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Wednesday March 29th, 2023

Sri Lanka chamber recommends new way to appoint politicized temporary secretaries

ECONOMYNEXT – Sri Lanka’s Ceylon Chamber of Commerce has suggested a new way to appoint temporary secretaries, the key problem which critics had blamed for ending a once apolitical public service headed by permanent secretaries and the progressive spread of arbitrary rule.

Under British system Sri Lanka inherited at independence – borrowed from China’s Mandarin system – politicization of the state system was cut off at ministry secretary level through the establishment of a permanent apolitical civil service.

The ministry secretaries, appointed by a civil service commission of peers, also protected department heads from being arbitrarily changed and formed the bulwark between the elected ruling class allowing public servants to serve the public instead of the rulers.

Sri Lanka has set up a constitutional council to appoint some department heads and judges, but the key problem of temporary secretaries, which led to the politicization of the public service and the permeation of arbitrary rule down entire state system, has not been addressed.

The destruction of the apolitical public service was begun with Sri Lanka’s 1972 constitution where secretaries were appointed by the cabinet with outsiders being brought in.

Under the 1978 constitution, temporary secretaries serve at the pleasure of the President, which critics say has turned a ‘public service’ into a ‘rulers service’. As a result, secretaries have less security of tenure than deputy secretaries, critics say.

The temporary secretary system has also allowed the number of ministries to be fluid leading to an arbitrary expansion of the cabinet and the subjects under ministries to be fluid and break the barrier between the elected political administration and the permanent public service.

In another unusually fluid situation, Sri Lanka’s ministry secretaries lose office when the Prime Minister and cabinet resign.

The logic behind a apolitical permanent public service in Britain was set out in Northcote Trevalyan report of 1854.

The Ceylon Chamber of Commerce has recommended a different way to keep make appointments less arbitrary without changing the politicized temporary secretary system itself.

The Chamber had also suggested other improvements.

The full statement is reproduced below:

Press Release on Reforms to Ensure an Independent arePublic Service

The progression of Sri Lanka’s economy is dependent significantly on the performance of the public sector. A more efficient and productive public sector is an absolute need in driving forward Sri Lanka’s economic recovery. In this context, it is important to have an effective and efficient service delivery of the public sector.

In this regard, complimenting the on-going efforts towards public sector reform, the Steering Committee on Public Sector Reforms of the Ceylon Chamber of Commerce recently presented a set of proposals to the policy makers. These proposals were developed after carefully analyzing the constitution of Sri Lanka and documents such as the Administrative Reform Committee Reports (ARC) of 1986/88 headed by S. Wanasinghe.

The identified proposals aimed to ensure formal checks and balances within the public sector, and improve efficiency in order to transform the public sector into a people centric arm of the state. So that national development can be accelerated through efficient and effective service delivery by the Government.
The document consists of amendments to the constitution and other recommendations. Below provides a summary of these proposals.

1. Re-establishment of the Constitutional Council

The Constitutional Council (CC) with wider powers (similar to the 19th amendment) should be reintroduced through an amendment to the constitution. The majority of the members of the Council should be independent citizens and be appointed through the approval of Parliament. In order to strengthen the work of the Constitutional Council, we recommend that an office be setup with the necessary staff to assist with its operations.

2. Limiting the number of Cabinet Ministries

The number of Ministries should be fixed by the Constitution (even in the case of a National Government in power) with no State Ministries. We recommend the number of Cabinet ministries to be limited to 20 by clustering the existing subjects with the same number of Deputy ministers.

3. Appointment, Evaluation and Removal of Secretaries to Ministries

A) Appointment of Secretaries to Ministries

A selection process of appointing Secretary to the President and Prime Minister, Secretary to the Cabinet and all other Secretaries to the Ministries was developed. This mechanism is proposed with an aim of allowing appointments to be made fair and subject to open competition, and not have any political interference.

The recommended process for appointing Secretaries is presented below.

