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Thursday April 18th, 2024

Sri Lanka passes budget for 2021

ECONOMYNEXT – Sri Lanka’s parliament passed a budget for 2021 with a super majority of 151 legislators of the 225 member assembly voting in favour and 52 voting against, in a budget that sought to boost import substitution amid a Coronavirus crisis.

The budget sought to raise 2,019 billion rupees in revenues (1,754 billion rupees in taxes) in 2021 up from an estimated 1,580 billion rupees (1358 billion rupees in taxes), and spend 3,534 billion rupees, up from 2,854 billion rupees this year.

It would give a deficit of 1,565 billion rupees (8.9 percent of gross domestic product), up from a controversial 1,266 billion rupees (7.9 percent of GDP), which is understated based on standard accounting practices.

Sri Lanka is under the worst import controls since 1970s after a period of severe monetary instability in March and April 2020, which led to a credit downgrade.

The government is saying key taxes would be kept unchanged in an improvement of policy. Sri Lanka’s budgets are an exercise in regime uncertainty where taxes are literally secretly hatched and brought in a black box and unleashed upon apprehensive economic agents.

The finance ministry did not announce many new taxes, though a 0.25 percent non recoverable tax secretly hatched tax came back as an insurance charge after a 2 percent national building tax was cut at the beginning of the year without parliamentary approval.

There were also not many expenditure proposals and no state wage hike in a further improvement in stability.

There were warning from opposition legislators that the heavily import substitution policy framework may dampen activity and make the economy less efficient and competitive. (Colombo/Nov21/2020)

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Sri Lanka’s discussions with bondholders constructive: State finance minister

ECONOMYNEXT – Sri Lankan authorities continue to engage all debt restructuring negotiations in good faith, within principles of equitable treatment among creditors, and with maximum transparency within the norms of such negotiations, State Minister of Finance, Shehan Semasinghe has said.

“It is standard practice, when a representative group of bondholders is formed, to entertain confidential discussions with such group and its appointed advisors. In the case of Sri Lanka, the Ad Hoc Group of Bondholders represents holders controlling more than 50% of the bonds, which make them a privileged interlocutor for Sri Lanka,” Semasinghe said on X (twitter).

“It is well understood that given the price sensitive nature of the negotiations, and according to market regulations, discussions with the Group and its advisors are to be conducted under non-disclosure agreements. This evidently restricts the ability of the Government to unilaterally report about the substance of the discussions.

“The cleansing statement, which was issued on the 16th of April, at the conclusion of this first round of confidential discussions with members of the Group, aims at informing the Sri Lankan people, market participants and other stakeholders to this debt restructuring exercise, about the progress in negotiations. It provides the highest possible level of transparency within the internationally accepted practices in such circumstances.

“As informed in this statement, confidential discussions held in recent weeks with bondholders’ representatives proved constructive, building on the restructuring proposals presented by both parties. During the talks both sides successfully bridged a number of technical issues enabling important progress to be made. Sri Lanka articulated key remaining concerns that need to be addressed in a satisfactory manner.

“The next steps would entail further consultation with the IMF staff regarding assessments of the compatibility of the latest proposals with program parameters. Following these consultations, we hope to continue discussions with the bondholders with a view to reaching common ground ahead of the IMF board consideration of the second review of Sri Lanka’s EFF program.”

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Sri Lanka rupee weakens at 301.00/302.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 301.00/302.05 to the US dollar in the spot forex market on Tuesday, from 299.00/10 on Tuesday, dealers said. Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed stable at 11.30/35 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent up from 11.95/12.00 percent.

A bond maturing on 15.12.2028 closed at 12.10/20 percent down from 12.10/15 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent.

A bond maturing on 15.03.2031 closed at 12.30/50 percent. (Colombo/Apr17/2024)

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Sri Lanka Treasury Bill yields down across maturities

ECONOMYNEXT – Sri Lanka’s Treasuries yields were down across maturities at Wednesday’s auction with the 3-month yield moving down 7 basis points to 10.03 percent, data from the state debt office showed.

The debt office sold all 30 billion rupees of 3-month bills offered.

The 6-month yield fell 5 basis points to 10.22 percent, with 25 billion rupees of bills offered and 29.98 billion rupees sold.

The 12-month yield dropped 4 basis points to 10.23 percent with 18.01 billion rupees of bills sold after offering 23 billion rupees. (Colombo/Apr17/2024)

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