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Tuesday April 23rd, 2024

Sri Lanka exporters optimistic in post-pandemic revival despite cost spike: survey 

TRADE DISRUPTION: Sri Lanka’s export industries which saw supply chains hit by Coronavirus are now facing weaker demand in Europe.

ECONOMYNEXT – With their businesses projected to grow despite increased costs, Sri Lanka’s exporters, mostly small and medium, are looking to hire new workers, a survey has found.

With an increase in the use of online channels, exporters are optimistic about growth despite rising raw material costs and an increase in taxes.

“Sri Lankan exporters are confident in their outlook for export growth, despite challenges faced in the first half of 2021,” said the summary of the bi-annual Export Barometer Survey designed and conducted by the Ceylon Chamber of Commerce (CCC) and the United States Agency for International Development (USAID)’s Partnership for Accelerating Results in Trade, National Expenditure and Revenue (PARTNER) project.

The survey was conducted among 120 respondents, a majority of whom represented SMEs, with 75 percent of the exporters surveyed involved in goods exports, with the rest in services.

The Chamber of Commerce said the survey took into consideration the impact of COVID-19, the economy’s response to the new normal and long-term competitiveness.

The survey has found that most of the exporters performed well in the first half of 2021 but not to their fullest capacity.

As a result, 44 percent of the firms are now looking to increase their capacity in the next six months, the survey found.

The exporters had seen an increase in air freight rates as well as a shortage of flights and vessels to export their goods. Similarly, when they imported goods too they had issues of clearance and delays in schedule times.

An 84 percent of the firms have experienced an increase in freight costs and 87 percent in shipping costs resulting in a cost escalation in raw material costs due to transport and logistics.

In spite of all this, almost 67 percent of the exporters are using online platforms to generate


“Compared to large firms, both SMEs and women-owned and/or led firms relied more on digital channels (such as social media, online advertising, online marketplace) in generating sales/revenue,” the survey said.

Some 75 percent said they found new export opportunities and have explored new markets with new or existing products and services.

However, the businesses are more confident in the growth of their own businesses in the next six months than of the overall economy and are looking to hire new staff in the new future.

The exporters also want the government to improve the efficiency of regulations and tax relief, assistance in supply chain, export finance and a financial assistance package.

“Almost all exporters stated that they need support from policymakers, trade chambers, and donor agencies to be more export-competitive, such as improving market access and establishing links with new customers,” the survey said. (Colombo/Dec09/2021)

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Sri Lanka single borrower limits cut to 25-pct of bank capital, SOEs also included

ECONOMYNEXT – Sri Lanka’s central bank has issued directions limiting loans to a singe borrower or a group of connected customers to 25 percent of Tier I capital, with state enterprises which turned out to be the biggest borrowers, also included.

In a 2007 direction, banks were allowed to give loans up to 30 percent of capital for a single customer and 33 percent for a group but the rules were widely violated in the case of state enterprises, which were used as off-budget vehicles to give energy and other subsidies.

Banks will have to limit exposures to 25 percent starting from January 2026.

According to transitional provisions published in the direction seems to indicate that some banks may have single borrower exposures of 85 percent or more.

They will be required to bring exposures down to 60 percent by 2027 and 25 percent by 2028.

Download the direction from here Sri-Lanka-single-borrow-limit-direction-2024

Energy utilities were made to borrow from state banks to run off-budget subsidies under plan avoid a price formula during the Rajapaksa regimes.

Sri Lanka’s state banks ended up with large debts to Ceylon Petroleum Corporation partly due to flexible inflation targeting (printing money to cut rates as soon as inflation fall triggering forex shortages) even when fuel was market priced in 2018, analysts have shown.

When rates were cut with inflationary open market operations, triggering forex shortages, CPC was barred from buying dollars and forced to get suppliers’ credit denominated in dollars.

The suppliers’ credits were later converted to dollar loans from state bank loans, usually after the currency collapsed from the inflationary rate cuts or inflationary open market operations to sterilize interventions or both, analysts have shown.

The CPC loans have since been taken over by the government.

Banks have also funded roads and other state projects.

“Licensed banks shall gradually reduce the exposures to Public Corporations to meet the maximum limit,” by December 2030 according to the direction.

“Public corporation shall mean any corporation, board or other body which was or is established by or under any written law other than the Companies Act, with funds or capital wholly or partly provided by the Government.”

Many of the newer state enterprises however have been suddenly set up under the Companies Act, unlike earlier where a specific act was passed by the parliament to set up corporation or a statutory authority.

Borrowings of CPC and CEB eventually hit the financial stability of state banks while actual bad loans were under-reported. Now the bad loans are being covered with a state capital injection.

Under an International Monetary Fund and World Bank backed program, the so-called ‘sovereign bank nexus’ is being severed to protect the banking system.

Government securities, central bank sterilization securities, loans guaranteed by multilateral lenders or high rated foreign banks are excluded. (Colombo/Apr23/2024)

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Sri Lanka exceeds tax revenue target by 6% in first quarter

ECONOMYNEXT – Sri Lanka’s revenue collecting bodies have outperformed and exceeded tax revenue target by 6 percent for the first quarter ended on March 31, State Revenue Minister Ranjith Siyambalapitiya said.

“After many years of difficult challenges, it has been possible to exceed the expected state revenue in the first quarter of 2024,” he said in a statement.

The government expects a revenue collection of 4,106 billion rupees in 2024.

“The reason for the economic crisis in the past period was the reduction in the level of government revenue. Considering the achievement of higher than the target in the first quarter of this year and the revenue pattern, the 2024 will become a year in which the revenue targets can be achieved,” he said.

The three tax revenue collecting bodies – Sri Lankan Customs, Excise Department, and Inland Revenue Department have collected 834 billion Sri Lanka rupees in the first quarter.

“It is a 6% higher than the expected revenue target of 787 billion rupees,” Siyambalapitiya said.

He said the Inland Revenue Department exceeded its target by 13 percent to 430 billion rupees compared to the target of 381 billion rupees in the first quarter of 2024.

He also said Customs Department has managed to reach the target of 353 billion rupees and the Excise Department has also achieved 96% of the revenue requests and earned 51 billion rupees in the first quarter.

The island nation has raised Value Added Tax (VAT), imposed new taxes, and increased personal income taxes to boost the revenue under an International Monetary Fund-backed reforms in return of a $3 billion External Fund Facility.

People have started to grumble over the government’s higher taxes without reducing some of the state expenditures. The government has been in the process to privatize some key state-owned enterprises. However, that process faced delays amid gradually rising protests against the move. (Colombo/April 22/2024)

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Air Asia, SriLanka’s FITS, Hayleys bid for SriLankan Airlines

ECONOMYNEXT – Malaysia’s AirAsia group, FITS Aviattion of Sri Lanka and Hayleys are among bidders for state-run SriLankan Airlines, a statement from the State-owned Enterprises Restructuring Unit said.

Dharshaan Elite Investment Holding (Pvt) Ltd, . Sherisha Technologies Private Limited and Treasure Republic Guardians Limited are the other bidders.

The responses will be evaluated to choose qualified investors.

International Finance Corporation, as Transaction Advisors for the divestiture of SriLankan Airlines Limited, will continue to advise the government, the statement said. (Colombo/April22/2024)

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