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Friday March 31st, 2023

Sri Lanka domestic debt already de facto restructured: Cooray

ECONOMYNEXT – Sri Lanka’s domestic debt has already been re-structured de facto due to high inflation and rupee depreciation, Sharmini Cooray, a former International Monetary Fund official who is an advisor to President Ranil Wickremesinghe said.

“The high inflation and rupee depreciation has delivered has reduced the real value of domestic debt,” Cooray told an economic policy forum organized by the Ceylon Chamber of Commerce.

“It has delivered a de facto restructuring up front to domestic debt holders. So I am hoping that the external creditors will recognize that.”

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar in 2022 as an attempt to float the currency failed due to a surrender requirement as well as too low interest rates.

Domestic creditors – some of whom are legally tied – are the only source of real financing available to the government with multilaterals whose debt area also serviced as senior creditors not giving any new financing.

The value of rupee debt has fallen by around 20 billion US dollars and dollar denominated debt has now overtaken rupee debt by June despite additional financing during the year.

Rupee tax revenues are also rising faster in inflation and tax hikes though the economy is contracting in real terms.

However, interest rates in the country are elevated due to fears of domestic debt re-structuring.


Sri Lanka rupee debt in US$20bn IFR hair cut as economy inflates

Sri Lanka budget revenues surge 38-pct to August 22 as economy inflates

Sri Lanka dollar borrowings drive debt-to-GDP expansion by June

Almost the entirety of Sri Lanka’s  central government debt to GDP ratio jump from 101.3 percent in December 2021 to 127.2 percent in June 2022 after the currency collapse came from 44 to 68 percent of GDP jump in foreign debt, according to an analysis of official released government data and nominal GDP projections.

Due to a flaw in the IMFs current debt resolution framework, there is no upfront clarity on the treatment of domestic debt which holders are willing to roll-over unlike foreign creditors.

The IMF has tried to solve serial defaults of Latin America countries, which have among the worst sterilizing central banks in the world without much success, as the fundamental problem of activist intermediate regime central banks (flexible exchange rates) with high inflation targets above 2 to 3 percent is not solved, according to critics.

Structural reforms are a remnant of the so-called ‘Baker Plan’ while hair cuts stem mostly from the ‘
Brady Plan’.

Latin America defaults came in quick succession from the early 1980s – usually when the Fed tightened – after depreciation as a prescription for poorer countries became a fashionable among Washington based economists.

“Domestic deb t restructuring is a matter of negotiation,” Cooray said. “But I t think we have a strong argument that it has reduced significantly in dollar terms and in real terms.”

The key problem with a domestic debt restructuring is its impact on banking system. It has been said that some rupee bond holders could be ‘ring fenced’

Sri Lanka has to meet some targets on gross financing need (the roll-over volume) and debt to GDP ratios.

Cooray said there was no ‘trade off’ between banking system stability and IMF targets. (Colombo/Dec08/2022)

Comments (1)

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  1. The roaring pussycat says:

    I don’t think anyone believes this,
    The country has made zero actions to reform its sick economical structure. Tell hungry man about the percentages and figures .He will remain hungry…

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

  1. The roaring pussycat says:

    I don’t think anyone believes this,
    The country has made zero actions to reform its sick economical structure. Tell hungry man about the percentages and figures .He will remain hungry…

Sri Lanka tax hike: no response from president, professionals to discuss next steps

GMOA Secretary Haritha Alutghe

ECONOMYNEXT – Sri Lanka’s trade unions and professional associations who have been agitating against an International Monetary Fund (IMF) backed progressive tax hike will meet to discuss further union action after a letter to the president went unanswered.

Government Medical Officers’ Association (GMOA) secretary Dr Haritha Aluthge told reporters on Friday March 31 that the unions will meet as the self-styled Professionals’ Trade Union Alliance (PTUA) collective which have so far been organising strikes and demonstrations demanding a revision of the taxes.

