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Monday March 4th, 2024

Sri Lanka to push for green initiative investment “after OCC finalizing” debt deals – President

ECONOMYNEXT – Sri Lanka will push for investment into green initiatives globally after the Official Creditor Committee (OCC) finalizing on the island nation’s debt restructuring, President Ranil Wickremesinghe told Economy Next at the 2023 United Nations Climate Change Conference (COP28).

President Wickremesinghe along with local and global advisors has inaugurated three ambitious projects to convert climate change-led disaster funding, which is mostly seen as donations, into viable commercial enterprises involving private sector investments.

The idea is to rally all the global nations in the Tropical Belt threatened by disasters related to climate change and bargain collectively with advanced economies which emit more greenhouse gases into the environment resulting in global warming for more green initiatives like renewable energy projects.

Wickremesinghe initiated a Climate Justice Forum (CJF), Tropical Belt Initiative (TBI), and called on the world to help establish the International Climate Change University in Sri Lanka.

His moves have been welcomed by global leaders, though analysts said an initiative like TBI is a “bold and imaginary” step.

“This is the first step. We have now put forward the proposal,” Wickremesinghe told Economy Next on Sunday on the sideline of the COP28 in Dubai’s EXPO 2020.

“There is an interest. We have to wait for OCC finalizing (debt restructuring) before pushing for investments.”

HARD INVESTMENTS

Global investors are hesitant to invest in Sri Lanka due to its bankruptcy and sovereign debt default.

Sri Lanka is still recovering from an unprecedented economic crisis which has compelled the island nation to declare bankruptcy with sovereign debt default.

President Wickremesinhe during a forum on Saturday said his initiatives would help government in advanced countries not to use tax money of its own people for climate related disasters in other countries and instead, private sector investors could help by investing in renewable energy initiatives.

President Wickremesinghe’s government has been in the process of implementing some tough policies it committed to the International Monetary Fund (IMF) to stabilize the country and ensure sustainability in its borrowing.

Sri Lanka is yet to finalize the debt restructuring fully as it still has to negotiate on repayment schedule of commercial and sovereign bond borrowing.

The OCC and Sri Lanka had agreed on the main parameters of a debt treatment consistent with those of the Extended Fund Facility (EFF) arrangement between Sri Lanka and the IMF.

The members of the Paris Club which are part of the Official Creditor Committee are representatives of countries with eligible claims on Sri Lanka: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Japan, Korea, the Netherlands, Russia, Spain, Sweden, the United Kingdom, the United States of America.

The OCC has said it was expecting other bilateral creditors to consent to sharing, in a transparent manner, the information necessary for the OCC to evaluate comparability of treatment regarding their own bilateral agreement.

The OCC also has said it expects that the Sri Lankan authorities will continue to engage with their private creditors to find as soon as possible an agreement on terms at least as favourable as the terms offered by the OCC. (DUBAI/Dec 3/2023)

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Sri Lanka’s CEB reports Rs61bn profit for 2023 with Dec quarter gains

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Bord has reported a profit of 61.2 billion rupees for the year to December 2023, turning around from a loss of 298 billion last year, with all the profits coming in the last year amid heavy rain and price hike, interim accounts show.

The CEB reported profits of 77.9 billion rupees for the December quarter, compared to a loss of 182 billion rupees last year.

About 94 billion rupees in losses were forex losses, coming from the central bank, which printed money to suppress rates and triggered a steep currency collapse in a failed float with a surrender rule.

CEB revenues rose 55 percent to 156 billion rupees in the December quarter, cost of sales fell 45 percent to 78 billion rupees amid heavy rains, giving a gross profit of 78.2 billion rupees for the quarter.

In the year to December, CEB revenues were 606.6 billion rupees, up 96 percent from 308 billion rupees, while cost of sales rose from 444 billion rupees to 506 billion rupees. Gross profits were 99.6 billion rupees.

At group level, which includes LTL Holdings, profits were 75 billion rupees for the year, with income taxes of 6.3 billion rupees, provided.

CEB consolidated profits were 68.4 billion rupees, with other shareholders of subsidiaries accounting for 7.2 billion rupees.

Equity was 498 billion rupees at company level by December 31, with 126 billion rupee capital contribution as well as profits earned in the last quarter. (Colombo/Mar05/2024)

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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