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ECONOMYNEXT – Sri Lanka aims to reach a staff-level agreement with the International Monetary Fund (IMF) and also have a framework in place for debt restructuring by the end of July, Prime Minister Ranil Wickremesinghe said.

Representatives of the financial and legal advisory firms Lazard and Clifford Chance are now in Sri Lanka to assist with the debt restructuring framework, he said, while talks will continue over the next few days with an IMF delegation already in the island nation. In addition to this, a team from the US Department of the Treasury is set to arrive in Colombo on June 27, preceded by a top-level Indian delegation on Thursday, June 23.

Related:

High-level Indian delegation due in Sri Lanka for talks on assistance: PM

“We have concluded the initial discussions [with the main IMF team] and we have exchanged ideas on various sectors such as public finance, finance, debt sustainability, stability of the banking sector and social security,” Wickremesinghe said in a speech delivered to parliament on Wednesday, June 22.

Sri Lanka is going through its worst ever forex crisis, resulting in miles-long queues for fuel and ever-lengthening lines for cooking gas and other essentials as the cost of living skyrockets. The economic crisis has precipitated a political crisis, with widespread protests demanding the resignation of President Gotabaya Rajapaksa whose policies opposition parties and experts alike blame for triggering the crisis.

Wickremesinghe, whose surprise appointment as Prime Minister has not been uncontroversial, told parliament that the IMF was the only feasible way out and that, once a staff-level agreement has been reached and a debt restructuring framework was in place, the IMF’s executive board will arrive at its final decision.

“The only option before us now is to hold discussions with the IMF.

“We have to take this path. We aim to hold discussions with the IMF and arrive at an agreement to obtain an additional credit facility. As the next step, we hope to form a foundation to stabilise the economy and implement an immediate programme to increase our export revenue,” he said.

Wickremesinghe claimed that this plan has already been formulated following discussions with the Central Bank, Treasury, relevant government officials, professionals and experts.

As part of the government’s efforts to get Sri Lanka back on track, Wickremesinghe said, it has already reverted to the tax system that was in place in 2019.

Sweeping tax cuts by President Rajapaksa, purportedly on the advice of Keynesian economists, soon after his election in November 2019 has been blamed for an erosion of revenue, which led to a runaway budget deficit.  The government raised value-added tax (VAT) to 12 per cent from 8 per cent with effect from June 01 2022 to contain this.

Related:

Sri Lanka issues gazette hiking value added tax from June 01

Wickremesinghe said the government has decided to ensure a primary surplus in the national budget by 2025.

“Next, an IMF team on revenue and taxation visited Sri Lanka for discussions. They presented us with the relevant report.

“Meanwhile, next Monday (June 27), a team of representatives from the US Department of the Treasury will also arrive in Sri Lanka,” he said.

“We have ensured that we created the background necessary for the immediate arrival of these three teams in Sri Lanka. We will conduct lengthy discussions with them. Their presence in the country will now allow us to hold meetings together with all three teams. It will only further assist us in expediting our programme,” said the prime minister.

Parallel to these discussions said Wickremesinghe, the government will organise a foreign credit aid consortium led by India, Japan and China, the country’s main bilateral lending partners.

“However, there have been some conflicts and disagreements between us in the recent past. We are working towards resolving these and fostering friendly relations once again. Each country has different processes for granting loans. Through the credit aid conference, we hope to arrive at a consensus on the lending processes,” he said.

“If we receive the IMF seal of approval, the world will once again trust us. It will help us to secure loan assistance as well as low-interest loans from other countries in the world,” he added.

According to Wickremesinghe, Sri Lanka is also currently holding discussions with the World Bank, the Asian Development Bank, the United States, other friendly nations and heads of state to secure interim short-term loans until IMF support is finalised.

“We will be able to lay the foundation to ensure economic stability following the successful completion of these tasks. But this by no means will be the end. It will be the beginning of our journey: a new journey toward a stronger economy,” he said.

“We will then have to forge ahead with our plans to strengthen and create a new Sri Lankan economy,” he added.

An interim budget will be presented to parliament in August to lay this foundation, the prime minister said, to be followed by the budget for 2023 which will be presented in November this year. New legislation aimed at strengthening the economy is also on the cards and discussions on such legislation have already been held with all parties represented in parliament, he said.

Food security is also on the agenda, said Wickremesinghe, referring to his own earlier warnings of an impending food shortage.

Related:

Sri Lanka Prime Minister briefs FAO, UNDP on looming food shortage 

“Already a plan has been formulated to provide farmers with the necessary fertiliser for the next cultivation season.  We will also take steps to import rice under an Indian credit line and issue stocks to the Sri Lankan market to ensure price controls. This will provide some relief to the Sri Lankan consumers,” he said.

