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ECONOMYNEXT – Sri Lanka’s Finance Minister Ali Sabry said the country could take up to 10 years to recover from the latest currency crisis if wrong decision are made, but could use it as a ‘blessing’ to put the country on a strong growth path.

“I am not sure if we could resolve this crisis even in two years,” Sabry told the parliament in his 44-minutes speech at the parliament on the current economic crisis.

“Whether we can resolve this crisis in 2 years or 10 years, it all depends on us.”

Typically Sri Lanka takes about 15 to 23 months for private credit to recover from a currency crises triggered by the island’s third world soft-peg according to analysts familiar with the central bank’s policy errors.

The steeper the depreciation – and the destruction of real capital and real income which has outcomes similar to the Tanzi effect – the longer it will take.

The policy errors come from anchor conflicts described in the impossible trinity of monetary policy objectives (when money is printed and the currency peg comes under pressure, exchange controls are imposed instead of raising rates).

Sri Lanka in April 2022 suspended payments on foreign loans, after sovereign bond holdings ratcheted up during three currency crises from 2015 to 2022.

With the broken peg the island nation of 22 million is unable to match inflows to outflows, and the country is facing shortages of medicine, food like milk powder, fuel and power cut in the worst soft-pegged crisis in the central banks 72 year history.

Sabry said Sri Lanka’s usable liquid foreign reserves are less than 50 million US dollars, which is adequate to finance less than a day’s imports.

An attempt to float the currency – suspend convertibility – and match outflows to inflows without a reserve pass through has so far not fully succeeded and forex shortages persist

Under floating exchange rate no foreign reserves are needed to operate a monetary regime as the central bank does not buy or sell dollars (there is no reserve pass-through of inflows and outflows).

Demand for dollars and supply of dollars is matched outside the monetary base and reserve money is unaffected by dollar flows. The US Fed, Bank of England or the ECB does not provide one cent of money for imports.

Analysts have blamed a surrender rule which forces reserve pass through of inflows for the delay in restoring monetary stability.

The rupee has since fallen to 370 rupees to the US dollar so far in May from 203 when the attempt to float the currency started in March.

“We have a huge responsibility towards the future generation if we use this crisis in a short period like how India used its 1990s crisis as a turning point to recover strongly or if we would become like Lebanon or Venezuela,” Sabry said.

Sri Lanka’s central bank started with its fundamentally flawed Latin America style central bank with the rupee at 4.70 to the US dollar legislatively breaking currency board which has kept the country stable since 1885.

Sri Lanka is one of several central banks by the Federal Reserve in Latin America and Asia including Iran using a cookie cutter law devised by its once time Latin America division chief who was an admirer of Raul Prebisch and his Argentina central bank set up in 1935, which has defaulted repeatedly.

“Argentina’s experience served as an inspiration for Robert Triffin’s work concerning the revision
of the structure and functions of central banks in developing countries, which was reflected in the laws of Paraguay, Guatemala, the Dominican Republic and Ecuador,” wrote Felipe Pazo in CEPA Review of April 1998.

“These, in their turn, served in part as a model for the laws which created the central banks of Chile and Honduras and for the modifications made in the banking laws of El Salvador and Venezuela.

“The work of Raul Prebisch can thus be said to have been the basis for the contemporary central
banking system in Latin America.”

El Salvardor’s currency has since died and the country is dollarized, as had several Latin American cookie cutter central. Prebisch himself served as a consultant to Venezuela central bank in 1947.

Sabry said the government will present a new budget in the near future with tax increases as the government revenue has fallen to record low of 8.7 percent of the GDP by end-2021.

Sabry said the country could either use it to come back strongly or allow the island nation to suffer further.

India faced a currency crisis in 1991 as large volumes ‘special issue Treasury bills’ were bought running down foreign reserves.

India had to ship its last gold reserves but engaged in a strong reform program backed by the IMF and World Bank with trigger happy anti-austerity economists put on a backfoot.

The crisis, however, paved the way for the liberalisation of the Indian economy, since one of the structural reform conditions stipulated in the World Bank and IMF loan, required India to open itself up to participation from foreign entities in its industries, including its state-owned enterprises.

Lebanon’s central bank has record for stability in recent years but its policy started to grow wrong from 2016, when instead of raising rates to sterilize inflows it started to borrow dollars at high rates from the domestic market much like Sri Lanka’s central bank swapped dollars.

