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Friday August 12th, 2022

Sri Lanka faces political risks over Rajapaksa links of new govt: Fitch

ECONOMYNEXT – Sri Lanka is still facing political risks in recovering from a currency crisis and default, tough a new government has been formed under President Ranil Wickremesinghe with a large majority, Fitch, a rating agency said.

“The new president was confirmed by a large majority in parliament, and his government has drawn in some opposition members,” Fitch said in a statement.

“This gives some hope that it will have sufficient support to negotiate and carry out difficult reforms as part of efforts to restore macroeconomic stability and debt sustainability. Such reforms could unlock funding support from the IMF, which we view as important for Sri Lanka’s emergence from default.”

Members of the Rajapaksa family were driven out by protests. However the administration has little public support since it is linked with the ousted Rajapaksa family.

“The government’s parliamentary position appears strong, but public support for the government is weaker,” the rating agency said.

“President Wickremesinghe was prime minister in the previous administration under President Gotabaya Rajapaksa, who was brought down by protests.

“Parliament and the government also remain dominated by politicians from the Sri Lanka People’s Freedom Alliance, which is closely affiliated with the Rajapaksa family. This may increase the risk of further destabilising protests if economic conditions do not improve and/or reforms generate public opposition.”

Political Risks Still Challenge Sri Lanka’s Emergence from Default

Thu 28 Jul, 2022 – 12:37 AM ET
Fitch Ratings-Hong Kong-28 July 2022: The successful formation of a government under the new president, Ranil Wickremesinghe, is an important precondition for resolving Sri Lanka’s debt default, but many challenges remain as the country seeks financing support from the IMF and debt restructuring from private and official bilateral creditors, says Fitch Ratings.

The new president was confirmed by a large majority in parliament, and his government has drawn in some opposition members. This gives some hope that it will have sufficient support to negotiate and carry out difficult reforms as part of efforts to restore macroeconomic stability and debt sustainability. Such reforms could unlock funding support from the IMF, which we view as important for Sri Lanka’s emergence from default.

The government’s parliamentary position appears strong, but public support for the government is weaker. President Wickremesinghe was prime minister in the previous administration under President Gotabaya Rajapaksa, who was brought down by protests. Parliament and the government also remain dominated by politicians from the Sri Lanka People’s Freedom Alliance, which is closely affiliated with the Rajapaksa family. This may increase the risk of further destabilising protests if economic conditions do not improve and/or reforms generate public opposition.

We expect any reform package agreed with the IMF by the government to include elements such as higher taxes, expenditure rationalisation and a commitment to a greater degree of exchange-rate flexibility. There is a significant risk that such reforms could cause public opposition that might impede their implementation. In the absence of an IMF deal, we expect Sri Lanka to face a very strained external position in the near term. The country has little foreign exchange to pay even for essential imports such as fuel, food and medicines, with official reserve assets at just USD1.9 billion (just over one month of imports) as of end-June.

In a statement on 30 June, the Fund noted that it assessed Sri Lanka’s public debt as unsustainable, and confirmed that it would require adequate financing assurances from Sri Lanka’s creditors that debt sustainability would be restored.

Debt negotiations could be complicated by debt owed to China. This amounted to USD5 billion at end-2020, including bilateral official lending and loans from the China Development Bank and Export-Import Bank of China, accounting for around 13% of Sri Lanka’s external debt, according to the IMF. China has traditionally preferred to offer relief for large loans through deferrals such as maturity extensions, payment rescheduling or grace periods, rather than through write-downs.

However, this approach could increase challenges for Sri Lanka to successfully negotiate debt restructuring with other creditors, including private creditors, that delivers the debt sustainability sought by the IMF.

Fitch rates Sri Lanka’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘RD’ (Restricted Default). The Long-Term Local-Currency IDR is ‘CCC’, and is Under Criteria Observation following our introduction of +/- modifiers in the ‘CCC’ category.

A default on local-currency debt could erode local banks’ capital positions, possibly leading to government capital injections into the banking sector that would erode the net benefits of such a restructuring, and when we affirmed the Long-Term Local-Currency IDR in May we assumed that the government would continue to service local-currency debt. Nonetheless, the ‘CCC’ rating reflects a high risk that local-currency debt will be included in debt restructuring, as the stock and interest costs are large, and omitting it could increase the restructuring burden on holders of foreign-currency debt.

Fitch may move Sri Lanka’s LTFC IDR out of ‘RD’ upon the sovereign’s completion of a commercial debt restructuring that we judge to have normalised the relationship with the international financial community.

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Sri Lanka cancels visa of Scotswoman who documented anti-govt protests

ECONOMYNEXT – Sri Lanka’s Department of Immigration and Emigration has cancelled the visa of Kayleigh Fraser, a Scotswoman who had been documenting the country’s anti-government protests on social media.

Immigration officers had approached Fraser at her home on August 02 and confiscated her passport.

“This is what will happen if you raise your voice against state violence in Sri Lanka,” Fraser wrote on Wednesday August 10, posting a letter ordering her to leave the country by August 15.

“I am proud to have been a part of this. I am proud to have met so many of you. I have… so many social enterprises I want to work on here that I know will benefit so many,” Fraser said on Instagram.

