An Echelon Media Company
Monday December 11th, 2023

Sri Lanka cautioned on money laundering risks at China-backed Colombo Port City

ECONOMYNEXT – Sri Lanka has to be vigilant against unintended consequences of ‘nefarious actors’ who may try to mis-use a China-backed Colombo Port City’s easy business rules as a permissive money laundering haven amid concerns of tax leaks, US Ambassador Alaina Teplitz warned.

Sri Lanka has unveiled draft legislation for a Colombo Port City Commission which allows for sweeping tax breaks, tax free salaries and to be an offshore financial centre.

Permissive Haven

Teplitz warned that Colombo Port City’s planned easy business rules may be perceived as bein a haven for money laundering.

“Any legislation relating to port city has to be considered very carefully for its economic impact,” Teplitz told reporters in Colombo in an online discussion. “It also has to be considered very, very, carefully for un-intended consequences.

“And of course among those un-intended consequences could be creating a haven for money launderers and other sorts of nefarious actors to take advantage of what was perceived as a permissive business environment for activities that would actually be illegal.”

The Colombo Port City would not be exempt from Sri Lanka’s anti-money laundering and counter-terrorism financing law which was enacted under Western backed UN initiative.

Sri Lanka’s attempts at creating numbered accounts as part of creating Non-resident foreign currency accounts, after re-opening the economy in 1978 was also resisted by Western nations.

Sri Lanka’s economy was progressively closed with an import control law being enacted in 1969 as money printing pressured the rupee, which worsened after the break-up of the Bretton Woods in 1971, as then Federal Reserve Chief Arthur Burns printed money to target an output gap, forcing dollar to be floated.

Sri Lanka is now also under the worst import controls since the 1970s using the 1969 law, though exchange controls are less draconian.

Citizens are also allowed to hold up to 15,000 US dollars as well as unlimited amounts in dollar accounts outside to protect their savings from monetary expropriation, in a relaxation of legal tender laws.

The Port City denizens would be protected from the policy errors of the Monetary Board of the central bank and the resulting wage-earner impoverishment, brain drain, brawn drain and capital destruction that comes from the inevitable currency collapses, through dollarization.

Dollarization is expected to protect the area from balance of payments crises and exchange controls, which the Monetary Board has imposed on the rest of the island after printing money to keep rates down, allowing the Colombo Port City to be an international financial centre and avoid capital flight.

US-built ‘flexible’ central bank

Sri Lanka started having foreign exchange trouble after a central bank with money printing powers was set up by John Exter, a Federal Reserve official in the style of several Latin American central banks inspired by work of Argentina’s central bank creator Raul Prebisch.

US-built central bank brought with it money printing powers for ‘counter cyclical’ or ‘flexible’ policy which is now called ‘stimulus’.

Before that Sri Lanka had a rule-based non-discretionary self-correcting currency board where currency depreciation was illegal and a 1 to 1 hard peg with the Indian rupee (and Sterling later) was held unbroken from 1885 through two World Wars.

Analysts have pointed out that in many countries that the Latin American unit of the Fed under its then chief Robert Triffin was set up Argentina style central banks, currency collapses and macro-economic instability had brought dictators, nationalist or leftist leaders or sometimes military strongmen.

Latin American countries which experienced chronic forex troubles also pioneered ‘import substitution’ and eventually ended up sovereign default.

Such soft-pegged countries, which were originally, close friends of the US.

But they became chronic repeated or ‘recidivist’ clients of the International Monetary Fund where liberal administrations were turfed out by currency instability and leaders hostile to the US interests came to power.

The IMF does not promote currency stability, unlike the practices of East Asian nations which have remained friendly to the US, including Japan, Thailand, Singapore and Taiwan where there was only one currency crisis in many decades.

Hong Kong which was handed over to China also has a currency board with the US dollar.

From 2015 to 2019, the rupee collapsed from 131 to 182 in two currency crisis with negative growth shocks, during an administration which was friendly to the US in a repeat of the experience in Latin America, the Caribbean and Iran.

Flexible IMF program

A collapse of the rupee from 151 to 182 occurred during an IMF program with a highly discretionary un-anchored policy involving a ‘flexible’ exchange rate (non-rule based external anchor) and ‘flexible’ inflation targeting (non-rule based domestic anchor).