The PTUA has been awaiting a promised meeting with President Ranil Wickremesinghe for some days now. Aluthge previously said on Monday that if the meeting did not materialise, the unions would be compelled to go on strike.

The issue has become stagnant due to government inaction, said Aluthge at Friday’s press conference.

“The PTUA informed the president in writing yesterday for the last time to please understand the gravity of this situation and to immediately give us a meeting and present the government’s interim solution, through which the government can take measures to ease the sense of tension among professionals,” he said.

The purpose of the meeting is to discuss an “interim solution” to the professionals’ grievances over the progressive income tax hike until a reported revision that’s due in six months when the country’s recently approved 17th IMF programme comes up for review.

“Sadly, there has still been no response,” the GMOA official said.

All unions and professional associations will meet Friday evening together with a number of other unions to discuss further action, he added.

The privately-owned English-language weekly newspaper The Sunday Times reported on March 26 that the IMF had indicated the possibility of revising some of the taxes imposed as part of the IMF’s staff-level agreement with Sri Lanka when the programme comes up for review in six months.

According to the newspaper, IMF officials had conveyed this to representatives of trade unions during a virtual roundtable held last Friday March 24. The virtual meeting was held on the initiative of the IMF and was attended by trade unions and professional associations representing the PTUA including the GMOA. (Colombo/Mar31/2023)

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Sri Lankan transport associations cut haulage and transportation fees after fuel price cut

ECONOMYNEXT –  Sri Lanka Association of Container Transporters and fuel bowser owners has decided to reduce the haulage charges and transportation fee, after the government cut the auto diesel prices by 80 rupees, association officials said.

“Due to the recent reduction in Auto Diesel price from March30, 2023, the committee has decided to reduce haulage charges by 7 percent,” association said.

Sri Lanka Private Petroleum Tanker owners has also decided to reduce the transportation fee of fuel by 8 -10 percent from April onwards.

“We will be meeting with the association members and will be deciding on exactly how much we will be reducing,” the General Secretary of the association Nimal Amarasekera told EconomyNext.

“We hope to reduce it by 8-10 percent and will be applied.”

Meanwhile United Lanka Fuel Transport Bowser Owners Association said, the price reduction will be done, and the specific amount will be calculated using the cost per kilometer for a transporting bowser.

“We have different types of bowsers such as 13,200 litre and 19,800 litre likewise,” Association President K.W. Charles told EconomyNext.

“So the cost per kilometer per bowser is different and after we calculate only we can give a specific percentage.

“It will come to effect from this month and the payments for the next month will be based on the new prices.”

Charles said, this is only based on the price reduction of fuel, however several costs as maintenance and spare part costs should also be considered when deciding the transportation cost, which is also being discussed with the Ceylon Petroleum Corporation.

Sri Lanka slashed fuel prices with effect from Wednesday (29) midnight, Power and Energy Minister Kanchana Wijesekera said, after a protest by trade unions of state-run fuel retailer Ceylon Petroleum Corporation (CPC) resulting in queues at filling stations due to supply disruption.

The price of Petrol 92 Octane will be slashed by 15 percent or 60 rupees to 340, Petrol 95 Octane 95 will be reduced by 26.5 percent or 135 rupees to 375, Auto Diesel by 19.8 percent or 80 rupees to 325, and kerosene by 3.3 percent or 10 rupees to 295. (Colombo/ March31/2023)

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Sri Lanka’s shares edge up in mid day trade

Stock Market. Free public domain CC0 image.

ECONOMYNEXT – Sri Lanka’s shares edged up in mid day trade on Friday, Colombo Stock Exchange (CSE) data showed.

All Share Price Index was up 1.09 percent or 100.69 points to 9,329.19, while the most liquid index was up 1.23 percent or 32.86 points to 2,697.12.

The market generated a turnover of 895 million rupees.

Top gainers during mid day trade were Commercial Bank, Hatton National Bank and Expolanka. (Colombo/Mar31/2023)


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