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Sunday June 23rd, 2024

Sri Lanka says will not default on foreign debt as bonds trade at discount

ECONOMYNEXT – Sri Lanka said it will not default on foreign debt as the central bank printed money triggering ‘foreign exchange shortages’ raising concerns over repaying dollar debt, and rating agencies downgraded sovereign rating to ‘B-‘ from ‘B’.

Sri Lanka’s sovereign bonds had been sold down in international markets and is trading at steep discounts to face value.

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Sri Lanka sovereign bond yields rise

Sri Lanka says will maintain zero default record as Coronavirus jitters hit sovereign bonds

Unlike in the last episodes of uncertainty, domestic banks have also been banned from buying Sri Lanka sovereign bonds with borrowed or other dollars deposits, further reducing liquidity.

Steep discounts on bonds show perceptions of default by investors. Some parties had made claims that Sri Lanka would default.

“The Government wishes to categorically deny all such baseless claims, and would like to reiterate to all stakeholders that Sri Lanka will duly honour all its debt service obligations in the period ahead,” the central bank said in a statement posted on its website.

“The recent volatilities in yield levels of Government of Sri Lanka’s International Sovereign Bonds (ISBs) during the Covid-19 pandemic period are no different to what has been observed across a majority of emerging and frontier market economies.

“It is noteworthy that despite such volatility, global institutional investors, fund managers and analysts recommend Sri Lankan debt instruments for investment, while remaining confident of Sri Lanka’s credit quality.”

Sri Lanka’s delayed elections were also due to Coronavirus epidemic and the President had the authority to spend money, the statement said.

“The Government also wishes to clarify that the unintended delay in holding the general elections and the submission of the government budget must not be considered as leading to any policy uncertainty or procedural standoff, but a result of the health policy response to contain the Covid-19 pandemic.”

The full statement is reproduced below:

Sri Lanka Reiterates its Commitment to Meeting all its Financial Obligations

The Government of Sri Lanka finds inferences in recent media reports questioning its ability to honour its debt service obligations. The Government notes with dismay such inferences made by certain media to imply that Sri Lanka is at risk of falling into a sovereign debt crisis by comparing Sri Lanka with other sovereigns which are said to be in similar situations.

The Government wishes to categorically deny all such baseless claims, and would like to reiterate to all stakeholders that Sri Lanka will duly honour all its debt service obligations in the period ahead.

The recent volatilities in yield levels of Government of Sri Lanka’s International Sovereign Bonds (ISBs) during the Covid-19 pandemic period are no different to what has been observed across a majority of emerging and frontier market economies. It is noteworthy that despite such volatility, global institutional investors, fund managers and analysts recommend Sri Lankan debt instruments for investment, while remaining confident of Sri Lanka’s credit quality.

The Government also wishes to clarify that the unintended delay in holding the general elections and the submission of the government budget must not be considered as leading to any policy uncertainty or procedural standoff, but a result of the health policy response to contain the Covid-19 pandemic.

According to the country’s constitution, His Excellency the President is empowered to authorise the government operations in the absence of an annual budget for a period up to three months after convening the Parliament following the elections. Thus, the government operations function without any hindrance, and any uncertainty surrounding the date of holding the general elections will be resolved after the ruling by the Supreme Court on the same in the coming days.

In the meantime, the Government has already introduced measures to curtail expenditure, while the delay in presenting the government budget automatically limits the space for additional expenditure for this year. Further, the cost of Government financing from both domestic and external sources has markedly declined so far during 2020.

The Government has taken proactive measures in mobilising funds from multiple sources of market based and official sources of financing to effectively improve the terms and conditions of financing. Given volatile market conditions across the globe, the issuance of an international bond by the Government is not anticipated in the near term, thereby rendering the current yields observed in the international bond market irrelevant. The focus of financing will be to further explore bilateral and multilateral sources to benefit both risk and cost considerations of debt management, and these discussions are well underway. Further, the country is in the process of exploring SWAP facilities with regional central banks, while arrangements are being made for syndicate financing with identified foreign sources.