Sri Lanka’s economic crisis has led to political crisis and thousands of your-led protesters are agitating near President Gotabaya Rajapaksa’s office in the commercial heart of capital Colombo demanding the resignation of President and his brother Prime Minister Mahinda Rajapaksa.

Both leaders have defied calls, to step down citing that they were chosen by a democratic election with popular mandates. (Colombo/May05/2022)

ECONOMYNEXT- Federal Reserve Jerome Powell who fired a global commodity and food price bubble by printing large volumes of money into a healthy US banking system has hiked rates 50 basis points and promised to withdraw liquidity by selling down Treasury bills and agency debt.

“With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” the Fed said in a statement.

“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.

“In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.”

The Fed fired a global commodity bubble as the main reserve currency central bank falsely blaming earlier high inflation on supply chains, firing hunger in developing countries which are also pegged to the US dollar loosely or tightly.

Fed in his disinformation campaign was backed by complacent media and stimulus happy ‘economists’.

Powell is now blaming Russia’s invasion for high food prices, even as it raises interest rates.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the Fed said artfully, deflecting attention from its own actions.

“The implications for the U.S. economy are highly uncertain.”

The Powell fed fired the current bubble partly by eliminating the concept of excess reserves and the interest rate on reserve balances, critics say.

The IORB rate was also hiked to 0.9 percent.

Sri Lanka and many developing countries are facing higher food and energy prices (in US dollar terms) by the policy errors of the Fed which are primarily driven by an employment target (stimulus).

Sri Lanka also compromised its monetary stability using flexible inflation targeting, with the central bank giving itself full discretion under ‘central bank independence’ creating three currency crises in a row by torpedoing it pegged regime with money printed to target an output gap (stimulus).

However the central bank has now abandoned stimulus in a bid to stabilize its third rate peg by slowing economic activity. Policy rates have been raised to 14.50 percent from 7.50 percent and inflation hit 29.8 percent in April.

Analysts, classical economists have called for rule based, non-conflicting monetary policy to restrain the central bank and its monetary board from printing money, to trigger instability though output gap targeting, flexible inflation targeting and or any other fancy labels that violate the rule of the impossible trinity.

Sri Lanka is now facing the worst currency and monetary crisis triggered by the central bank in its 72 year history of creating forex shortages and balance of payments deficits since it was set up in 1950, abolishing a currency board (rule based monetary policy).

Fed has fired the highest inflation in 40 years, when Paul Volcker, a classical economists tamed the Fed in the early 1980s.

The Fed implementation note extracts.

“Effective May 5, 2022, the Federal Open Market Committee directs the Desk to:

Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3/4 to 1 percent.

Conduct overnight repurchase agreement operations with a minimum bid rate of 1.0 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair.

Conduct overnight reverse repurchase agreement operations at an offering rate of 0.8 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair.

Roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in the calendar month of June that exceeds a monthly cap of $30 billion. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.

Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in the calendar month of June that exceeds a monthly cap of $17.5 billion.

Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.”

In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve a 1/2 percentage point increase in the primary credit rate to 1 percent, effective May 5, 2022.

How the Fed plans to ‘unprint money’ (reduce Treasury bill and other bond holdings)

Consistent with the Principles for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in January 2022, all Committee participants agreed to the following plans for significantly reducing the Federal Reserve’s securities holdings.

The Committee intends to reduce the Federal Reserve’s securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps.

For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills.

For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.

Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime.

To ensure a smooth transition, the Committee intends to slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves.

Once balance sheet runoff has ceased, reserve balances will likely continue to decline for a time, reflecting growth in other Federal Reserve liabilities, until the Committee judges that reserve balances are at an ample level.

Thereafter, the Committee will manage securities holdings as needed to maintain ample reserves over time.

The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments. (Colombo/May05/2022)

ECONOMYNEXT – Sri Lanka’s rupee was offered at 370 to the US dollar for telegraphic transfers for small transactions while larger deals went at higher rates near 380 to the US dollar market participants said.

UAE exchange houses were offering a Dirham for around 102 rupees (375 rupees per dollar), which will help drive more remittances to official channels, market participants said.

Sri Lanka’s new Central Bank Governor Nandalal Weerasinghe jacked up policy rates to 14.50 percent from 7.50 percent and also allowed Treasury bill yields to rise which would eventually slow private credit and investment and imports.

