of higher than the target in the first quarter of this year and the revenue pattern, the 2024 will become a year in which the revenue targets can be achieved,” he said.

The three tax revenue collecting bodies – Sri Lankan Customs, Excise Department, and Inland Revenue Department have collected 834 billion Sri Lanka rupees in the first quarter.

“It is a 6% higher than the expected revenue target of 787 billion rupees,” Siyambalapitiya said.

He said the Inland Revenue Department exceeded its target by 13 percent to 430 billion rupees compared to the target of 381 billion rupees in the first quarter of 2024.

He also said Customs Department has managed to reach the target of 353 billion rupees and the Excise Department has also achieved 96% of the revenue requests and earned 51 billion rupees in the first quarter.

The island nation has raised Value Added Tax (VAT), imposed new taxes, and increased personal income taxes to boost the revenue under an International Monetary Fund-backed reforms in return of a $3 billion External Fund Facility.

People have started to grumble over the government’s higher taxes without reducing some of the state expenditures. The government has been in the process to privatize some key state-owned enterprises. However, that process faced delays amid gradually rising protests against the move. (Colombo/April 22/2024)

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Sri Lanka rupee closes stronger at 300.50/301.00 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger at 300.50/301.00 to the US dollar with the spot market becoming active in the second half of Monday, dealers said.

The rupee closed at 302.00/50 to the US dollar on Friday amid moral suasion.

On Monday a foreign bank sold dollars to the central bank around 302 levels, following by more sales, dealers said after trading started without proper spot market quotes.

On Friday a 302 level was indicated by some dollar sales, dealers said.

Sri Lanka’s rupee came under pressure over the last week, despite broadly deflationary policy, after the central bank collected large volumes of dollars in March.

Bond yields were flat as buyers awaited the next development in sovereign bond re-structuring, market participants said. There were both positive and negative sentiments among bond investors, dealers said.

A bond maturing on 15.12.2026 closed flat at 11.30/40 percent

A bond maturing on 15.09.2027 closed flat at 11.95/05 percent.

A bond maturing on 15.12.2028 closed flat at 12.15/25 percent.

A bond maturing on 15.09.2029 closed marginally higher at 12.25/35 percent from 12.30/40 percent.

A bond maturing on 01.10.2032 also closed flat at 12.40.50 percent. (Colombo/Apr19/2024)

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