With regard to political reforms, Wickremesinghe said the 21st amendment to the Constitution has already been approved by the cabinet of ministers but it was unfortunate that opposition parties had chosen this week to boycott parliament.

“We must now agree on the proposals put forward and present the final draft bill to parliament. However, it is unfortunate that the process will be delayed due to the boycott of parliament by the [main opposition] Samagi Jana Balawegaya (SJB) and the [opposition] National People’s Power Party (NPP),” he said.

Related:

Sri Lanka PM wants opposition to call off boycott to proceed with reforms

“I have requested former speaker Karu Jayasuriya to present a complete plan and report on the newly proposed parliamentary committee system. He handed over his report on Monday (June 20),” he added.

Since his appointment as prime minister – for a record sixth time – Wickremesinghe has been spelling out the gravity of Sri Lanka’s unprecedented crisis in regular televised addresses to the nation. This has won the praise of some quarters and the scorn of others who claim that Wickremesinghe is stating the obvious and playing the role of a spokesman.

In his speech on Wednesday, Wickremesinghe drew attention to the feedback.

“Every two weeks since taking the reins of this government, I have taken steps to inform you of the real situation faced by the country and the measures we are taking to address it. Some have ridiculed this.

“However, many others are also grateful that we are telling them the whole truth and they have come forward to present various proposals that would perhaps help us overcome these issues.

“No matter which of these two groups you belong to, I call on you to come together as one country and join in the nation’s rebuilding process to see it through these dark times. Let us all embark on this journey together. Only by doing this will we be able to ensure the country’s recovery,” he said.

The country is on the verge of collapse, he warned.

“We are now facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has faced a complete collapse. That is the most serious issue before us today. These issues can only be resolved through the reviving of the Sri Lankan economy. In order to do this, we must first resolve the foreign reserves crisis,” he said.

It is no easy task to revive a country with a completely collapsed economy, especially one that is dangerously low on foreign reserves, a situation that could’ve been avoided, he said.

“We are now seeing signs of a possible fall into the very bottom. However, we must come out of this situation. If not, we will be unable to seek solutions to any other issue in the country,” he said.

Even India, which has helped Sri Lanka with assistance of up to 4 billion US dollars on a credit line cannot keep giving Sri Lanka loans, said Wickremesinghe, which is why going to the IMF is a must.

“As I have mentioned before, the situation we face today is in no way normal. I have repeatedly stated that Sri Lanka has not faced a crisis of this magnitude in its recent past.

“Once we have established a firm economic foundation you can hand over power to any political party as per your wish at an election and elect 225 suitable representatives to parliament. The responsibility and power to do so lie with you, the citizens of this country. You will be then given the opportunity to reject those you believe were responsible for the predicament Sri Lanka is facing today. In turn, the new government will be given the mandate to bring those responsible before justice. But all this can only be achieved following the revival of the country,” he said.

The Prime Minister also warned of further difficulties ahead, asking the hapless public to brace themselves.

“I call on the country’s citizens to contribute to the efforts to rebuild the country from the abyss it has fallen into today.

“So let us all first work together to come out of this situation. There will be difficulties. There will be hardships. But even while facing these difficulties and hardships each of us has things, however small, that we can do to contribute to this effort. I call on all Sri Lankans to bear these difficulties and hardships for a short period of time and contribute to the nation-building effort,” he said.

However, people will experience a gradual decrease in hardships, said Wickremesinghe. Power cut hours have been reduced, and 100,,000 metric tons of LP gas are to be imported with a 70 million US dollar loan from the World Bank and 20 million US dollars of Sri Lanka’s own reserves.

Currently, Sri Lanka is in need of 550 million US dollars to meet its monthly fuel needs but securing this has been hard, so the government will try and import the maximum fuel stocks possible based on the country’s dollar income, he said, warning that resolving the fuel shortages will take more time. Wickremesinghe asked that the people economise their usage of fuel.

Regarding school education, which has all but fallen by the wayside due to the fuel crisis and due to the COVID-19 pandemic prior to that, Wickremesinghe said authorities are formulating a plan to give priority to school buses and school vans when providing fuel.

“We will ensure that a conducive environment for the continuous study is created for the children of this country,” he said.

Sri Lanka needs to go forward step by step, said Wickremesinghe.