The falling rupee had also impoverished the population of the island which will reduce consumption and support the rupee as long as not new money is printed.

Related

Sri Lanka rupee will definitely stabilize based on policy actions: CB Governor

Sri Lanka’s rupee fell steeply after an attempted float in March due to low policy rates and a surrender rule. Electricity prices were also not raised, driving bank credit up with losses, unlike a float in 2012 after printing money.

There was hardly any activity in the interbank market.

In debt markets a bond maturing on 01.5.27 was quoted at 21.30/22.10 per cent.

At Wednesday’s Treauries auction yields stabilized with strong demand from genuine buyers, dealer said.

Sri Lanka is facing the worst currency crisis in its history after two years of money printing to keep rates down.

Sri Lanka is facing the worst currency crises triggered by the island’s economists who maintain an intermediate regime central bank after it attempted to target an output gap. (Colombo/May 05/2022)

ECONOMYNEXT – Sri Lanka police arrested 12 people near the parliament complex on Wednesday (04) allegedly for obstructing the vehicles of MPs.

Police Media told EconomyNext that the group were arrested by officers on duty near the parliament, but was unable to confirm what police station the protestors had been taken to.

Footage aired on the privately owned NewsFirst network showed protestors being forced into a police bus, even as protestors shouted angrily that they had a right to protest. A police officer at the site was heard shouting back that hooting at MPs was a violation of their parliamentary privileges.

Main opposition Samagi Jana Balavegaya (SJB) MP Patali Champika Ranawaka told parliament that the arrested people had arrived at the parliament gate to hand over a letter to the Speaker.

“After this was communicated to parliamentary officials, the Speaker’s media secretary to went to the gate and accepted the letter on the Speaker’s behalf,” said Ranawaka.

According to Ranawaka, the group were taken to the Maharagama police station.

“I asked the speaker to intervene in this matter and find out on what basis these people were arrested after the letter was accepted by his media secretary,” the MP said.

Commenting on the arrests, the Bar Association of Sri Lanka (BASL) called on the government, the police and the armed forces to act with restraint.

“It should be noted that those engaged in lawful exercise of their right to protest cannot be arrested. We reiterate that the right of the public to protest in a peaceful manner must be respected and upheld. We also stress that such protests must be peaceful at all times,” the BASL said in a statement.

SJB and opposition leader Sajith Premadasa, meanwhile, said freedom of expression must be upheld in Sri Lanka as a priority.

“This is a democratic country. Do these protesters lose their freedom after giving a letter to the speaker?” Premadasa asked parliament.

“I request the speaker to call the police station and ask them to release these people. Expressing their opinions is a fundamental right of the people. If they lose that freedom, they will go for other actions,” he said.

Protests have erupted across Sri Lanka against the government over its handling of Sri Lanka’s worsening economic crisis. Finance Minister Ali Sabry told parliament on Wednesday that Sri Lanka’s usable foreign reserves were down to 50 million US dollars and it may take six months to wrap up a deal with the International Monetary Fund (IMF). (Colombo/May04/2022)

The purpose of this analysis is to get a factual assessment the debt situation of the country As per the information provided by Central Bank,...

ECONONOMYNEXT – Sri Lanka’s usable foreign reserves were down to 50 million US dollars and it may take six months to wrap up a deal with the International Monetary Fund, Finance Minister Ali Sabry said.

“Our liquid reserves, usable reserves, are less than 50 million US dollars,” Sabry told parliament.

“People should know that. Sri Lanka is facing the worst economic crisis in history.”

He said negotiations with the International Monetary Fund were progressing well but it may take about six months to wrap up a deal.

Sri Lanka had to re-structure the debt to qualify for IMF program.

He expected to go to cabinet with selected debt advisors and appoint them within the next two weeks.

It may take as much as three years to emerge from the crisis, he said.

However he said the country would use it as a blessing and emerge like India had done it 1991 or go the way Venezuela had done. (Colombo/May04/2022)

ECONOMYNEXT – State-run SriLankan Airlines has explained the need to lease replacement aircraft with leases of a number of aircraft running out in the near future, and newer used aircraft being 20 to 40 percent cheaper now compared to its existing fleet.

Leases of three aircraft had expired during the Covid pandemic and 09 others were due to expire from 2022 to 225.

