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Sunday February 25th, 2024

Sri Lanka debt rises to 104-pct of GDP by June 2021

ECONOMYNEXT – Sri Lanka’s central government debt had climbed to 104 percent of gross domestic product by June 2021 from 101 percent in December 2020, based on the latest national income estimates and debt data.

Sri Lanka’s nominal GDP for the 12 months ending June was 15.9 trillion rupees, while total debt had grown to 16.56 trillion rupees.

Foreign debt in rupee terms went up to 6.63 trillion rupees, from 6.0 trillion rupees, despite a net pay back of rupees as the rupee fell.

A falling rupee tends to make foreign debt rise, though the GDP can also inflate later as the currency falls.

The increase in central government debt does not take into account the fall in foreign reserves which makes net debt go up.

Sri Lanka’s central bank has also been entering into swaps taking on additional debt.

When central government loans are repaid with central bank swaps, debt is effectively transformed from the Treasury to the central bank balance sheet.

Sri Lanka has seen net foreign debt rise whenever money was printed to keep down rates, triggering forex shortages and the country loses the ability to settle loans using current external receipts.

The phenomenon was seen in 2015/2016, 2018 and 2020, analysts have shown.

Sri Lanka got the ability to print money after a domestic operations department was set up in the newly created Latin America style central bank in 1950.

Sri Lanka’s national debt has grown steadily under so-called revenue based fiscal consolidation where cost-cutting (state-austerity) was discouraged, spending to GDP was ratcheted up and the burden of higher spending was passed on to productive sectors.

Debt to GDP went up from 72 percent of GDP in 2014 to 86.8 percent by 2019 when taxes were cut and more money was printed. In 2020 debt rose to 101 percent of GDP as the economy contracted in the second quarter.

Classical economists label statist or ruling class friendly attempts to achieve budget balance by raising taxes as the ‘statistical’ alternative.

“This alternative is beset with pitfall,” classical economist B R Shenoy said in 1966 when Sri Lanka’s revenue to GDP was 20 percent and money was printed to cover what he called the ‘net cash deficit’.

“Past experience in Ceylon, which is in line with experience in virtually all parts of the world, is that in a democratic set up political and other pressures are heavily on the side of more and more spending by the government,” he said in great wisdom.

“When revenues increase, under the weight of these pressures, expenditures too increase to meet, or even exceed, revenue collections.

“There is a real danger that any program for increased revenue collections may be attended by a corresponding increase in the consumption expenditures of the government, and little may be left of the additional revenues to cover budget deficits.

“Increased revenue collections under these conditions would militate against the paramount need to step up national savings.”

Predictably under the revenue based fiscal consolidation debacle, spending to GDP was ratcheted up from 17 percent of GDP to close to 20 percent as taxes were collected from productive sectors and channeled to as higher state salaries to an expanding state worker cadre and subsidies. (Colombo/Sept26/2021)

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Sri Lanka could get US$500mn from ADB in 2024

ECONOMYNEXT – Sri Lanka could receive 500 million US dollars in support from the Asian Development Bank in 2024 based on the progress of policy reforms, Country Director of the Manila-based lender, Takafumi Kadono said.

The ADB expect to go to its Board around March or April with a 100 million US dollar power sector loan subject to the cabinet of ministers of approving a revised electricity reform bill.

A 100 million dollar loan to support SMEs could also be approved in the early part of the year. Sri Lanka is setting up a credit guarantee agency to support credit for small firms.

A 200 million dollar credit for financial sector was also slated for the year. The ADB gave the first tranche of the financial sector policy loan late last year.

A $100mn for the water sector could also be approved later in the year.

Sri Lanka could get around 200 to 300 million US dollars a year at the lowest rate, or concessional ordinary capital resources (COL) rate of 2 percent.

The balance of would come at the ordinary capital resource rate linked to SOFR.

The ADB has also started work on a ‘Country Partnership Strategy’ for Sri Lanka covering the 2024-2028 period, Kadodo said. (Colombo/Feb25/2024)

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Sri Lanka’s multi-aligned foreign policy based on friendship: Min

ECONOMYNEXT – Sri Lanka’s multi-aligned foreign policy is based on friendship to all and enmity to none, its Minister of Foreign Affairs has said.

“Non-alignment means not becoming a bystander. Non-alignment means you are not forced or coerced into a camp to take sovereign decisions… you make your own choices. Whether it is commercial, security, regional or otherwise,” M U M Ali Sabry said on X (twitter).

“I have repeatedly stressed that sovereignty is the right to have your own opinion on what’s right and wrong, and to stand by your principles. Our multi-aligned foreign policy is based on friendship to all and enmity to none,” Sabry was quoting from his speech at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) Foreign Policy Forum, on the theme ‘Reassessing Non-Alignment in a Polarised World’.

Sri Lanka is one of the founding members of the Non-Aligned Movement.

The strategically located island has been increasingly walking a fine line between opposing global factions as it seeks to come out of a financial crisis. (Colombo/Feb24/2024)

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Sri Lanka’s Commercial Bank Dec net down on tax provisions

ECONOMYNEXT – Sri Lanka’s Commercial Bank of Ceylon reported profits of 6.9 billion rupees from the December 2023 quarter down 21 percent, despite an improvement in net interest income and lower provisions, amid a change in tax provisions.

Pre-tax profits were 8.89 billion rupees up from 2.4 billion rupees. There was a 6.4 billion tax reversal last year compared to a 1.7 billion rupee tax charge this year.

Commercial Bank reported earnings of 5.26 rupees for the quarter. For the year to December 2023 earnings were 16.07 rupees per share on total profits of 21.1 billion rupees, down 11.3 percent.

Net fee and commission income was down 1.2 percent to 6.1 billion rupees.

Net interest income went up 16.8 percent to 25.5 billion rupees, with interest income rising marginally by 1.3 percent to 73.0 billion rupees and interest expense falling 5.45 percent to 47.5 billion rupees.

Loans and advances to customers grew 4.06 percent to 1.17 billion rupees in the year to December. Debt and other financial instruments fell 10.5 percent to 649 billion rupees.

Financial assets measured and fair value through other comprehensive income was at 287 billion rupees, up from 117 billion rupees.

Impairment charges were 13.1 billion rupees, down from 19.6 billion rupees last year.

Gross assets were up 6.45 percent to 2.36 billion rupees. Net assets were up 5.51 percent to 214 billion rupees. (Colombo/Feb24/2024)

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