“The world will only assist us if they sense a strong urge and dedication on our part to come out of this crisis. Therefore we can either show them our aspiration as a nation to rebuild our country. If not we can display our indifference and disinterest, by committing various acts of sabotage. Your struggle must be one for rebuilding and uplifting our country. It should not be to destroy our country. Therefore I urge you to carefully consider and be vigilant in your actions at all times,” he said.

Wickremesinghe also urged political parties to set aside traditional party politics in the face of the worst economic crisis the country has faced since Independence.

“Today there is a collective protest by citizens against the whole parliament. At such a time a host of economic and political reforms affecting the country’s future have been proposed in parliament. If one has a true love for one’s country, what must be done now is to extend one’s support to introduce these reforms and to point out any shortcomings.

“Therefore I call on everyone to step away from traditional politics and to think afresh for the sake of our country. I also invite them to join the parliamentary meetings being held to expedite these necessary economic and political reforms,” he said.

It is the aspiration of the people that these reforms are expedited and implemented, said Wickremesinghe.

“If we can set aside our differences for a short while and only think of our country at this juncture I believe we will be able to safeguard our motherland from this impending disaster,” he said. (Colombo/Jun22/2022)

ECONOMYNEXT – A high-level government delegation from India is set to visit Sri Lanka for a discussion on possible further loan assistance, Prime Minister Ranil Wickremesinghe said.

Three officials from the Indian government will arrive in Colombo on Thursday, June 23 for this meeting, Wickremesinghe told parliament on Wednesday, June 22.

“We have received up to four billion US dollars under the Indian credit line so far. More credit has been requested. But India can’t keep giving us loans. Even their assistance has a limit.

“We also need to have a plan in place to repay these loans. They’re not donations,” he said, noting that India too is dealing with its own crisis in the country’s banking sector.

Former Sri Lanka Central Bank Governor Indrajit Coomaraswamy said earlier in June that Sri Lanka could get as much as 6.0 billion dollars in “bridge financing” from India.

“India has agreed to give 4.5 billion dollars,” Coomaraswamy told an online forum organized by the central bank on June 02.

“There may be 1.5 forthcoming.”

Related:

Sri Lanka could get up to US$6bn from India, talks with Japan: Coomaraswamy

(Colombo/Jun22/2022)

ECONOMYNEXT – John Keells Holdings (JKH), one of Sri Lanka’s top conglomerates will borrow 75 million US dollars (27.1 billion rupees) from a Canadian financial institution through privately placed debentures to fund dollar based investments such as West Container Terminal in Colombo, the firm said in a disclosure to the stock market.

Canada-based Fairfax Financial Holdings Limited will lend the required dollar amid the crisis-hit and sovereign debt defaulted economy is desperately looking for dollars to fund its essentials including fuel and cooking gas.

John Keells will issue 208.2 million debentures, each at 130 rupees to Fairfax Financial Holdings Limited.

The convertible debentures will accrue interest at a rate of 3% per annum.

“The proceeds from the issue will be used to support the Company’s investment and financing obligations, particularly in terms of managing the foreign currency linked funding requirements in investments such the West Container Terminal (WCT) in the Port of Colombo,” JKH said in a stock filing on June 21.

JKH will invest 70 million US dollars in 3.2 million twenty-foot equivalent container terminal in the WCT joint venture in the Colombo Port, taking a 34% stake with the majority is being held by India’s Adani group.

The 650 million US dollar Colombo West International Container Terminal (Pvt) Ltd, will be 70/30 debt to equity funded.

India’s Adani will hold a 51 per cent stake and Sri Lanka Ports Authority the landlord will hold a 15 per cent stake.

The conversion of the debentures to newly listed ordinary shares will take place within 18-36 months from the date of issue of the instrument by the company to the investor.

JKH said the funding will strengthen its financial position amid a worsening dollar crisis worsens and higher interest rates.

“The Proposed Private Placement will enable the Group to support this investment pipeline and match its foreign currency linked project costs whilst reducing the need to fund some of its requirements through the local banking sector given the stresses on capital and interest rates.”

The debenture will mature in 3 years. (Colombo/June 21/2022)

ECONOMYNEXT – Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21) though turnover hit a 16-month low amid political ad economic concerns, brokers said.

The main All Share Price Index (ASPI) closed 1% or 77.7 points higher at 7,502.28, gaining from its near eight-week low.

“The market was desperately looking for some positive news and the IMF meeting with the Prime Minister was seen as a positive move,” a market analyst said.

“If you see the turnover levels, they are low in the last few days, This shows the selling pressure is bottoming out and the market is waiting for some positive news to react.

Tuesday’s turnover recorded a 16-month low of 760 million rupees, its lowest since March 22, 2021. This is less than a quarter of this year’s daily average of 3.5 billion rupees.