Without a direction to shut down the airline from the major shareholder, the government, not replacing the aircraft without a specific direction to shut down the airline “such failure to act would have been a dereliction of duty on the part of the Board of Directors,” the airline said.

The airline had made an operational profit in the March 2022 quarter for the first time since 2006.

Sri Lankan had 878 million dollars in debt mostly to state banks, and the Ceylon Petroleum Corporation and a dollar bond.

The airline would make a large forex loss after the central bank printed money and broke the rupee’s soft peg with the US dollar.

The forex loss on 878 million US dollars when the rupee falls from 200 to about 360 so far would be around 140 billion rupees. The same would apply to all other enterprises with US dollar debt including CPC.

SriLankan said 85 percent of its revenues were in US dollars.

Ceylon Petroleum Corporation, which had little dollar revenues had been made to borrow around 3.6 billion US dollars by authorities, whenever money printed to target an output gap (stimulus) created currency crises, analysts have said.

SriLankan said when it advertised for proposals from prospective lessors on April 10, the Board had no knowledge that on April 12 Sri Lanka would suspend payment on debt.

While the sovereign rating downgrade would lead to a rise in risk premium, the airline believed that it would still benefit from lower lease costs.

The statement from SriLankan in the form of an faq is reproduced below:

3 May 2022; Colombo – SriLankan Airlines Ltd. welcomes and respects the rich debate in the public space on matters concerning the Operation of the Airline in General and the ‘Notice of Procurement’for the Lease of Aircraft in specific.The Board and Managementare of the opinion that the discussion on these topics would benefit from more full information.

At the outset, we believe that the response to the following questionwould set the foreground for a more informed analysis of the areas of interest.

What was the Rationale of the Proposal from Management, and Approval by the Board, to Explore Aircraft Leasing Options in the Global Market?

The proposal from Management was primarily focused on the replacement of Twelve (12) expiring/expired aircraft leases.Nine (09) Aircraft will leave the fleet commencing year-end through to 2025 and Three (03) have left the fleet already during the pandemic period.

Not taking timely actionto explore the global market for lease options would effectively translate to scaling down the Airline through route cancellation.In the absence of a Direction or Decision by the Shareholder (Government of Sri Lanka – GoSL) to Scale Down or Shut Down the Airline (along with the dire consequences of such action to debt holders including the State Banks), such failure to act would have been a dereliction of duty on the part of the Board of Directors.

The interplay between Sri Lanka’s Foreign Currency Crisis and the Operational strategies of SriLankan Airlines was also an important consideration. This topic is dealt with in more detail through specific questions and answers, but the salient fact is that SriLankan, with 85% of its earnings being from overseas, is a foreign currency earner, similar to an export business. Shrinking the foreign currencyearning capacity of the Airline through fleet contraction would in fact be negative to the Country’s foreign currency situation.

The Management proposal was also centered on the fact that the lease market rates are very low at present (savings of 20%-40% relative to the current fleet). The Airline also has the further opportunity to significantly reduce operating costs through the securing of Aircraft which are more fuel-efficient and cheaper to maintain. These are all factors that would improve the USD Cash Flows of the Airline.
The Management additionally sought approval to explore the viability of expanding the fleet by up to Nine (09) Aircraft during the period 2023-2025to exploit forecasted tourism demand in the years ahead at lower lease and operating costs.

The above and other salient subjects and discussion points are further addressed through the Specific Questions which follow.

At this stage, has SriLankan Airlines Committed to the Lease of (even a single) Aircraft – No

Even at a future stage of the process, if for whatever reason the Airline wishes not to proceed with Leasing Aircraft, would the Airline be still compelled to Lease 21 Aircraft? No, the Airline would be free to Lease as few or as many aircraft as it wishes or to cancel the entire process. The entire process is on a Strictly Non-Binding basis.

Was the Intent of the Airline to Lease Brand New Aircraft? No, the Airline’s focus was on exploring the Global Market for Used Aircraft, to significantly reduce its operating cost structure.

Would Aircraft leases burden the State? No, all leases will be funded through the company’s foreign currency cash flows.

When would the Airline need to take a Decision whether (or not) to Lease Aircraft – and the related quantity, aircraft type, aircraft age,etc.?From the Airline’s perspective, it would be ideal if the Procurement Process was progressed to the level of decision making by October 2022. Failure to do so may result in the cancellation of several routes from March 2023 onwards and the contraction of revenues.