Exter the Fed official who set up Sri Lanka’s depreciating Triffin-Prebisch central bank set up the Philippines central bank, which went bankrupt and was re-capitalized.

Similar ones came into being following Fed missions to Iran and Cuba. Triffin had invited Prebisch to participate in some of the missions. Venezuela’s central bank was reformed through a separate mission.

The Bretton Woods agreement of ‘flexible’ of collapsing soft-pegs was itself passed with the help of votes largely from Latin American bloc with which the Fed had links and were friendly to the US before currency collapses and economic hardships pushed them in to the arms of the Soviet Union and now China.

Further reading: The Latin American Origins of the Bretton Woods


How Sri Lanka, Latin America was busted by Fed money doctors creating strongmen, anti-Americanism: Bellwether

Today the US backed Triffin-Prebisch central banks are among top IMF clients, going into sovereign default from time to time.

These include Paraguay (11 IMF deals), Dominican Republic (9 IMF deals), Guatemala (15 IMF programs), The Philippines (23 IMF programs, recapitalized), and Ceylon (16 and counting).

Ecuador, which had 19 IMF programs, has dollarized, like the plan for Colombo Port City.

Korea, where Arthur Bloomfield, another Fed official, set up a central bank in 1953 which issued a currency called Hwan at 60 to the US dollar.

The Hwan fell to 1200 by 1961 and General Park, who remained pro-American. Koreas post-War First Republic was turfed out.

The new central bank set up in 1961 with the current Won also depreciated from time to time but was better. Korea had 17 IMF programs and until the central bank was reformed in the early 1980s including one after reforms during the East Asian crisis.

Unlike Iran, Middle Eastern nations with firm pegs set up by British experts, and do not practice ‘flexible’ policy, including GCC nations have also remained friendly to the US and do not go to the IMF.

GCC central bank follows Fed rate changes, allows short term rates to move and do not print money. Million of Sr Lankans have found employment in the region as the rupee collapsed.

The dollarized Colombo Port City, would not only be free from any policy errors of the US-built central bank, but also the un-anchored, discretionary, free for all, ‘flexible exchange rate’, ‘flexible inflation targeting’ monetary programs of violently conflicting unstable dual anchors.

Tax Leaks

Meanwhile Teplitz also warned against the Colombo Port City becoming a source of tax leaks.

The agency running the Port City would have extensive powers to exempt businesses from taxes of up to 40 years, though it is not a tax haven in the traditional sense.

Sri Lanka’s tax revenues have plunged in 2020, she said raising concerns over debt and the fiscal path, credit downgrades and the ability to of the government to provide vital public services to the people, while managing loss making state enterprises.

“I do recognize that the government of Sri Lanka wants to take advantage of the investment that has already been made in creating the Port City foundation,” she said.

“But the legislation really needs to be reflected to address these challenges and to be careful of what it might be to open doors to bad practice and unfair competition for the rest of the country.”

Teplitz said a idea by US Treasury Secretary Janet Yellen to have a global single corporate tax was just a proposal with no immediate impact but Sri Lanka should think about tax concessions on its own interests. (Colombo/Apr09/2021)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka’s Singer Finance rating cut to BBB (lka), outlook stable: Fitch

ECONOMYNEXT – Fitch Ratings has downgraded the national long-term rating of Sri Lanka’s Singer Finance (Lanka) Plc to ‘BBB (lka)’ from ‘BBB+(lka)’.

This rating is a support driven rating and therefore this downgrade follows similar rating action on SFL’s parent, the company said in a statement.

Its senior listed rated unsecured debentures of Rs 5 million issued on May 19, 2020 were also revised down from BBB+ ro BBB; and subordinated listed rated unsecured debentures of Rs 2,000 million issued in June 25, 2021 were revised down from BBB- to BB+.

The full statement is reproduced below:

Fitch Downgrades Singer Finance to ‘BBB(lka)’; Outlook Stable

Fitch Ratings – Colombo/Mumbai – 07 Dec 2023: Fitch Ratings has downgraded Singer Finance (Lanka) PLC’s (SFL) National Long-Term Rating to ‘BBB(lka)’ from ‘BBB+(lka)’. The Outlook is Stable. Fitch has also downgraded SFL’s outstanding senior unsecured debt to ‘BBB(lka)’ from ‘BBB+(lka)’, and the outstanding subordinated unsecured debentures to ‘BB+(lka)’ from ‘BBB-(lka)’.


