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Tuesday February 27th, 2024

China leads Sri Lanka foreign loans as 2020 projects disrupted by Covid-19

ECONOMYNEXT – Sri Lanka’s foreign project loans disbursements fell to 369 million US dollars up to April 2020 from 539 million dollar from a year earlier, amid a Coronavirus pandemic while China led with a 500 million US dollar budget support loan.

Total disbursements on China projects were 68.4 million US dollars outside the 500 million dollar budget support loan, followed by the Asian Development Bank with 94.9 million US dollars (last year 400 million), World Bank 77.5 million dollars (last year 153.2 million US dollars) and Japan 66.4 million US dollars (154.3 million dollars last year).

Many Chinese projects were halted or slowed as a Coronavirus epidemic in Wuhan stopped Chinese workers and executives who went home for New Year from returning.

Coronavirus lockdowns followed in the last week of March.

“The performance of mobilizing foreign financing during the first quarter was greatly affected by the COVID-19 pandemic,” a Finance Ministry report said.

Sri Lanka, however, has successfully contained the Coronavirus pandemic since then.

But a bout of money printing (monetary stimulus) which triggered forex shortages, compounded by a ‘fiscal stimulus’ has de-stabilized the external sector, leading to a currency fall and credit downgrade.

Private credit and consumption have since collapsed, leading to a stabilization of the external sector but Nixon shock style severe import controls not seen since the 1970s when the Bretton Woods system collapsed has been imposed.

Analysts have noted that there is classical economic illiteracy on the island and a strong belief in Mercantilist doctrine.

Up to April 2020, Sri Lanka has signed three loan agreements including 500 million US dollars from the China Development Bank and 128.6 million US dollars given by the World Bank for Covid-19 work.

Last year, Sri Lanka signed up 2.4 billion US dollars of new projects including 989 million US dollars from the Exim Bank of China for the Central Expressway.

China has not given Sri Lanka a debt moratorium in 2020 though a moratorium was requested from all bi-lateral donors.

But China gave a 500 million US dollar budget support loan which can be used to repay instalments of loans falling due. Another 800 million US dollars is expected in the second half of 2020.

The committed undisbursed balance of foreign financing was 9.1 billion US dollars which could be utilized in the next 3 to 5 years.

“China has the majority of the balance to be disbursed followed by the Asian Development Bank, Japan and the World Bank, respectively,” the Finance Ministry said.

By the end of April, total foreign loans of the central government were 35.1 billion US dollars.

Up to April 1,114 million US dollars had been paid out of which 543.1 million US dollars was principle and 570.9 million US dollars was interest.

The number does not include foreign-held rupee bonds which had fallen to about 20 billion rupees, or loans of state enterprises. (Colombo/July16/2020 – Update II-sb)

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Sri Lanka president appoints Supreme Court-faulted official as police chief after CC clearance

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe appointed Deshbandu Tennakoon as the 36th Inspector General of Police (IGP) of the country after the Constitutional Council (CC) cleared the official who along with three other police officers were asked by the Supreme Court to compensate 2 million rupees in a fundamental rights case last year.

“President Ranil Wickremesinghe has appointed Deshbandu Tennakoon as the IGP in accordance with the provisions of the Constitution,” the President’s Media Division (PMD) said.

The island nation’s Supreme Court on December 14 ordered Tennakoon when he was the Acting IGP and three other officials to pay a compensation of 500,000 rupees each for the violation of the fundamental rights of an individual.

The Supreme Court also instructed the Police Commission to take disciplinary action against the said Police officers after it considered the petition filed by W. Ranjith Sumangala who had accused the Police officers of violating his fundamental rights during his detention at Mirihana Police Station in 2011.

The Supreme Court held that the four police officers violated the fundamental rights of the petitioner by his illegal arrest, detention and subjection to torture at the Mirihana Police Station, which was under the supervision of Tennakoon at the time of the arrest.

President’s Secretary Saman Ekanayake presented the official appointment letter to Tennakoon on Monday (26) at the Presidential Secretariat.