Does SriLankan Airlines draw on Foreign Currency Resources of the Sri Lankan Economy? No, SriLankan with 85% of its revenues in foreign currency is a net foreign currency earner under normal operating conditions. It should be noted, however, that the Airline Business is susceptible to major disruptions such as the pandemic or a country specific situation that deters tourism and international travel. s

Should SriLankan Airlines consider Replacement of Expiring Leases and Aircraft Additions when Sri Lanka was facing a Foreign Currency Crisis? Since the Airline’s operations generate foreign currency inflows, shrinking the fleet and resulting foreign currency cashflows will have a negative impact on the inflow of foreign currency to the country, while growing the foreign currency cash flows would have a positive impact. The Airline should therefore continue to evaluate the business case for Aircraft Replacement at a lower costand the very selective addition of new cash generating routes, in the best interest of the Company and the Shareholder.

What are the steps which need to be completed for the Board to be able to make a recommendation to the Shareholder (Government of Sri Lanka)by the end of 2022?
Identification of Bona-Fide Bidders for Aircraft Leasing through a transparent process
Calling for lease Proposals from eligible bonafide bidders through a transparent process
Evaluation of the bids
Preparation of a Recommendation in terms of Timing, Quantity, Aircraft Type, Age and specifications.

Is it normal practice to make a public announcement of the intent to lease aircraft? It is Best Practice in the interest of Full Transparency and to allow any Potential Lessor to participate. This level of transparency we believe is a significant enhancement to the Airline’s Lease procurement process and should be a consistent practice within the overall governance framework going forward.

What is the current status of the Process?The current stage (Notice of Procurement) was limited to the Submission of Credentials to enable the identification of Bona Fide Bidders with requisite certification and Aircraft Supply over the period up to 2022. No pricing information was called for at this stage. The next stage would be to issue an RFP document to the Qualified Bona Fide Bidders. Based on the suggestion of the COPE, the progress to the next phase of Price Exploration has been deferred by 3 months.

What considerations would be taken into account prior to deciding whether or not to lease aircraft and in the former case,quantity, price and aircraft type,etc.?

Business Caseformulation and evaluation for each and every Aircraft Lease (whether a replacement for an expiring lease or for route addition).

Financial Situation of the Airline at the time under multiple scenarios

Macro-Economic Conditions at the time and projected going forward

The Business Case Evaluation for Aircraft Replacement and/or Addition would necessarily have to factor in the Risk of Exceptional Situations and their mitigation.

What other considerations are relevant to the decision to survey the Global Aircraft Leasing Market?
The Aircraft Leasing market is currently very favorable, with a high likelihood of SriLankan Airlines being able to secure savings of 20%-40% relative to lease rates being paid at present.
The additional opportunity to significantly reduce operating costs through the securing of Aircraft which are more fuel-efficient and cheaper to maintain.

The Notice of Procurement points to the Potential number of Aircraft to be Leased up to the Year 2025 as 21. How is this number derived?

The quantity being explored includes 12 replacement aircraft. Nine (09) Aircraft will leave the fleet commencing year end through to 2025 and Three (03) have left the fleet already during the pandemic period. The Management is also exploring the market conditions for a further 9 Aircraft during the period up to 2025 in line with Tourism and International Travel Forecasts published by reputed International Organisations such as IATA (International Air Transport Association).

Sri Lanka announced the Selective Suspension of External Debt Servicing on 12th April – what impact would this have?

The downgrade of Sri Lanka’s ratings to default levels is likely to result in potential lessors adding a risk premium to pricing levels in the market. It is nevertheless likely that Lease Costs inclusive of such premium would remain more favorable than lease rates paid by the Airline at present.

To what extent was the Board aware of the Economic Crisis in Sri Lanka

The Board was fully aware of the deteriorating economic conditions in Sri Lanka, which have impacted day to day operations and have been extensively deliberated.A large number of strategic initiatives were launched to mitigate the impact of the crisis on the various dimensions of the Airline’s operation. The strategies adopted by the Airline enabled it to deliver an Operating Profit for the January-March Quarter notwithstanding the worsening economic conditions

With specific reference to the Commencement of a Process to Investigate Pricing of Aircraft leases, for reasons explained above, there was no reason to hold back such an initiative since circa50% of the fleet leases are expiring and initiatives targeting Direct Cost Savings and the continuation and growth of foreign currency Cash Flows, will directly benefit the company and the Shareholder (GoSL).