Analysts said the market moved on positive sentiments as investors were hopeful on an IMF deal as the discussions began in Colombo on June 20.

A 10-member IMF team arrived in Sri Lanka and began discussions on policy corrections with Prime Minister Ranil Wickremesinghe on Monday

However, Sri Lanka must show progress on debt restructuring before IMF lends any money.

Market analysts have said investors were heavily feeling the pinch of economic crisis as the country’s fuel bunkers have dried out the island nation was frantically looking for dollars to purchase fuel.

The public sector and the schools have moved online for two weeks on the government’s advice to reduce transport and save fuel.

Though a new prime minister and a new cabinet have been appointed, analysts see little progress on both the economical and political fronts. The country is struggling to ensure a continuous supply of fuel due to a shortage of US dollars.

The more liquid S&P SL20 index gained 1.51% or 35.65 points to 2,400.57

Foreign investors sold a net of 9.5 million rupees worth of shares on Tuesday. The market has witnessed a total foreign outflow of more than 1 billion rupees so far this year.

The market has so far lost 7.3% in June after gaining 6% in May. It lost 23% in April followed by 14.5% fall in March.

The market has lost 38.6% so far this year after being one of the world’s best stock markets with an 80% return last year when large volumes of money were printed.

Sri Lanka’s sovereign debt default has already led the country to be rated with restricted/selective default rating by rating agencies, which has weighed on investor sentiment.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

All Share Price Index was mainly pushed up by Expolanka, which lost 4.2% to 168.25 rupees a share.

Dialog Axiata was up 5.2% to 10.10 rupees a share, while DFCC Bank gained 6.5% to 37.90 rupees a share. (Colombo/June21/2022)

ECONOMYNEXT – Sri Lanka’s health sector priority is to make drugs available than making them at affordable price, Health Minister Keheliya Rambukwella said as the island nation’s economic crisis has hit the availability of drugs including some key essential and life-saving medicines.

The US dollar shortage has resulted in lower drug imports and President Gotabaya Rajapaksa’s government has requested from bilateral donors and multilateral finding agencies to help the island nation from a possible looming drug shortage.

Rambukwella says many organizations have pledged around 500 million US dollars for medicines, though the island nation’s only has received part of the total pledges.

According to Rambukwella, the pledges include 73 million US dollars from the World Bank, 66 million from from the Asian Development Bank, 100 million US dollars from Asia Infrastructure Investment Bank (AIIB) and 200 million US dollars from the ongoing Indian credit line.

However, many people have complained of expensive drugs after the rupee currency was allowed to depreciate by around 75 percent.

“We all are experiencing the impacts of forex issue. So it is not limited to a particular group of people or sector,” Rambukwella told a media briefing on Tuesday.

“As of now we have to move with that. I guess is a 10-15 percent of the population could turn into state health sector from the private sector due to forex issues.”

“Right now it is a question of availability. Having said that we will have look into some price controls subsequently. Right now the priority is given for availability than the affordability.”

Many individual hospitals and Government Medical Officers’ Association, a health sector trade union have complained of unavailability of some essential and life saving drugs.

Rambukwella said there could be some instances of drug shortages, but overall most of the drugs are available.

Many hospitals, however, have maintained and told patients that some drugs are not available as they were earlier. (Colombo/June 21/2022)

ECONOMYNEXT – Sri Lanka Minister of Justice Wijeyadasa Rajapakshe has called for wide support for his version of a 21st amendment to the constitution after the Supreme Court determined that the provisions of a competing draft by the main opposition required a referendum.

Rajapakshe told parliament on Tuesday June 21 that the Supreme Court had determined that virtually none of the provisions in the main opposition Samagi Jana Balavegaya’s draft 21st amendment could be passed in parliament without a referendum.

“The people of this country irrespective of party differences accept the need for the 21st amendment we proposed,” he said.

The SJB’s 21st amendment concentrated heavily on abolishing Sri Lanka’s all-powerful executive presidency and, according to a determination by the Supreme Court, many of its provisions require a two thirds majority in parliament along with a people’s referendum.

Related:

Sri Lanka Supreme Court determines major provisions of SJB’s draft 21A needs referendum

The exact contents of Rajapakshe’s draft 21st amendment are not out in the public domain at present, but according to the minister, it will largely be a restoration of the 19th amendment which will see some of the powers conferred on the president by the controversial 20th amendment will be repealed.

“The opposition has to accept that not one word of their draft can be passed in parliament in any practical way. We have brought forward something that can actually be done,” he said.

“We have included everything that can be passed without a referendum,” he added.