Parent’s Weakening Ability to Support: The downgrade follows similar rating action on SFL’s parent, consumer-durable retailer, Singer (Sri Lanka) PLC (A(lka)/Stable), on 29 November 2023. SFL’s rating is based on our expectation of support from Singer, taking into account Singer’s 80% shareholding in SFL, the common brand name and a record of equity injections into SFL. As such, the downgrade reflects Singer’s weakening ability to provide support.

Moderate Synergies: We believe SFL has limited synergies with Singer, as evident from SFL’s small share of lending within the group’s ecosystem. We also believe support from the parent could be constrained by SFL’s significant size relative to Singer, as its assets represented 41% of group assets at end-September 2023. SFL’s operational integration with the group is also low, although the parent has increased its focus on the subsidiary’s strategic long-term decision-making over the past few years and has meaningful representation on SFL’s board.

Weak Standalone Profile: SFL’s intrinsic financial position is weaker than its support-driven rating. It has a small domestic vehicle-focused lending franchise and a high-risk appetite stemming from its exposure to customer segments that are more susceptible to difficult operating conditions.

Less Severe Economic Risk: We expect downside economic risk to moderate after Sri Lanka completed the local-currency portion of its domestic debt optimisation, which addressed one element of risk to financial system funding and liquidity. We expect the operating environment to remain challenging in light of strained household finances and fragile investor confidence, but conditions should stabilise with a gradual economic recovery amid easing inflation and interest rates.

Vehicle Loans Remain Dominant: SFL’s business model is dominated by vehicle financing, which accounted for 69% of its lending portfolio as at end-June 2023. Gold loans have been growing at a faster rate in the last few quarters, reaching 28% of SFL’s portfolio, amid lower demand for vehicle financing. However, we do not expect a major change in SFL’s vehicle-focused business mix in the medium term, given its more established franchise in this segment.

Weak Asset Quality: SFL’s reported stage 3 assets ratio rose to 11.9% in the financial year ending March 2023 (FY23), from 6.6% in FY22, on weaker collections in its core vehicle loans segment as well as implementation of a stricter stage 3 recognition rule. We expect asset quality to remain stressed in the medium term, due to the weak economic environment. Nonetheless, loan collections could increase as borrower repayment capability improves, provided the economy gradually stabilises with declining inflation and interest rates.

Profitability to Recover, Leverage Rising: We expect SFL’s net interest margin to gradually recover in the medium term amid a declining interest-rate environment. This, along with a potential pick-up in loan growth, should support earnings and profitability, but a strong loan expansion in the medium term could pressure leverage.

Pre-tax profit/average total assets declined to 3.1% in FY23, from 4.5% in FY22, due to a sharply narrower net interest margin of 9.4%, against 12.7% in FY22. This followed a surge in borrowing costs due to rising interest rates. SFL’s debt/tangible equity reached 5.4x by end-September 2023, from 5.1x at FYE22.

Improved Funding and Liquidity: SFL’s share of unsecured deposits/total debt swelled to 80% by end September 2023, from 52% at FYE22, supported by a greater focus on raising deposits. SFL’s increased cash and cash equivalents from deposit raising and reduced lending mitigated near-term liquidity pressure.

Liquid assets/total assets rose to around 27% by end-September 2023, from 8% at FYE22, as SFL boosted its investments in liquid assets amid fewer lending opportunities.


Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

SFL’s rating is sensitive to changes in Singer’s credit profile, as reflected in Singer’s National Long-Term Rating.

Singer’s weaker ability to provide support to SFL, as signaled through a further downgrade of its rating, SFL’s increased size relative to Singer that makes extraordinary support more onerous or delay in providing liquidity support relative to SFL’s needs due to economy-wide issues could also lead to negative rating action on SFL.

