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Sunday October 11th, 2026

Fitch confirms Sri Lanka’s Dialog Axiata at ‘AAA(lka)’

ECONOMYNEXT – Fitch Ratings has confirmed Sri Lankan telecom company Dialog Axiata PLC’s ‘AAA (lka)’ National Long-Term Rating with a stable outlook, saying sales and profit margins that will contract owing to higher taxes this year will recover in 2017.
 
The rating agency upgraded Dialog’s standalone credit profile to ‘AAA(lka)’ from ‘AA+(lka)’ based on its improving financial profile, backed by its continued market leadership in Sri Lanka’s growing mobile and pay-TV segments.

“We believe resilience to foreseeable risks puts Dialog in the top tier of Sri Lankan corporates for credit quality,” a statement said.

Fitch forecast Dialog’s revenue and profit margins to decline slightly as voice and data usage could ease off after the tax hike.

But Dialog has improving margin on data revenue and savings from its new Bay of Bengal undersea cable.

The full rating report follows:
Fitch Ratings-Singapore/Colombo/Sydney-23 May 2016: Fitch Ratings has affirmed Sri Lanka-based telecoms company Dialog Axiata PLC’s (Dialog) ‘AAA(lka)’ National Long-Term Rating. The Outlook is Stable.

KEY RATING DRIVERS

Standalone Rating Upgraded: We upgraded Dialog’s standalone credit profile to ‘AAA(lka)’ from ‘AA+(lka)’, based on its improving financial profile backed by its continued market leadership in Sri Lanka’s growing mobile and pay-TV segments. We believe resilience to foreseeable risks puts Dialog in the top-tier of Sri Lankan corporates for credit quality.

High Ratings Headroom: Dialog would receive potential support from its 83%-parent, Axiata Group Berhad (Axiata) of Malaysia, if its standalone credit profile were to weaken. Dialog and its parent continue to have strong operational and strategic linkages which include sharing key management personnel, a common brand name and common creditors, which could result in reputational risk to Axiata should Dialog fail.

Rising Regulatory Risks: The regulatory risks have risen for telcos since the new government assumed office in 2015. The government has increased taxes on telcos in an effort to shore up revenue. Effective from May 2016, the government imposed a value-added tax (VAT) of 15% and nation building tax (NBT) of 2% on telecom services which will increase tax on voice and data services to 50% and 32%, respectively (earlier: 28% and 12%).

The government had abandoned an earlier tax proposal which could have diluted the industry’s EBITDA margin by an average of 6%-7%. We revised the outlook on Sri Lanka’s telco sector to stable from negative on 18 January 2016 following the new government budget.

Stagnant Revenue; Lower Profitability: We forecast Dialog’s revenue to decline by the low-single-digits as voice and data usage could ease off following the tax increase. Its 2016 operating EBITDAR margin could narrow by 100bp to 33% (2015: 34%) due to lower usage and decline in profitable international voice business. This would more than offset the improving margin on data segment revenue and savings from its new Bay of Bengal undersea cable.

However, we expect Dialog’s revenue to grow by the mid-single-digits during 2017-2019, driven mainly by higher data revenue and a gradual recovery in usage. Dialog’s mobile data revenue grew by 64% in 2015, and accounted for around 15% of mobile revenue.

Negative FCF; Higher Leverage: We expect negative FCF during 2016-2018 as cash flow from operations will be insufficient to fund its large capex requirements and dividend commitments. As a result, FFO-adjusted net leverage will deteriorate marginally to 1.5x (2015: 1.2x) during 2016-2017. Dialog would be likely to increase its 2016-2017 capex to 30% of revenue (2015: 23%) to expand 3G/4G networks and fibre infrastructure. Dividends are likely to be around LKR2bn-2.5bn in 2016 and 2017.

Industry to Consolidate: The tax increases might accelerate industry consolidation to reduce the number of telcos to three from five. Two smaller, unprofitable operators – Hutchison Lanka and Bharti Airtel Limited’s (BBB-/Stable) Sri Lanka subsidiary, Airtel Lanka – may exit the industry.

We believe that Dialog and Sri Lanka Telecom PLC (B+/Negative) could acquire smaller telcos to strengthen their market position and consolidate spectrum. Dialog’s ratings have sufficient headroom for a debt-funded acquisition of a smaller telco for around LKR10bn-12bn.