When Tennakoon was asked over if the Supreme Court decision would have an impact on his appointment as the IGP last week, he declined to comment, saying that it was a Supreme Court matter and he does not want to say anything about it.

Tennakoon was also criticized by Colombo Archbishop Cardinal Malcolm Ranjith when he was appointed as the Acting IGP citing allegations against him related to security lapses leading up to the Easter Sunday attacks which killed at least 269 in April 2019.

However, Tennakoon rejected the allegations. (Colombo/Feb 26/2024)

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No water tariff hike in Sri Lanka this year: Minister

Millennium Challenge Corporation Photo.

ECONOMYNEXT – Sri Lanka’s planned water tariff formula is ready, and the government will implement it this year only if the formula’s tariff is lower than the current price, Water Supply Minister Jeevan Thondaman said.

President Ranil Wickremesinghe’s government has been implementing IMF-led pricing policies on utilities and the Water Supply Ministry has already come up with a formula.

“There is a water tariff formula in place right now and we are waiting for it to be drafted and seek approval from the cabinet,” Thondaman told reporters at a media briefing in Colombo on Monday.

“Once this water tariff formula is in place, there will be an annual revision with an option of biannual review.

The formula has been developed with the help of the Asian Development Bank. The formula includes electricity and exchange rate among many others as components like the fuel formula.

The National Water Supply and Drainage Board (NWS&DB) increased the water tariff in August 2023, claiming that the operating cost had been increased owing to high interest payment for bank loans and increased electricity prices.

The last year revision saw the consumers paying 30-50 percent increase from the existing water bill.

Minister Thondaman said he will implement the new formula this year only if there is a reduction.

TARIFF CUT WILL BE IMPLEMENTED 

“We will have to wait to see what the formula is. If the formula shows us there needs to be a reduction in the water tariff, we can implement it. But if there is an increase, why should we burden the people when we are on a road to recovery?” he said.

He said a group of experts including University Professors are working on the formula and the numbers.

“Once they come with the number, we will have to take a decision on whether we are going to impose on the people or not,” he said.

“We have already spoken to the Asian Development Bank and informed them we have established the formula. But according to the ADB requirement of this policy-based loan, the implementation period is only in 2025.”

“But right now, you want to take the approval for the formula for sustainability.”

The Energy Ministry is considering a drastic slash in electricity tariff soon. Thondaman said the exact numbers will be decided on after the finalized electricity tariff.

However, he said that as per the formula, there has to be a up to 10 percent increase in the water tariff as of now.

“Given the current formula set up, there must be around a 9-10 percent increase. It was actually at 14 percent. What we have done is since it is at 14 percent, we also did a calculation to see how we can do a cost cutting,” he said.

“So, despite our cost cutting measures, there will be an increase of 9 or 10 percent. But we will not be imposing it as of now because this year is meant to be policy sector reforms. Next year is meant to be the implementation.”

“As per August 2023 water tariff hike, we are able to come close to sustainable. So right now, there is no issue in the water sector. But a formula eventually needs to be established.” (Colombo/Feb 26/2024)

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Sri Lanka rupee closes at 310.80/311.00 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.80/311.00 to the US dollar Monday, from 310.95/311.05 on Thursday, dealers said.

Bond yields were down.

A bond maturing on 01.02.2026 closed stable at 10.60/80 percent.

A bond maturing on 15.09.2027 closed at 11.80/90 percent down from 11.90/12.05 percent.

A bond maturing on 15.03.2028 closed at 12.00/12.15 percent down from 12.10/25 percent.

A bond maturing on 15.07.2029 closed at 12.20/70 percent from 12.20/95 percent.

A bond maturing on 15.05.2030 closed at 12.30/70 percent down from 12.40/95 percent.

A bond maturing on 15.05.2031 closed at 12.60/80 percent from 12.45/13.00 percent.

A bond maturing on 01.07.2032 closed at 12.50/90 percent from 12.50/13.30 percent. (Colombo/Feb26/2024)

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