The ratings may also be downgraded if we perceive a weakening in Singer’s propensity to support its finance subsidiaries due to weakening links. That said, SFL’s standalone credit profile could provide a floor to the rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

A significant positive turnaround in Singer’s financial prospects or increase in SFL’s strategic importance to Singer through a greater role within the group could lead to narrower notching from Singer’s profile. A large improvement in SFL’s intrinsic credit profile could result in its ratings been derived from its standalone profile.



The rating on SFL’s senior unsecured debt is in line with the National Long-Term Rating, as the debt constitutes the unsubordinated obligations of the company.


SFL’s Sri Lankan rupee-denominated subordinated debentures are rated two notches below its National Long-Term Rating to reflect their subordination to senior unsecured obligations. Fitch’s baseline notching of two notches for loss severity reflects our expectation of poor recovery. There is no additional notching for non-performance risk.

SFL’s senior unsecured debt and subordinated unsecured debt ratings will move in tandem with the National Long-Term Rating.

The principal sources of information used in the analysis are described in the Applicable Criteria.

SFL’s rating is driven by Singer’s National Long-Term Rating.

Continue Reading

Sri Lanka’s ousted utilities regulatory chief convinced he’ll be president

ECONOMYNEXT — Sri Lanka’s former public utilities regulatory chief Janaka Ratnayake, who was removed in May following a parliamentary vote, has confirmed that he intends to run for president.

Speaking to reporters on Sunday December 10 in the wake of an hours-long island-wide power outage the previous evening, Ratanayake said he will be the definite winner at a future presidential poll.

“I announced [my intention to run] officially on December 07, my birthday. I’m definitely coming as a presidential candidate. That’s not all, I’m the definite president at a future presidential election,” he said.

Ratnayake, in his first media appearance in months, was responding to questions about newspaper advertisements published on December 07 announcing his future candidacy.

Sri Lanka’s parliament on May 24 opted to remove the former chairman of the Public Utilities Commission of Sri Lanka (PUCSL), with 123 members voting in favour. This marked the first time a head of an independent government commission was sacked by Sri Lanka’s parliament.

Power & Energy Minister Kanchana Wijesekara, who had been at loggerheads with the regulatory chief, said at the time that the official had acted obstinately without the concurrence of fellow commission members.

The minister levelled five charges against Ratnayake, the first twoof  which were based on a February 10 verdict by the Court of Appeal rejecting an application filed by the offiical against an electricity tariff hike. Opposition legislators slammed the decision saying it undermined independent commissions.

Ratnayake’s presidential ambitions have been known for some time. A day before parliament voted to remove him, he told reporters: “If I can change the country, I will definitely join politics, because my intention is to serve the people and what is right.”

Ratnayake had blocked delayed a tariff hike in early 2023, resulting in losses to the state-run Ceylon Electricity Board (CEB), Minister Wijesekara claimed at the time. The PUCSL had als onot enabled tariff hikes for nine years, requiring its governing law to be changed, Wijesekera said.

Continue Reading

Sri Lanka wants university research to lead to commercially viable products

ECONOMYNEXT – Sri Lanka’s ministry of industries wants to ensure commercially-ready products and services are produced by university research, by facilitating partnerships with factories and entrepreneurs.

After a currency crisis, Sri Lanka’s government is in a drive to boost its trade balance by increasing exports.

“Our export basket hasn’t changed recently, partly because our small and medium entrepreneurs don’t have sufficient research and development facilities (like the multinationals) to innovate their products for the export market,” Additional Secretary of the Ministry of Industries, Chaminda Pathiraja said.

“At the same time, state universities and research institutes produce a large amount of research findings yearly, which end up sitting in those institutions; they don’t reach the industry,” Pathiraja said at a press briefing to announce a program on commercialization of new products and research, to be held tomorrow at the Waters Edge.

The networking forum will bring innovators and manufacturers together to focus on the commercialization of research for the value added tea, coir, spice, dairy products, gem and jewellery and packaging products industries.

“We want to encourage collaboration, through programs like our University Business League etc, so that the research output can be commercialized, and what is produced by our factories can increase in quantity and quality. We must focus on the export market.”

The objective of this program, he said, was to reduce the gap in acquiring innovators’ ideas and skills by the investors, and ultimately boost the manufacturing sector’s efficiency in alignment with the export market.

Continue Reading