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Tuesday February 27th, 2024

Sri Lanka disputes Moody’s downgrade warning

ECONOMYNEXT – Sri Lanka has disputed a warning by Moody’s Investors Services that it may further downgrade the island’s sovereign rating saying it was ill-judged as funds were lined up to repay foreign debt including s sovereign bond maturing in July.

Sri Lanka’s Finance Ministry said the review for downgrade of Sri Lanka’s rating which was already at ‘Caa1’ was ill-judged and unacceptable.

“..Moody’s action could create uncertainty among investors who have kept faith in Sri Lankan ISBs and other investments,” a Finance Ministry statement said.

“As experienced in the past, such undue uncertainty created by the rating agency could lead to price volatilities in the market for ISBs and for other investments.”

RelatedSri Lanka ‘Caa1’ sovereign on downgrade review by Moody’s

Sri Lanka’s economy is picking up and Coronavirus vaccination drive is underway, the Finance Ministry said.

The full reaction is reproduced below:

Statement by Moody’s Investors Service is ill-timed, ill-judged and hence unacceptable

The Government of Sri Lanka (GOSL) wishes to express its surprise over today’s announcement by Moody’s Investors Service, at a time when the GOSL has diligently lined up adequate funds to repay its maturing foreign debt liabilities, including the International Sovereign Bond (ISB) maturing at end July 2021.

Moody’s has placed Sri Lanka’s rating ‘under review for downgrade’, although this does not imply a downgrade. However, Moody’s action could create uncertainty among investors who have kept faith in Sri Lankan ISBs and other investments.

As experienced in the past, such undue uncertainty created by the rating agency could lead to price volatilities in the market for ISBs and for other investments.

In any case, the GOSL has taken all measures to repay the upcoming ISB maturity of US dollars 1,000 million due in end July 2021. The GOSL also observes that this is not the first time Moody’s has taken such surprise action on the eve of an assured imminent payment.

Moody’s downgraded Sri Lanka on 28 September 2020, just a few days before a US dollar 1,000 million ISB was to mature on 04 October 2020 and the GOSL successfully settled the liability without any hesitation. GOSL continues its unblemished debt service payment record.

The Sri Lankan economy has shown strong signs of bioad based recovery, with a real GDP growth of 4.3 per cent in the first quarter 2021. The domestic vaccination drive is continuing at full force, providing confidence of a continued improvement in economic activity, combined with a possible strong rebound of the tourism sector.

Ongoing developments in the domestic production economy are expected to improve the country’s export potential, while facilitating import alternatives. Improving domestic economic sentiments are reflected in the activity in the Colombo Stock Exchange as well.

The pickup in economic activity is also expected to improve the fiscal position of the Government, from both revenue and expenditure aspects, and the Government remains committed to achieving its announced medium term fiscal path towards a budget deficit of 4 per cent of GDP by 2025.

The unwarranted announcement by Moody’s also re-emphasises the need for the GOSL to revisit its relationship with rating agencies. Unwarranted announcements of this nature are also not in the best interest of investors.

Investors are invited to approach the Sri Lankan policy authorities at the highest levels who always remain open for constructive dialogue and will welcome any one-on-one engagement or roadshow discussions, without being dissuaded by such unsubstantiated announcements.

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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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