Figure 01: Process of Selecting Secretaries

The pool should be larger than the number of slots available at any given time. The appointments should not have a fixed term and could change with the government to reflect the mandate given by the people. However, if the Cabinet ceases to hold office, the Ministry Secretaries should stay on till new Secretaries are appointed without hindering the regular operations of Ministries and institutions under them

B) Performance Evaluation

Performance evaluation of Ministry Secretaries should be carried out by a 5-member panel. This includes President’s Secretary, Prime Minister’s Secretary, Cabinet Secretary, the Subject Minister and an independent person appointed by the Public Services Commission (PSC) such as a retired secretary.

The Ministry Secretary’s performance should be evaluated based on certain pre-determined criteria. The Secretary will have the opportunity to make representations for himself orally at the evaluation and also in writing. The final evaluation will go to cabinet.

C) Removal of Ministry Secretaries

When removing a Ministry Secretary, the Minister can recommend to the cabinet the reasoning for the necessity of the removal. The cabinet can then request the PSC to conduct an inquiry and revert back to the Cabinet accordingly. In the event there is a financial irregularity (actual or intent), then PSC can inform the Auditor General and Committee on Public Accounts (COPA) for further investigations within their respective mandate. The following set of criteria can be used for the removal of a Ministry secretary;

1. Poor performance – based on performance appraisal (KPIs)
2. Integrity challenged – taken into custody under the Bribery and Corruption Act/ criminal action charge sheet being served
3. Health issues
4. Engaging in political activities
5. Disciplinary control issue

Further, if the PSC recommends to the cabinet to remove the Ministry Secretary, then the Secretary will be removed from the pool of ministry secretaries. If the PSC finds in favor of the Secretary, then the Secretary will not be removed from the pool and may be appointed to another ministry.
Other Suggestions

a) In article 51 (2) the wording “direction and control” should change to “leadership and policy direction” to avoid politically-driven interferences on administrative matters by Ministers and to enable a fair decision-making process.

4. President’s Power to Appoint His Staff

A provision should be made to appoint a Secretary to the President following a prescribed procedure as proposed for a Ministry Secretary. The President may have the discretion to appoint a Private Secretary, a Media Secretary, 3 Coordinating secretaries, 5 consultants and 5 non-executive grade private staff members totaling to 15 staff members. This should be the maximum limit the President can hire as private staff.

5. Improvement of the functioning of the Public Services Commission

Public Services Commission should have the powers described in Article 55 (1), (2) and (3) and should not delegate such powers to any other authority. Particularly, the powers pertaining to the executive officers should not be delegated.
The following recommendations are suggested for the PSC:

i. It is suggested that Human Resources (HR) reforms should be included in (55) (1) as a policy matter and the PSC should establish an Administrative Reforms Unit (ARU) to provide recommendations on public sector HR matters and system improvements (including other related matters). This can include Voluntary Retirement Scheme (VRS) for right-sizing the cadre strength. These recommendations should be submitted to the PSC who will be mandated to implement the ARU recommendations that are accepted.

ii. The appointments of Heads of Departments, Director Generals and Additional Secretaries should be vested in PSC. The PSC should not delegate the authority of appointment, promotion, transfer and disciplinary control of the Heads of Departments, Director Generals and Additional Secretaries to any other entity.

iii. Digitization of government activities too can drastically reduce the public service cadre particularly in the primary and secondary cadre categories.

6. National Procurement Commission (NPC)

The National Procurement Commission (NPC) should be re-established as an independent commission with wider powers under an amendment to the Constitution. The NPC should have a facilitating, advisory and monitoring role but not of a regulatory where it can issue penalties. These functions must be applicable for pre/during/post procurement process. It should also not have executive powers where they have the ability to stop procurement activities as this can lead to delays in the procurement process.

NPC can conduct audits of government procurements and this report should mandatorily be given to Auditor General and COPE/COPA. There should be separate sessions of COPA/COPE to examine those reports. COPA and COPE should have a meeting once/twice year with NPC and relevant ministries. In the event malpractices are detected, the NPC must mandatorily send a
report to the Bribery Commission.