Adequate Liquidity: Dialog’s cash balance of LKR9.7bn and committed undrawn facilities of LKR7bn were sufficient at end-March 2016 to meet its short-term debt maturities of LKR8bn. The company has solid access to local banks, given that it is one of the largest corporates in Sri Lanka. Its debt consists of a USD149m syndicated facility and LKR10bn bank loan. We expect Dialog’s future borrowings to be in Sri Lankan rupees to mitigate forex risk.

KEY ASSUMPTIONS

– Revenue to contract by 1%-2% in 2016 as usage declines due to higher taxes. Revenue growth will recover to the high-single-digit percentages during 2017-2019.

– Operating EBITDAR margin to be diluted by about 100bp in 2016, but to recover in 2017.

– Capex/revenue to increase to around 30% on account of fibre and 3G/4G network expansion.

– FCF deficit during 2016-2018 resulting in a gradual increase in FFO-adjusted net leverage.

RATING SENSITIVITIES

Negative: Future developments that may individually, or collectively, lead to negative rating action include:

– A significant dilution in Axiata’s ownership or board control in Dialog, removal of the common brand name, or a weakening of the current strategic and operational ties between the companies.

– A narrowing in operating EBITDAR margin to below 20%, along with FFO-adjusted net leverage above 3.5x on a sustained basis, could weaken its standalone credit profile.

Positive: Future developments that may individually or collectively lead to positive rating action include:

– There is no scope for an upgrade as Dialog is at the highest rating on the Sri Lankan National Ratings scale.
(COLOMBO, May 23 2016)

Sri Lanka Central Bank stubbornly defends 5% inflation target

ECONOMYNEXT – Sri Lanka Central Bank stubbornly defended the 5% inflation target it recommended and signed with the government for the next three years citing that it was the only “optimal solution” and rubbished claims that the target is high and erodes the purchasing power of the general public.

Economists and monetary policy critics have strongly advocated that the Central Bank lower its official inflation target from 5% to 2%, emphasizing that a lower target is essential to break the country’s historical cycle of currency instability.

Proponents of the 2% target argue that a 5% baseline implicitly embeds a continuous, compounding erosion of domestic purchasing power, increasing price levels by over 15% across a three-year window.

In a country recovering from hyperinflation, critics contend that a targeted 5% annual inflation creates an environment where nominal prices and living costs permanently outpace real wage growth, continually straining lower- and middle-income households.

However, the Central Bank recommended to the government and signed a three-year agreement to maintain the 5% inflation target for the three years through October 2029.

Central Bank Governor Nandalal Weerasinghe explained at a panel discussion with his junior officers that countries choose inflation targets depending on their growth potential and ability to grow.

“So, this is where one can argue, why 2% inflation, is it better? Looking at the purchase power, it looks better, but it’s not better,” he told the gathering in response to a question.

“It is worse, because it will create a country that can grow, much lower below its potential…. It’s not welfare optimization. It will make a lot of people worse off than it will make a lot of people better off.”

A primary structural argument for adopting a 2% inflation target centers on external stability and protecting the Sri Lankan rupee.

When Sri Lanka maintains a 5% inflation target while its key international trading partners such as the United States, Eurozone, and major Asian economies  aim for 2%, a structural inflation differential of around 3% is built directly into the economy.

According to economic theory and historical precedent, this persistent inflation gap exerts steady downward pressure on the domestic currency, forcing nominal exchange rate depreciation.

Advocates argue that lowering the target to 2% would align Sri Lanka with global standards, anchor long-term exchange rate expectations, and prevent recurring balance-of-payments vulnerabilities.

Only 5%

However, Weerasinghe said the 5% target has the “right balance” and the Central Bank had conducted extensive research before arriving at the decision.

“I think, we don’t see any other counterfactual to say, it’s not 5%, it’s 4%, or 2%, or 3%, or 6%, or 7%,” he said.

“A lower inflation target can make the solution worse than what we think…. It won’t be better because everyone can be benefited out of higher growth.”

“If you are coming to a solution, where inflation can drag down the growth below potential, that won’t be the optimal solution.”

“We are all convinced and that’s why we have made the recommendation, government also agreed.”

He said the central bank will reassess and come up with the right level that could be lower in the future and that decision will be data-driven and evidence-based.

