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Saturday May 25th, 2024

Sri Lanka to reduce ‘vulnerable’ international sovereign bond holdings: Jayasundera

ECONOMYNEXT – Sri Lanka will reduce its international sovereign bond (ISB) stocks gradually without going for new such instruments in the next few years and is expected to replace them either with another debt instrument or longer tenure borrowing, President’s Secretary P B Jayasundera said.

Sri Lanka had to repay 15 billion US dollars from the ISB alone when President Gotabaya Rajapaksa elected as the president in November 2019.

The island nation has already paid 2 billion US dollar since then and the next 500 million US dollar is due in January 2022.

Jayasundera, the top most civil servant and former finance secretary who still has the influence in economic policy and budget said the “exposure to sovereign bond should be reduced further”.

“Then we have more predictable, long term, and stable external debt portfolio,” Jayasundera told EconomyNext in an interview.

“Once the outstanding sovereign bond is brought down to say 7-8 billion US dollars, then you have a space to get the volume for a more longer term an also to replace it another financial instrument.”

“So the vulnerability of the whole debt market is contained because what we need is more equity market and less vulnerable debt market considering our situation.”

Finance Minister Basil Rajapaksa last week announced the country will not go for any commercial borrowing and will be mainly relying on concessionary loans from multilateral lending agencies.

Jayasundera said the World Bank and Asian Development Bank are coming in “big way” with the World Bank has pledged $500 million for rural road development initiatives by October and similar concessionary loans “will take care of public investments”.

“Traditional sovereign bonds are not favourable to us because we are basically moving at higher discount rate,” Jayasundara, sitting at his office at the presidential secretariat, said.

“We should make bullet payment in the next 2-3 years. Our idea is not to go for any commercial borrowing.”

No Sovereign Default

Global and local analysts say Sri Lanka is facing risk of sovereign debt default and the country’s risk of defaulting on such default is on the rise given its foreign exchange reserves has to be boosted with borrowed loans in a vicious cycle.

Already Sri Lanka’s sovereign rating has been downgraded to a junk category, far below investment grade due to risks of heavy external debt repayment.

The government has not gone for sovereign bonds under the current government as the country’s risk premium has spiked due to rating downgrade.

Jayasundera, however says people have misunderstood Sri Lanka’s debt stocks.

“I guarantee there won’t be a default,” he said.

“If somebody understands our debt profile very clearly there is no reason for anybody to fear of a sovereign debt default.”

Jayasundera said out of 4.5 billion US dollar total debt per year, only 2 billion US dollar repayment is sovereign bond including principle and interest payments.

The rest 2.5 billion US dollar loan is bilateral or multilateral.

“On bilateral loans, we have slowed down big, expensive financing projects,” he said.

“Within the numbers I have personally worked out, I don’t see any risk that Sri Lanka will default and there is the same fear in the last 2-3 years.”

“Rating agencies keep telling these and everybody is telling Sri Lanka will default. In fact, the current rating is a default rating. But Sri Lanka has never defaulted.”

“The next bullet (sovereign bond) payment is in January and that $500 million will definitely be honoured because the cash flow has been worked out on that basis.”

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Sri Lanka power outages from falling trees worsened by unfilled vacancies: CEB union

HEAVY WINDS: Heavy rains and gusting winds have brought down trees on many location in Sri Lanka.

ECONOMYNEXT – Sri Lanka’s power grid has been hit by 300,000 outages as heavy winds brought down trees, restoring supply has been delayed by unfilled vacancies of breakdown staff, a union statement said.

Despite electricity being declared an essential service, vacancies have not been filled, the CEB Engineers Union said.

“In this already challenging situation, the Acting General Manager of CEB issued a circular on May 21, 2024, abolishing several essential service positions, including the Maintenance Electrical Engineer in the Area Engineer Offices, Construction Units, and Distribution Maintenance Units,” the Union said.

“This decision, made without any scientific basis, significantly reduces our capacity to provide adequate services to the public during this emergency.

“On behalf of all the staff of CEB, we express our deep regret for the inconvenience caused to our valued customers.”

High winds had rains have brought down trees across power lines and transformers, the statement said.

In the past few day over 300,000 power outages have been reported nationwide, with some areas experiencing over 30,000 outages within an hour.

“Our limited technical staff at the Ceylon Electricity Board (CEB) are making extraordinary efforts to restore power as quickly as possible,” the union said.

“We deeply regret that due to the high volume of calls, there are times when we are unable to respond to all customer inquiries.

“We kindly ask consumers to support our restoration teams and to report any fallen live electrical wires or devices to the Electricity Board immediately without attempting to handle them.

The union said there were not enough workers to restore power quickly when such a large volume of breakdowns happens.

“We want to clarify that the additional groups mentioned by the minister have not yet been received by the CEB,” the union said.

“Despite the government’s designation of electricity as an essential service, neither the government, the minister in charge, nor the CEB board of directors have taken adequate steps to fill the relevant vacancies or retain current employees.

“We believe they should be held directly responsible for the delays in addressing the power outages due to the shortage of staff.”

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Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings


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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.


Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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