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Sri Lanka’s LG polls may derail President’s reform agenda, delay IMF loan – analysts

ECONOMYNEXT – Sri Lanka’s local government (LG) polls may derail President Ranil Wickremesinghe’s economic reforms aimed at moving out of an unprecedented economic crisis and delay a crucial International Monetary Fund loan, analysts say.

Wickeremesighe, who was elected as the president by the 225-member parliament in July last year, has proposed some tough and politically unpopulour reforms including higher personal and corporate taxes, downsizing the public sector to reduce wages and pension bills, and maintaining fiscal discipline with IMF loan.

Many state-sector trade unions have threatened to start protests against tax hike amid demand for more relief and concessions.

However, Wickremesinghe’s government does not have the luxury to keep the public sector happy, because it cannot borrow money externally as the island nation had already declared sovereign debt default.

And the country’s Election Commission (EC) has called for nominations for the Local Government (LG) Elections from January 18 to 21 and the election date to be announced after the nomination.

The earliest the LG Elections can be held is the last week of February, and the latest is by the second week of March, EC officials have said. The term of the present LG bodies would end on March 19, 2023, regardless of an election.

“Reforms will go for six”

“If the government loses the election badly, all its policies including reforms will go for a six. If that happens, the legitimacy and the mandate of President Wickremesinghe will be further questioned,” an analyst who is an economic expert told EconomyNext, asking not to be named.

“It will be worse than what happened in 2018.”

When the last LG polls were held in 2018, former prime minister Mahinda Rajapaksa-led ultra nationalist Sri Lanka Podujana Peramuna (SLPP) recorded a landslide victory, challenging the government of then president Maithripala Sirisena and then prime minister Wickremesinghe.

Later, the Sirisena-Wickremesinghe government was not allowed to pass any major bills in the parliament as its legislative power was restricted following the defeat.

Rajapaksa’s younger brother Gotabaya Rajapaksa was later elected as the president in 2019, but both Rajapaksas were forced to resign in the face of street protests by the public following wrong economic policies which later turned into a political crisis.

Wickremesinghe, the leader of center-right United National Party was mainly elected by SLPP lawmakers and now is backed by the same people.

“A defeat in the local government poll will be a signal to the ruling party that the public are not with them,” another analyst said.

“The President is a single party member. The ruling party is not fully in charge and morally everybody is bankrupt after last year’s political crisis. So an election defeat at the local government poll will be a huge drawback for the president.”

Growing political risk?

However, some political analysts say SLPP could still win in rural areas where people’s needs and lifestyle are completely different from people in urban areas, who predominantly brought down the Rajapaksa regime.

“Because there is no other alternative in rural areas. Some voters could be frustrated with Rajapaksas and SLPP, but others might vote for the same party though very less in numbers,” Kusal Perera, a political analyst said.

“The dynamics of local government polls are different from parliamentary elections. The SLPP can easily pick the winning horse. It has created a corrupt political constituency all over the country and that could help them.”

But the uncertainty of the election outcome could also delay the proposed $2.9 billion IMF loan which will be approved once Sri Lanka agrees with all its bilateral creditors over debt restructuring.

Political stability is the key for sustaining Wickremesinghe’s reform agenda for the next two years.

Growing political risks or any hiccups in the stability of his unlikely coalition government could derail the reform agenda, delay the debt restructuring and IMF loan as well as the time to move away from the current economic crisis.

“Given Sri Lanka’s past history, nobody is willing to put their penny without looking at political stability,” another analyst who has associated with a key opposition political party said.

“Even if it is a local government poll, it is a must to see if the president’s policies have acceptance among the public. If he and his government face a strong defeat, the opposition parties will take to the streets demanding a general election.” (Colombo/Jan09/2023)

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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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