Analysts have stressed that a 2% inflation target is critical for lowering long-term interest rates and encouraging capital investment.

Under a 5% target, which carries an allowed accountability band of 2 percentage points, permitting inflation to fluctuate between 3% and 7%, lenders and foreign bondholders demand a higher inflation risk premium to compensate for potential price volatility.

This inflates domestic borrowing costs for both private enterprises and the government. By committing to a tighter 2% anchor, the central bank would provide greater policy credibility, reduce nominal interest rates across the yield curve, and foster a far more predictable environment for long-term private sector investment and debt sustainability.

The data showed, the Central Bank missed the inflation targets for most quarters in the three-year period through end September 2026.

The Bank has blamed lower energy prices for disinflation and missing the target below the lower band of 3% and higher energy prices for breaching the target above upper limit of 7%. (Colombo/October 09/2026)

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Sri Lanka rupee closes at 330.85/95 to US dollar spot, bond yields edge up

ECONOMYNEXT – Sri Lanka’s rupee closed at 330.85/95 to the US dollar in the spot market on Friday, from 330.95/331.00 the previous day, while bond yields closed slightly higher, dealers said.

A bond maturing on 01.08.2030 closed at 11.30/35 percent, up from 11.25/35 percent.

A bond maturing on 15.10.2030 closed at 11.37/40 percent, up from 11.30/40 percent.

A bond maturing on 01.02.2031 closed at 11.42/47 percent, up from 11.35/45 percent.

A bond maturing on 15.12.2032 closed at 11.75/85 percent, up from 11.75/80 percent.

A bond maturing on 15.10.2034 closed at 12.10/15 percent, from 12.05/15 percent. (Colombo/Oct9/2026)

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Sri Lanka stocks close up, ASPI gains 0.41-pct

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed higher on Friday, CSE data showed, with the benchmark All Share Price Index moving up 0.41 percent.

The ASPI was up 82.57 points at 20,316.91, while the more liquid S&P SL20 was up 0.45 percent, or 26.19 points, at 5,788.75.

The ASPI ended the week down 496 points from last Friday, amidst a mixed week of trading.

Positive contributors to the ASPI were Dialog Axiata (up 0.91 percent at 44.50 rupees), Hatton National Bank (up 0.93 percent at 379.00 rupees), Commercial Bank of Ceylon (up 0.38 percent at 200.00 rupees), Richard Pieris and Company (up 4.30 percent at 26.70 rupees), and Laugfs Gas (up 7.35 percent at 40.90 rupees).

SMB Finance (down 9.09 percent at 1.00 rupee), LOLC Holdings (down 1.25 percent at 415.25 rupees), Haycarb (down 1.37 percent at 198.50 rupees), and Industrial Asphalts (Ceylon) (down 16.67 percent at 0.50 rupees) were top negative contributors.

Market turnover was 1.05 billion rupees. Diversified financials led turnover with 233.69 million rupees, followed by capital goods with 200.09 million rupees.

During the session, crossings in Lanka Milk Foods (LMF) in the first half of the trading day drew market interest, Raynal Wickremeratne, Head of Research and Strategy at NDB Securities, said.

“Usually 20,000 is also a psychological limit,” Wickremeratne said. “When it comes back closer to that, people also might feel like it’s worth buying, so that’s why sometimes coming close to that you might have a bit of a move.” (Colombo/Oct09/2026)

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Sri Lanka Customs’ September revenue exceeds target by 32-pct

ECONOMYNEXT – Sri Lanka Customs exceeded its September target by 32.1 percent, while the revenue in the first nine months of 2026 jumped around 22 percent compared to the same period last year, official data showed.

Customs’ September revenue target was set at 195.6 billion rupees. However, the revenue-collecting body collected 258.3 billion rupees that month, exceeding the target by nearly a third, according to official data.

It also exceeded the cumulative target for the first nine months by 29.2%, achieving 2,117 billion rupees.

Last year, Customs collected a record 2,551 billion rupees in revenue, exceeding a revised target of 2,241 billion rupees for the year and achieving 64.2% higher revenue than the previous year’s revenue of 1,553 million rupees.

Customs has set a revenue target of 2,207 billion rupees for this year, 13.5% less than last year as it expects a significant decline in car imports. Data showed it achieved 95.9% of this year’s target in the first nine months.