Pending Supreme Court perusal of the draft, it is the duty of the opposition and every citizen to support the amendment, the minister said.

Rajapakshe also expressed support for Prime Minister Ranil Wickremesinghe and criticised the SJB for not taking up the premiership when offered by President Gotabaya Rajapaksa after then Prime Minister Mahinda Rajapaksa was compelled to step down amid widespread violence on May 09.

“The PM is for massive political reforms in this country, and that was why I took the justice ministry,” he said.

Sri Laka is going through its worst ever forex crisis, with a severe lack of dollars leading to long queues for fuel and other essentials as the country grids to a virtual standstill.

The SJB and the opposition National People’s Power (NPP) walked out of the chamber Tuesday morning, announcing a boycott of parliament this week in protest of what they said was government inaction in the face of Sri Lanka’s worsening crisis.

Related:

Sri Lanka opposition parties boycott parliament in protest

Minister Rajapakshe said the international community and the International Monetary Fund (IMF) have asked Sri Lanka to get its house in order in order to continue supporting the country through the crisis.

“The EU, the US, and others are asking ‘where is your country’s democracy and rule of law?’ They ask that these be established,” he claimed. (Colombo/Jun21/2022)

ECONOMYNEXT – Sri Lanka central bank’s own Treasuries holding has topped 2.0 trillion rupees with 48 billion rupees in permanent money injected after the latest Treasury bill auction, official data shows.

The central bank’s Treasury bill and bond stock reached 2,045 billion rupees on June 17 from 1,997 billion rupees a day earlier.

The central bank had additionally injected 746 billion rupees against Treasury securities overnight into money markets allowing banks to give loans without raising deposits and trigger balance of payments deficits and forex shortages.

The overnight bill stock fell to 694 billion rupees as the permanent money was injected.

Some banks, including state banks are short of liquidity having financed credit to the government or state enterprises funded by central bank credit or window borrowings.

The central bank has bought 71 billion rupees of bills outright so far in June.

The central bank started the current currency crisis around August 2019 injecting money by buying back bonds from banks for new money, losing the ability to run balance of payments surpluses (sterilize inflows).

Currency crises are problem associated with intermediate regime central banks (non-credible pegs) which intervenes in forex markets to collect reserves and also prints money to mis-target interest rates.

The central bank is continuing to intervene in forex market using mostly borrowed dollars from India and is also putting downward pressure on a peg down with a surrender rule.

A non-credible peg called a ‘guidance rate’ has been imposed. (Colombo/June21/2022)

ECONOMYNEX – Sri Lanka’s main opposition Samagi Jana Balavegaya (SJB) and the opposition National People’s Power (NPP) will boycott parliament this week, opposition leader Sajith Premadasa said and NPP leader Anura Kumara Dissanayake said before proceeding to walk out of the chamber.

The government has turned parliament into a talk shop and time spent in parliament is a waste of time and offers no solution to the people suffering outside, Premadasa told parliament on Tuesday June 21.

“We will boycott this parliament,” thundered Premadasa.

Janatha Vimukthi Peramuna (JVP)-led National People’s Power (NPP) leader Anura Kumara Dissanyaake echoing Premadasa’s statement said no useful solutions have come out of parliament so far.

Sri Lanka is going through its worst economic crisis in its post-Inedependence history, with long queues for essentials seen around the country.

Dissanayake said the government must present to parliament a short term plan or a roadmap with proposals for a way out of the crisis.

President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesnghe are in two camps and conflict is brewing between them, claimed Dissanayake.

“There is no point debating here if no roadmap or plan is presented to parliament,” he said.

Sri Lanka Freedom Party (SLFP) general secretary Dayasiri Jayasekara also demanded a plan on solutions to Sri Lanka’s lengthening fuel queues.

Government MP Nimal Lanza said opposition parties including the NPP was uninterested in forming an all party government when overtures were first made.

“Don’t speak empty words and mislead the people. If you have a plan, we will raise both hands and extend our support,” he said.

National Freedom Front (NFF) leader Wimal Weerawansa claimed that some SLFP MPs and MPs from Lanza’s group had secretly proposed to President Rajapaksa that Wickremesinghe be appointed Prime Minister.

Refuting this claim, Lanza said: “Don’t get me started [on others].”

“However, there needs to be a government. We’re not going to attack a new government just for the sake of it. But a Prime Minister needs to have a plan. It doesn’t look like they even have an answer to the crisis.

“It was implied that Wickremesinghe would be able to pull billions of dollars out of his pocket soon after his appointment, given his supposed international connections. That hasn’t happened,” said Weerawansa. (Colombo/Jun21/2022)