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Thursday March 23rd, 2023

Sri Lanka private credit negative for seventh month as China assurances awaited

ECONOMYNEXT – Sri Lanka’s private credit was negative for the seventh straight month in December 2022, data showed while interest rates continued to be elevated amid a delay in an International Monetary Fund program and domestic debt re-structuring fears.

Credit to private sector has fallen 327 billion rupees to 7,426 billion rupees, helping stem a foreign exchange crisis in the past seven months.

In December private credit fell 72.6 billion rupees to 7,426 billion rupees.

Credit to state enterprises fell 25.6 billion rupees to 1,734 billion rupees. Ceylon Petroleum Corporation in 2022 borrowed from an India credit line, the proceeds of which has to be repaid to the Treasury.

Credit to government including central bank credit of 62.7 billion rupees rose by 178.5 billion rupees.

Sri Lanka has to roll-over debt at high interest rates, amid a delay in an IMF program.

Unlike in earlier currency crises triggered by mis-targeting interest rates, this time, the episode ended in external sovereign default and the IMF is not approving its program until China gives debt assurances.

India has already given debt assurances according to IMF requirements but the first Chinese communication from the Exim Bank of China has not yet been accepted by the IMF.

Related China says it will discuss Sri Lanka debt re-structuring during two-year moratorium

There is no official word on the Paris Club assurances yet.

Sri Lanka’s private creditor also wrote to the IMF last week saying they were willing to talk but raising concerns over the ability of domestic debt to reach IMF targets without re-struc

Sri Lanka’s interest rates are also elevated due to fears of domestic debt re-structuring.

Under the current debt workout of program of the IMF no cut off date is given for domestic debt re-structuring allowing rates to fall, when tax revenue and cost cutting reduces budget deficits.

Amid a delay in the IMF program and China, there has been pressure building up on the central bank to print money, which could undermine a fragile stability in the external sector.

The IMF went ahead with Ukraine without debt assurances from Russia using a so-called Most Favoured Creditor Clause (MFCC).

Sri Lanka has also been considering it, according to sources. However officials have said they are still negotiating with China. (Colombo/Feb06/2023)

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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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