Analysts expect the revenue collecting body to achieve its 2026 full year target by mid-October,

Sri Lanka Customs’ revenue jump is largely due to stronger enforcement, improved valuation practices, and a rebound in import volumes after years of contraction.

Following the 2022 economic crisis, imports fell sharply as the country imposed restrictions to conserve foreign exchange.

However, with the stabilization of reserves, the relaxation of certain import controls, and a steady recovery in consumer demand, customs collections from import duties, excise, and other levies have risen.

Officials note that tighter monitoring of under-invoicing and misdeclaration of goods has also contributed to boosting state revenue.

The combined effect of increased import activity, currency movements, and stricter enforcement has positioned Customs as one of the top revenue sources for the Treasury in 2025, providing a vital cushion as the state works to meet fiscal targets under the IMF-supported program. (Colombo/October 09/2026)

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IESL, Dialog open Sri Lanka entrepreneurs challenge

ECONOMYNEXT – The Institution of Engineers, Sri Lanka (IESL) and Dialog Axiata have launched the IESL National Startup Challenge, for aspiring entrepreneurs to transform innovative ideas into commercially viable, investment-ready startups.

The competition invites Engineering undergraduates, practitioners and participants in an Open Category for Non-Engineers to submit ideas across 12 innovation verticals.

“The IESL National Startup Challenge is designed to turn innovative ideas into viable businesses by connecting aspiring entrepreneurs with industry expertise, mentorship and continuous practical support,” Eng Jasmine Nanayakkara, Chairperson of the Entrepreneurship Forum at the Institution of Engineers, Sri Lanka, said.

“By encouraging our engineers and aspiring founders to create, commercialise and scale solutions, we aim to contribute to new ventures, new opportunities and meaningful job creation for Sri Lanka’s skilled and educated next generation.”

Participants will progress through idea development, pitching, incubation, prototyping, validation, minimum viable product development and business scaling, supported by industry experts, mentors and ecosystem partners.

The programme will culminate in a Top 10 selection, with the first-place winner receiving an award of 1 million rupees.

Each of the Top 10 teams will receive a Dialog Digital Startup Support Package valued at 250,000 rupees, comprising selected Dialog digital products and services.

Dialog is providing technical expertise, mentors and digital resources to help participating teams develop, validate and scale their solutions.

“Dialog is extending its digital capabilities, mentorship and ecosystem support to help promising teams progress from concept to validation and investment readiness,” Dialog Axiata said.

The National Startup Challenge also brings together a network of partners, including The Ceylon Chamber of Commerce as Ecosystem and Mentoring Partner, Helago as Official Mobility Partner, Helakuru as Official Digital News Partner, and Real Life as Official Climate Action Partner.

Applications are now open via www.iesl.lk/announcements, giving aspiring entrepreneurs an opportunity to access the resources and funding they need to succeed. Applications close on 16th November 2026. For more information, contact mgr.pub@iesl.lk / 071 109 4393. (Colombo/Oct9/2026)

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Sri Lanka stocks trend higher, ASPI up 0.86-pct

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange opened higher on Friday, CSE data showed, with the benchmark All Share Price Index moving up 0.86 percent.

The ASPI was up 174.62 points at 20,408.96, while the more liquid S&P SL20 was up 0.86 percent, or 49.77 points, at 5,812.33.

Positive contributors to the ASPI were Commercial Bank (up 0.88 percent at 201.00 rupees), Dialog Axiata (up 1.59 percent at 44.80 rupees), Distilleries Company of Sri Lanka (up 1.76 percent at 52.00 rupees), and Hatton National Bank (up 1.20 percent at 380.00 rupees).

SMB Finance (down 9.09 percent at 1.00 rupee), Haycarb (down 0.75 percent at 199.75 rupees), Malwatte Valley Plantations (down 1.79 percent at 55.00 rupees), and Odel (down 4.04 percent at 9.50 rupees) were top negative contributors.

Market turnover was 343.62 million rupees. Capital goods led turnover with 77.51 million rupees.

E.B. Creasy & Company PLC announced that it has executed a corporate guarantee of 50 million rupees with effect from September 30, 2026, on behalf of its subsidiary, E. B. Creasy Logistics Ltd, guaranteeing banking facilities obtained by the company. The company stated that the delay in making the disclosure was due to a delay in receiving official notification from the bank on the execution of the guarantee. (Colombo/Oct09/2026)

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