7. Staff and facilities for the Ministers

Staff of the Minister should be limited to a maximum number of 5 staff members with an addition of a personal driver. The 5-member staff should ideally include an economic advisor, relevant subject knowledge advisor, political advisor, private secretary and coordinating secretary.

8. National Audit Act and Audit Commission

Reestablish the National Audit Service Commission (NASC) as originally proposed by the 19th amendment. When an activity related to any fraud, negligence, misappropriation or corruption is observed then NASC can recommend a surcharge to a parliamentary committee to recover the loss. The NASC can only recommend a surcharge and it will be implemented by a parliamentary committee.

9. Declaration of Assets and Liabilities by Members of Parliament and Public Officials

Asset declaration for Members of Parliament (MPs) and public officials can be done via an online system thereby keeping the information confidential. Such an online system can be designed to detect anomalies in declarations (i.e reconcile assets with income declared over two successive periods). If anomalies between declarations are detected, a third party with the relevant expertise should be called in to review the declarations. For the public sector officials, the third party can be the PSC.

MPs should declare their assets before they take oaths and make subsequent declarations each year by 31st December. If the assets are not declared initially before oaths, then the public nominee should not be able to take oaths. If the subsequent declaration of assets is not adhered to, then a suspension from parliament sittings can be considered. A 30-day grace period can be granted to comply with the declarations.

10. Facilities to Chairmen of District and Divisional Councils

MPs who are appointed as Chairmen of District and Divisional Development Councils are given additional vehicles and allowances which have become a substantial expense to the Treasury. These costs and allowances should be curtailed.

The full submission can be accessed via Ensuring an Independent Public Service

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Sri Lanka stocks weaken for the second session on profit taking

ECONOMYNEXT – Sri Lanka’s stocks closed weaker on Tuesday for the second consecutive session mainly driven by month-end profit-taking by investors, according to brokers.

The main All Share Price Index (ASPI) closed down 0.56 percent or 51.81 points to 9,233.40.

The market has been on a downward trend since last week as investors are adopting a wait-and-see approach until more clarity is given regarding local debt restructuring after the International Monetary Fund approved the extended loan facility.

“The market is down as the selling trend continues,” said Ranjan Ranatunga of First Capital Holdings, speaking to EconomyNext.

“As there is a price decline in all shares across the board, combined with the month ending followed by margin calls, the market continued on a downward trend.”

The market generated a slow and thin turnover of 860 million rupees.

The main contributor to the turnover is Lanka IOC, following news that the Sri Lanka cabinet has granted approval for three oil companies from China, the United States, and Australia in collaboration with Shell Pl to lease 150 fuel stations for each company to operate in the local market.

The fears of debt restructuring mainly affected the banking and financial sectors, which dragged the index down for the day.

The market saw a net foreign inflow of 30.9 million rupees, and the total offshore inflows recorded so far in 2023 are 1.01 billion rupees.

The most liquid index, S&P SL20, closed 0.81 percent or 21.68 points down at 2,656.30.

The market saw a turnover of 860 million on Tuesday, below this year’s daily average of 1.8 billion rupees.

Top losers were Vallibel One, John Keells Holdings, and Hatton National Bank.

Analysts said the downward trend is expected to continue for the rest of the week as profit-taking is expected to continue. (Colombo/March28/2023)

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Sri Lanka rupee closes weaker at 325/328 to dollar, bond yields up

ECONOMYNEXT – Sri Lanka’s treasury bond yields were up at close on Tuesday and the rupee closed weaker in the spot market, dealers said.

A 01.07.2025 bond was quoted at 31.20/60 percent on Tuesday, up from 30.75/31.00 percent on Monday.

A 15.09.2027 bond was quoted at 28.25/29.00 percent, up from 28.10/60 percent from Monday.