Meanwhile, the faster than expected rebound of Sri Lanka’s economy from the Covid -19 outbreak would also lend support to the Government’s efforts to consolidate fiscal operations in the period ahead. Sri Lanka has been able to contain the spread of the pandemic successfully in a short period of time with minimal disruptions to activity. Sri Lanka faced a partial lockdown only for eight weeks, i.e., during the second half of March, April, and the first half of May. During this time, many offices, financial institutions, factories, delivery services, agricultural services, public services were functioning.

The month of April each year is a festive season, in which economic activity is in any case subdued. The stimulus measures announced by the Government and the Central Bank are expected to help a fast revival of businesses and support the individuals affected by the outbreak. Accordingly, Sri Lankan economy is expected to record a growth of around 1.5 per cent in 2020, with much of that growth expected to occur in the second half of the year.

Sri Lanka’s exports and tourism sectors are gearing up for an early recovery, which could support a faster revival of activity while easing any pressure on the external sector. According to latest market information, Sri Lankan factories have received fresh additional orders to manufacture health and safety related equipment.

Sri Lanka’s traditional export commodities such as Tea has attracted record prices at auctions due to good demand from major importers. Hotels remain ready for an early resumption of tourists with extra sanitary preparations. Moreover, the lower fuel import expenditure and the temporary restrict ions imposed on nonessential merchandise imports are expected to cushion any adverse impact on the trade balance.

As such, despite the transitory adverse impact on tourism, transport sector and workers’ remittances due to the Covid-19 outbreak, the narrowing trade deficit is expected to cushion the current account deficit in 2020. Contrary to unfounded inferences and comparisons, Sri Lanka has already initiated measures to return to normalcy and gradually being opened up for business throughout the country. In this backdrop, the Government of Sri Lanka categorically disagrees with recent assessments of risks and rating decisions by some international rating agencies.

In conclusion, the Government emphasizes that Sri Lanka has demonstrated its commitment to honouring all its obligations on time, even during difficult times in the past, and will continue to do so in the future, while engaging with all investment and development partners.

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India supports Sri Lanka Coast Guard to boost maritime security

ECONOMYNEXT – India has given 1.2 million US dollars’ worth spare parts to Sri Lanka’s Coast Guard to be used in a vessel also gifted to the Indian Ocean Island on an earlier occasion, the Indian High Commission in Colombo said.

“Handing over of the large consignment of spares symbolizes India’s commitment to support capability building towards addressing the shared challenges of Maritime Security in the region,” the Indian High Commission said

The spare parts were brought to Sri Lanka on the Indian Coast Guard Ship Sachet, an offshore patrol vessel that was on a two-day visit to the island.

The spares were formally handed over to the Sri Lanka Coast Guard Ship Suraksha which was gifted to Sri Lanka in October 2017 by India.

India has gifted spare parts for the ship in June 2021 and April 2022 and also provided assistance in refilling of Halon cylinders in January 2024. (Colombo/June23/2024)

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Sri Lanka Water Board makes profits, tax-payers inject Rs28bn

ECONOMYNEXT – Sri Lanka’s state-run National Water Supply and Drainage Board has made a profit of 5.2 billion rupees in the year to December 2023, after a tariff increase despite not getting money for 25 percent of its water it pumps out.

Total revenues went up to 61.8 billion rupees in 2023 from 35.4 billion rupees, a Finance Ministry report said.

Water revenue surged to 58.5 billion rupees from 33.1 billion rupees, cost of sales also went up to 32.8 billion rupees from 23.14 billion rupees, helping boost gross profits from 12.3 billion rupees to 29.0 billion rupees.

Finance costs surged to 14.9 billion rupees from 3.9 billion rupees,

NSWD reported net profits of 5.2 billion rupees for the year, against a loss of 2.7 billion rupees a year earlier.