The Notice of Procurement was released on the 10th of April 2022. As stated before the COPE, the Company had no knowledge of the intent of the government to announce a Selective Suspension of External Debt Servicing on 12th April. As explained above, this would have some impact on Lease Prices,but it is likely the Airline would have the opportunity to benefit from lower (than current) lease prices regardless.

What is the Financial Situation of SriLankan Airlines?

Promisingly, the Airline has recorded a Group Operating Profit in US Dollar Terms for the January – March Quarter of 2022(unaudited). Thiswas the first profitable Quarter (in USD terms) after 6 Years. Significantly it is also the first 4thquarter profit (in USD terms) since 2006.

The Airline has, however, over a long period of time, accumulated an unsustainable level of debt which currently stands at USD 878 Mn.

Significantly, and notwithstanding the Operating Profitability achieved in US Dollar Terms, the carriage of USD Debt would, due to the recent devaluation of the LKR by over 50%, result in the recording of avery significantnon-cash exchange loss (due to revaluation of debt) in the LKR statutory financial statementsfor the year ended 31 March 2022 (unaudited).

A majority of this debt is held by the State Banks and the Ceylon Petroleum Corporation (CPC). Other significant debt includes a Government Guaranteed USD Bond for USD 175 million reissued in 2019.

Over the Past months, based on enhanced operating profitability and foreign currencycash flows, the Airline has commenced paying down debts to CPC, in addition to ensuring timely servicing of interest ofother term debt.

What were the main drivers of improved operational performance

Operating Profit during December 2021 and January to March 2022, has been achieved through a two-pronged strategy – Cost Restructuring and Opportunistic New Revenue Capture based on new routes, and adapting capacity to demand for both passenger and cargo traffic

Cost Restructuring at SriLankan is based on several phases and the Initiative to Rebase the Cost of Leases to Current (favorable) prices is a critical phase moving forward

What was the Impact of the Pandemic on the Global Industry and SriLankan Airlines in particular?

Globally, the devastating impact of the Pandemic resulted in 26 Airlines entering restructuring and 37 Airlines being shut down

Relative to the global industry, SriLankan has fared reasonably well, with a post-pandemic operating structure that provides a foundation for profitable operations.

Several factors made this possible:

Sacrifices made by the employees of the Airline, a majority of whom took deep salary cuts over an extended period.

Equity injection by the Shareholder of LKR 45.7 billion in 2020.

Successful Cost Restructuring (which brought down operating costs by USD 100 Million during the pandemic) and Exploitation of Market Opportunities – Cargo Services, Repatriation Services, New Demand Capture – for example between India and Australia.

Shouldn’t SriLankan Airlines be Shut Down? Sold? Liquidated and Restarted etc.?

These are valid questions. The critical issue which constrains the Options available is the fact that insolvency or bankruptcy at SriLankan would have a serious impact on the State Banks and CPC which hold a bulk of the historical debt.

Restructuring or Capitalisation of debt and/or liquidation and restart (as some Airlines have done) are decisions that need to be taken by the Shareholder (Government of Sri Lanka) and are beyond the purview of the Board. The Board has however provided the Shareholder with several going forward scenarios along with envisaged consequences.

In the absence of such direction by the Shareholder, it is the fiduciary duty of the Board of Directors to maximize the operating performance of the company.

The focus of the Board and Management has been to achieve Profitable Operations and to Commence Paying down long outstanding debt.

How is the Board of Directors Appointed and Remunerated?

Board members are appointed by the Shareholder of the Airline – the Ministry of Finance

The current Board of the Airline was appointed in January 2020 shortly prior to the Pandemic

At the point of appointment, current board members resolved not to accept any remuneration or benefits whatsoever.

Board members extended time and effort towards the management of the Airline on a purely honorary basis.

ECONOMYNEXT – China will provide an additional 300 million renminbi (worth over 45 million US dollars) in aid to cash-strapped Sri Lanka for the urgent purchase of medicines, food, fuel and other essentials, the Chinese embassy in Colombo said on Tuesday (03).

The embassy tweeted in the early hours of Tuesday that the new grant will increase the total emergency aid from China to 500 million renminbi (over 75 million US dollars).

