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Thursday March 23rd, 2023

Sri Lanka President warns of delay in IMF deal amid China, India issues

ECONOMYNEXT – Sri Lanka is unlikely to get an International Monetary Fund deal in December as originally expected with delays in dealing with China and India which are out of the Paris Club as well as ‘bilateral issues’, President Ranil Wickremesinghe has said.

Sri Lanka has to get ‘creditor assurances’ on debt restructuring from bilateral lenders before the IMF’s executive board endorses a reform program formally.

Unlike other countries which got into default, two out of three main creditors of Sri Lanka were out of the Paris Club of creditors who had already had a well-oiled mechanism for dealing with debt re-structuring.

“I first went to the Paris Club where all the creditors were from the West and Japan,” President Wickremesinghe told a forum of tea factory owners in Colombo.

“However, we are in a unique position today where out of our three main creditors, only one belongs to the Paris Club. Japan.

“The other two are not in the Paris Club. They are India and China.”

He said China started debt restructuring with Zambia.

There were also ‘bilateral issues’ to deal with, he said without elaborating.

“I think India has it for the first time with Sri Lanka,” President Wickremesinghe said. “I have already started discussions with Japan and now with India and China.

“We get down to a common platform of how we can resolve it while we also have discussions on bilateral issues that affect each other’s countries.”

China has just finished its party conference where senior officials had change.

“If we can move and come to an agreement by December, which means coming to an agreement by mid-November, and going up to the IMF Board in mid-December, we will gain a big advantage,” Wickremesinghe said.

“However, I don’t know whether we can do it for the simple reason that in China, the focus has started now after the party conference. However, we must aim to have it by January.”

Sri Lanka IMF deal nod could be Jan 2023

Sri Lanka however has made most of the corrections required to regain monetary stability.

Balance of payments troubles are problem associated with reserve collecting central bank which mis-target interest rates with printed money through a policy rate incompatible with domestic credit trends. Active open market operations were begun by the Federal Reserve in the process of triggering the Great Depression in the 1920s.

When a country with a central bank with a history of chronic mistargeting of rates – Sri Lanka had gone to the IMF 16 times before – gets market access its tends to default.

The key reason third world countries get into balance of payments trouble is money printed to keep policy rates too low by soft-pegged central bankers which fires unsustainable credit and balance of payments deficits.

Sri Lanka has also raised taxes to reduce central government credit and hike tariffs of public utilities to reduce or eliminate their borrowings.

The central bank has also lost the ability to intervene and sterilize interventions with new money after the intervention effectively losing its ability to generate BOP deficits from around August. (Colombo/Nov01/2022)

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Sri Lanka establishes committee to investigate aircraft incidents

An aircraft lands at the Jaffna International Airport, which was opened in October 2019 and promises to push the tourism frontiers in Jaffna.

ECONOMYNEXT: Sri Lanka’s has established an expert committee under the state-run Civil Aviation Authority to investigate aircraft accidents and to implement precautionary methods in the Sri Lankan airspace, an Official said.

“Even if it is only one flight, there is a chance an accident may occur,” Civil Aviation Authority of Sri Lanka, Director General, P. A. Jayakantha said.

“This particular committee is there to investigate aircraft accidents and act as a mechanism to take over if something goes wrong”.

Sri Lanka has encountered around 2,700 minor aircraft accidents and incidents mostly on the ground in the 19 years through 2021, the CAA annual reports showed.

The new committee will analyze the past accidents and take precautionary measures while also conducting investigations and provide independent reports in the future, Jayakantha said.

The team is provided with required training and qualifications by the CAA along with an International organization, free of charge.

“Internationally also it is a requirement to have a team to investigate the aircraft accidents,” Jayakantha added.

“For a long time we have not fulfilled this requirement and that is why we established this team with the cabinet approval. Moreover, recently, Sri Lanka’s two aircrafts, one training aircraft and a commercial aircraft met an accident”

The committee will be on active duty, until the Accident Investigation Act is passed and a proper Aircraft Accident and Incident Investigation Bureau is established. (Colombo/ Mar23/2023)

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Sri Lanka bond yields steady, Rupee 319/325 at close

ECONOMYNEXT – Sri Lanka’s treasury bond yields closed steady on Thursday while rupee closed weaker, dealers said.

A 01.07.2025 bond closed at 30.60/31.00 percent on Tuesday, down from 30.25/75 percent on Wednesday.

A 15.09.2027 bond closed at 27.80/28.10 percent, steady from 27.90/28.00 percent from Wednesday.

Sri Lanka rupee closed at 319/325 against the US dollar depreciating from 318/320 from a day earlier. (Colombo/ March23/2023)

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Sri Lanka shares dive to two-week low on local debt restructuring fears

ECONOMYNEXT – The Sri Lanka market fell for a fourth session to a two-week low on Thursday, led by financials, as worries over domestic debt restructuring continued after the IMF loan was approved earlier this week resulting in investors adopting a wait-and-see approach until further clarity was provided, analysts said.

The main All Share Price Index (ASPI) closed down 1.38 percent or 131.07 points to 9,395.98, lowest since March 02.

Analysts said, majority of the banks have been on slower investment trends on fears of domestic debt restructuring after the IMF approval and waiting for more clarity on the local debt restructuring.

“The market is on muted sentiments despite the IMF loan being approved and is going through a period of consolidation,” Ranjan Ranatunga of First Capital Holdings said.

The market saw a net foreign outflow of 298 million rupees and the total offshore inflows recorded so far in 2023 to 3.3 billion rupees.

The most liquid index, S&P SL20, closed 1.64 percent, or 45.33 points, down at 2,722.94.

The market saw a turnover of 3.4 billion rupees on Thursday, above this year’s daily average of 1.8 billion rupees.

This is the highest turnover generated since March 08, which is when the market was driven off of positive sentiments from International Monetary Fund deal hope after Chinese assurances.

Top contributors to revenue was Agalawatte Plantations, on off board transactions of a stake change, contributing revenue of 1.6 billion rupees, Ranatunga said.

Top contributors to revenue industry wise was Food and Beverage and Telecommunications.

Sri Lanka Telecom has been seeing positive uptrends as the Secretary to the Treasury has informed the Board of Directors of Sri Lanka Telecom PLC (SLT) and Lanka Hospitals PLC that the Cabinet of Ministers has granted approval in principle for the divestment of the stakes held by the Treasury Secretary in the two companies.

Top losers were Sampath Bank, Hatton National Bank and Commercial Bank.

Sri Lanka is looking at options to re-structure domestic debt, or local law local currency debt (LLLC), without harming the banking sector and announce them the International Monetary Fund said in a report.

Banks have been witnessing profit taking and selling pressures after continuous uptrends prior to the IMF loan had been approved.

Analysts said, selling pressures is expected to ease as the IMF hopes to reduce inflationary pressures which will in turn lead to reductions in interest rates. (Colombo/Mar23/2023)

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