Sri Lanka rupee opened at 325/328 against the US dollar steady, from 322/325 from a day earlier. (Colombo/ March28/2023)

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Sri Lanka Telecom on track rating upgrade track on planned stake sale: Fitch

ECONOMYNEXT – Sri Lanka Telecom has been place on watch for a possible rating upgrade after the government, which has defaulted on its sovereign debt said it will sell down its majority stake.

“The rating reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5 percent stake in the company,” the rating agency said.

“Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which
may take more than six months.”

The agency said it expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending due to consumers increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation.

The full statement is reproduced below;

Fitch Places Sri Lanka Telecom’s ‘A(lka)’ Rating on Watch Positive

Fitch Ratings – Colombo – 27 Mar 2023: Fitch Ratings has placed Sri Lanka Telecom PLC’s (SLT) National Long-Term Rating of ‘A(lka)’ on Rating Watch Positive (RWP).

The RWP reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5% stake in the company. Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months.

SLT’s ratings are currently constrained by its parent’s weak credit profile under Fitch’s Parent and Subsidiary Linkage (PSL) Rating Criteria. SLT’s Standalone Credit Profile (SCP) is stronger than that of the state, reflecting the company’s market leadership in fixed-line services, second-largest share in mobile, ownership of an extensive optical fibre network and a strong financial profile. The extent of SLT’s rating upside, following the proposed disposal, will depend on the credit profile of its new parent, the linkage strength with SLT according to our PSL criteria, and the proposed funding structure.


Disposal Plan: SLT announced on 20 March 2023 that the Sri Lankan cabinet has granted in-principle approval to sell the 49.5% stake in SLT held by the state. The disposal is part of a plan to restructure state-owned entities (SOEs) to improve the state’s financial position. SLT said steps have yet to be taken to identify potential buyers and it will take at least eight to 12 months to finalise the transaction. We believe the government will push through the disposal as SOE restructuring is an integral part of the IMF’s financial support to Sri Lanka.

Sovereign Ownership Pressures Rating: We assess the legal ring-fencing and access and control between SLT and the state as ‘Open’ under the PSL criteria, given the absence of regulatory or self-imposed ring-fencing of SLT’s cash flow and the government’s significant influence over the subsidiary’s operating and financial profile. SLT’s second- biggest shareholder, Malaysia-based Usaha Tegas Sdn Bhd with a 44.9% stake, has no special provisions in its shareholder agreement to dilute the government’s influence over SLT.

Higher Rating: However, the PSL criteria allows for a stronger subsidiary to be notched above the weaker parent’s consolidated profile in extreme situations, such as when a parent is in financial distress but the subsidiary continues to operate independently and its banking access appears unaffected. We do not believe SLT is at risk of default in the next 12 months, as it has sufficient liquidity and its debt does not carry cross-default clauses that can be triggered by the parent’s distress.

SLT’s ‘A(lka)’ rating therefore reflects its relativities with national peers, but is still below its SCP due to the drag from state ownership. We apply our PSL criteria because our Government-Related Entities (GRE) Rating Criteria states that in cases where the SCP of the GRE is higher than the government’s IDR, the relevant considerations of the PSL criteria will be applied to determine whether the IDR of the GRE is constrained or capped at the government’s rating level.

Weak Demand in 2023: We expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending. Consumers are increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation. SLT’s subscriber numbers and minutes of usage have already fallen in 2022. Competition has also intensified, especially in the mobile segment, leading to lower realisation of recently introduced tariff hikes.

Weak demand should be offset to an extent by increased migration to SLT’s fibre-to-the- home (FTTH) network, from its own copper network, and subscriber additions. FTTH carries higher revenue per user than the copper network. SLT had 475,000 FTTH connections, a 35% increase yoy, by end-2022.

Weakening Profitability: We expect SLT’s EBITDA margin to narrow to around 34% in 2023 (2022: 35.6%) amid lower demand and ongoing cost escalations. All telecom operators increased tariffs by 20%-25% in late 2022 to tackle falling margins. However, the realisation into revenue remains weak, especially in the mobile segment, due to deep price cuts by one of the smaller operators and falling demand. SLT’s fixed-line business is able to maintain stable EBITDA margins due to the recent tariff hike and the FTTH segment’s higher revenue per user.