The Treasury had given 28 billion rupees from tax payer money to settle loans.

During the Rajapaksa administration, macroeconomists who ran the Finance Ministry made state enterprises borrow money from banks through Treasury guarantees listing them as ‘contingent liabilities’, claiming they were ‘off balance sheet’.

The Road Development Authority, which had no revenues to speak of borrowed large amounts of money from banks which were listed as ‘contingent liabilities’ though they were a responsibility of the state from day one, allowing macroeconomists to understate both the budget deficit and national debt, critics say.

The water tariffs were raised by 81 percent after macroeconomists printed money to supress interest rates for flexible inflation targeting/potential output targeting. The currency collapsed after macroeconomists tried to float the rupee with a surrender rule in place.

Non-revenue water for which no money is collected was 25.2 percent. The agency was supposed to reduce non-revenue water. In some districts religious establishments are responsible for non-revenue water, according to an official who said it on condition of anonymity.

The water board is also unable to collect money from some services like common toilets for underserved communities. (Colombo/June23/2024 – Update II)

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Sri Lanka will expedite Indian projects: President

ECONOMYNEXT – Sri Lanka will expedite Indian-backed projects in the island, President Ranil Wickremesinghe told Indian business people after a visit by Indian External Affairs Minister S Jaishankar this week.

“I discussed with Prime Minister Modi the need to accelerate the joint program that we have decided, agreed on. So the major ones are identified, and Foreign Minister Jaishankar came down today [20] to have a discussion. Now this will show the new path we are taking,” president Ranil Wickremesinghe said.

“It won’t be individual projects. We’ve discussed a fair number of them. First is the grid interconnection between Sri Lanka and India, so that sustainable energy can be transmitted to India.

“We have the Sampur solar power project, which is a Government to Government (G2G) project, and a three island project, which is where we hope the ground breaking can take place in July,” he told Indian business people at the 31st All India Partner’s Meet 2024 (AIPM 2024), held at ICT Ratnadipa in Colombo.

The AIPM 2024 which was organised by KPGM Sri Lanka and India provided a platform for both countries to reaffirm their commitment to collaborative projects that promise to redefine bilateral relations and propel socio-economic growth.

“It’s a great pleasure and a privilege to have you in Sri Lanka, in Colombo, holding this meeting. It shows on one hand the close friendship that our two countries have, and on the other hand, the confidence that you have in Sri Lanka.

“Having now survived two difficult years, I must acknowledge that this was possible because India gave us a loan of $3.5 billion. All that will be repaid.”

Cooperation between the two nations needed to be enhanced, particularly in the energy sector, aiming to foster new development for the Northern region, Wickremesinghe said.

“We are looking at developing Palk Straight for wind energy and solar energy, both countries to get together and have a large farm for solar energy, for renewable energy. It also means that we will have a new economy for the northern province, which was worst affected by the war.”

Several Indian-backed projects in Sri Lanka have stalled due to protests from some parties, with some going to courts.

India is helping expand the Kankesanturai port, and is discussing development of the Palali and Colombo airports.

The National Livestock Development Board of Sri Lanka, in collaboration with India’s Amul Dairy Company, is involved in a project to enhance liquid milk production in the country.

The two nations are also considering establishing land connectivity.

Discussions have also taken place regarding expediting the Trincomalee Development Project, which encompasses industrial investment zones and tourist areas.

“Plans are underway to construct a multi-product oil pipeline from Nagapatnam to Trincomalee, pending the final observation report. Trincomalee is poised to become a hub for oil refining, with the development of ports and investment zones, transforming Trincomalee Port into a significant hub on the Bay of Bengal.

“Today, the entire East Coast is being opened up for tourism, with additional land earmarked for hotels in Galle and southern areas. Moreover, there are plans to establish more investment zones across the country, alongside expanding our professional training programs. In these endeavours, we are collaborating closely with India.” (Colombo/Jun22/2024)

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