“Deporting me is a massive, massive mistake for this country. The love I have for it and its people appears to be a threat to the current rulers. Does that sound right to you?”

Fraser posted that she was not prepared for the financial cost of flights and relocation, and that all her funds were in Sri Lankan currency, and that banks were not allowing foreign transactions.

Police spokesperson Nihal Thalduwa had told a privately owned news organisation that Fraser was sharing “negative content” about Sri Lanka via her social media.

“It is not right for a foreign national to be in our country and share such mass negative content. She is not a media personnel either, to cover the protests and GotaGoGama,” he has said.

Fraser has been vocal about state sanctioned violence against protestors.

News of Fraser’s deportation has caused a small riot on social media, with many protestors voicing out their support for the foreigner who documented and showed support next to them.

Seemingly indiscriminate arrests of protestors aided by an ongoing State of Emergency have both angered and frightened Sri Lankan protestors, and many active protestors have gone into hiding to evade arrest.

Some protestors said they were “taking a break” or “distancing themselves” due to continued harassment.

However, the authorities maintain that all arrests are in accordance with the law. The government has pointed to acts of retaliatory mob violence on May 09 and the forced occupation of government buildings by protestors on July 09.

“They are calling us terrorists for holding placards. This was such a peaceful protest, the only terrorism carried out was by the government against the people,” said an active protestor, who preferred not to be named.

Fraser wrote that Sri Lankans should not forget that they got to the streets for a system change.

“Live in such a way that your children will thank you for the world they inherit,” she said.

“It’s not over till it’s over. I have an unbelievable amount of high profile people fighting this order for me to leave.”(Colombo/Aug11/2022)

 

 

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Sri Lanka to acquire 35,000MT of petrol; unloading on Aug 12

ECONOMYNEXT-  Sri Lanka to receive a cargo of 35,000 metric tonns of petrol on Thursday August 11 with unloading scheduled for Friday, Minister of Power & Energy Kanchana Wijesekara said.

Wijesekara tweeted that the ship will arrive at the Colombo port Thursday night, and that the payment for the cargo had been completed with the support of the Central Bank by Wednesday.

The minister had said earlier on Wednesday that a separate cargo of crude oil is also expected on Saturday August 13, and from August 19 onwards, locally produced fuel is expected to be released to the market from the Sapugaskanda refinery.

Meanwhile, in an earlier report, Lanka IOC, a local unit of the Indian Oil Corporation (OIC), said a vessel carrying 30,000 metric tons of fuel for LIOC is scheduled to arrive between August 10 and 15.

Related: Three shipments of fuel to arrive in Sri Lanka by mid, end July, August: Lanka IOC

Meanwhile, Wijesekara said that 5.7 million people have signed up for the QR-code facilitated National Fuel Pass.

From July 21 up to now, Wijesekara said, a total of 54.9 million litres of fuel had been sold through 1,053 CPC fuel stations while 207 LIOC stations have sold 11.26 million litres of fuel. (Colombo/Aug11/2022)

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MPs nominated to Sri Lanka’s parliamentary committee on public finance

The sun sets over the Parliament at Shri Jayewardenepura

ECONOMYNEXT – Sri Lanka’s parliament has appointed members to its Committee on Public Finance, Speaker Mahinda Yapa Abeywardena said.

According to his announcement made in parliament on Wednesday August 10, in terms of the provisions of the Standing Order 121 of Parliament, MPs Bandula Gunawardana,  Vidura Wickramanayaka,  Nalin Fernando,  Anura Priyadharshana Yapa,  Vijitha Herath,  Duminda Dissanayake,  Shehan Semasinghe,  Premitha Bandara Tennakoon and Harsha de Silva have been appointed.

Indika Anuruddha Herath,  Siripala Gamalath, Seetha Arambepola, Suren Raghavan,  M A Sumanthiran,   Kavinda Heshan Jayawardhana,  Mujibur Rahuman,  Harshana Rajakaruna,  Chaminda Wijesiri,  Isuru Dodangoda,  Anupa Pasqual and  (Prof) Ranjith Bandara also have been appointed to serve as members in the Committee on Public Finance.

President Ranil Wickremesinghe tabled a proposed framework during his time as Prime Minister under President Gotabaya Rajapaksa for sectoral oversight committees in parliament with the objective of increased bipartisan parliamentary involvement in governance and policy-making.

Wickremesinghe told parliament on July 06 that under such a system, the entire parliament irrespective of party difference will participate in governance.

On July 06, he said he had approached former Speaker of Parliament Karu Jayauriya to formulate a proposal on activating the sectoral oversight committees.

Sectoral Oversight Committees shall function for the duration of Parliament and conduct its inquiries notwithstanding any adjournment or prorogation of Parliament, according to the parliament website.

The Committee of Selection shall determine the subjects and functions to be allocated to each Sectoral Oversight Committee.

The Sectoral Oversight Committees shall have the power to examine any Bill, any subsidiary legislation including Regulation, Resolution, Treaty, Report or any other matter relating to subjects and functions within their jurisdiction.

The Parliament, any Committee or a Minister may refer any matter to a Sectoral Oversight Committee having jurisdiction over the subject or function for its consideration and report. (Colombo/Aug11/2022)

 

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