Leverage to Stabilise: We expect SLT’s EBITDA net leverage to remain around 1.3x in 2023 (2021: 0.9x, 2022: 1.3x) amid falling profitability. However, its leverage is strong for the rating. We expect capex of around LKR25.0 billion annually over 2023-2024 on network upgrades and expanding its fibre infrastructure.

Interest-Rate Hikes, Currency Depreciation Manageable: We expect SLT to maintain its EBITDA interest coverage closer to 4.0x over 2023-2024 (2022: 4.4x) despite interest rates rising almost threefold. Most of SLT’s debt is on variable interest rates, which will raise costs. SLT’s foreign-currency revenue, which accounts for 10%-12% of group revenue, is more than sufficient to meet the group’s foreign-currency operating expenses and interest costs. SLT had around USD10 million in foreign-currency debt at end-
December 2022, compared with USD40 million in foreign-currency cash deposits.

Sector Outlook Deteriorating: Fitch expects the average 2023 net debt/EBITDA ratio for SLT and mobile leader Dialog Axiata PLC (AAA(lka)/Stable) to remain around 1.3x (2022: 1.3x) amid weak margins and high capex. We expect sector revenue growth to slow to 8% in 2023 (2022: 15%), while the average 2023 EBITDA margin for SLT and Dialog should narrow to 31% (2022: 32%) amid low usage and high costs.

SLT’s SCP benefits from market leadership in fixed-line services and the second-largest position in mobile, along with ownership of an extensive optical fibre network. SLT has lower exposure to the crowded mobile market and has more diverse service platforms than Dialog. However, Dialog has a larger revenue base, lower forecast EBITDA net leverage and a better free cash flow (FCF) profile than SLT. Dialog is rated at ‘AAA(lka)’, while SLT’s rating is under pressure because of the state’s weak credit profile.

SLT has a larger operating scale than leading alcoholic-beverage manufacturer Melstacorp PLC (AAA(lka)/Stable), which distributes spirits in Sri Lanka through its subsidiary, Distilleries Company of Sri Lanka PLC (AAA(lka)/Stable). Melstacorp is exposed to more regulatory risk in its spirits business because of increases in the excise tax, but this is counterbalanced by its entrenched market position and high entry barriers.

Consequently, the company can pass on cost inflation and maintain its operating EBITDA margin, supporting substantially stronger FCF generation than SLT.


Fitch’s Key Assumptions within Our Rating Case for the Issuer:

– Revenue growth to slow to 4% in 2023 amid falling subscriber numbers and lower usage due to weakening consumer spending;

– Operating EBITDA margin to narrow by 150bp to 34% in 2023 due to higher costs and lower volume;

– SLT to continue capex on expanding its fibre and 4G network with LKR25 billion spent annually in 2023 and 2024;

– Effective tax rate of 28% from 2023;

– Dividend payout of 33% of net income over 2024-2025


Factors that could, individually or collectively, lead to positive rating action/upgrade:

– Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months, and once Fitch has sufficient information on the new majority shareholder’s credit profile and linkages with SLT and the proposed funding structure.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– Fitch would remove the RWP and affirm the National Long-Term Rating at ‘A(lka)’ with a Stable Outlook if the proposed disposal does not proceed and the linkages with the state remain intact.


Manageable Liquidity: SLT’s unrestricted cash balance of LKR14 billion at end- December 2022 was sufficient to redeem its contractual maturities of around LKR11 billion. SLT’s short-term working-capital debt amounted to another LKR10.0 billion and we expect the company to roll over the facilities given its solid access to local banks.

Liquidity is further enhanced by about LKR15 billion in undrawn bank credit facilities, although these are uncommitted. SLT typically does not pay commitment fees on its undrawn lines, although we believe most banks will allow the company to draw down the funds because of its healthy credit profile.

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