To support #SriLankan people at this trying times, #China has decided to provide another 300 million RMB of aid to #SriLanka for the urgently needed drugs, food and fuels etc., which increases the total emergency grant from China to 500 million RMB (approximately 76 million USD). pic.twitter.com/uk1NY91nDy

— Chinese Embassy in Sri Lanka (@ChinaEmbSL) May 2, 2022

Meanwhile, Reuters reported on Monday (02) that Beijing’s ambassador Qi Zhenhong told Sri Lankan Finance Minister Ali Sabry at a meeting on Monday that China supports the island nation’s decision to work with the International Monetary Fund (IMF) to restructure its debt.

“Ambassador Zhenhong also assured Minister Ali Sabry that as a major shareholder of the IMF, China is willing to play an active role in encouraging the IMF to positively consider Sri Lanka’s position and to reach an agreement as soon as possible,” Reuters quoted Sri Lanka’s finance ministry as saying in a statement.

Earlier, on April 29, Central Bank Governor Nandalal Weerasinghe China will be treated equal to all other external creditors and will not be given any preferential treatment when Sri Lanka carries out its debt restructuring.

Sri Lanka on April 12 announced that it was suspending all foreign debt repayments as it had run out of foreign currency reserves and it will be restructuring all its external debts.

Related:

China won’t get special treatment in Sri Lanka’s debt restructuring – CB Chief

Media Minister Nalaka Godahewa said on Monday that Sri Lanka is also in discussions with China on how to proceed with debt following a suspension of payments as they are seen to be unwilling to re-structure debt as required under the IMF agreement.

India, too, has extended a fuel credit line to Sri Lanka by another 200 million US dollars which will enable the latter to import another four fuel shipments while another 500 million US dollar credit line is also under discussion, Power and Energy Minister Kanchana Wijesekera said on Monday. (Colombo/May03/2022)

ECONOMYNEXT – Sri Lanka’s worsening economic crisis cannot be solved without first resolving the prevailing political gridlock and, as his party is opposed to an interim government under President Gotabaya Rajapksa, an election must be called, opposition Janatha Vimukthi Peramuna (JVP) leader Anura Kumara Dissanayake said.

Speaking at a May Day rally in Colombo on Sunday (01), Dissanayake said the Marxisist-Lenninist JVP or the National People’s Power (NPP) alliance it leads will not under any circumstances be party to an interim or all-party government as long as President Rajapaksa remains in power.

“What is the point of an all party government with President Rajapaksa still at the helm? Calls coming from protestors around the country is for Gotabaya Rajapksa, [his older brother and Prime Minister[ Mahinda Rajapaksa and rest of the government to call it a day,” said Dissanayake, to shouts of “Gota, go home” from the crowd.

Thousands of ordinary citizens have been taking to the streets against President Rajapaksa and his government over what has become Sri Lanka’s worst economic crisis in its 74-year post-Independence history. A crippling dollar shortage brought about by ill-advised tax cuts, dwindling remittances and tourism revenues and excess money printing have led to severe shortages in fuel, cooking gas, medicines and other essentials.

“The people are demanding an end to a 74-year curse. The demand is not for some all-party nonsense with Gotabaya Rajapaksa still in charge,” said Dissanayake.

The JVP leader said the Sri Lanka Podujana Peramuna (SLPP)-led government is the most stable government the country has seen in years and yet is facing an unprecedented political crisis.

“This government has executive powers and a two-thirds majority, so what went wrong? The people do not accept the president or his administration. That has made it unstable,” he said.

“People are surrounding the homes of the president and the prime minister, demanding that they leave,” he  added.

Referring to recent comment by Prime Minister Mahinda Rajapaksa that he could still run with the youth calling for his resignation, Dissanayake said: “So, run. Run all the way to Medamulana.”

Medamulana is the ancestral home of the Rajapaksa family.

The JVP’s solution to the crisis, according its leader, is an election where the people will be given the opportunity to elect a government that is acceptable to them.

The main opposition Samagi Jana Balavegaya (SJB) headed by Opposition Leader Sajith Premadasa, too, is unfit for governance, said Dissanayake.

“Sajith says in Mawenalla the he too is coming to catch thieves, to applause from Rajith, Kiriella, and Harrison at the back. Thankfully, Ravi is no longer with the party,” he said inviting laughter from the audience.

The NPP leader also highlighted allegations of misappropriation of the Central Cultural Fund from 2016 to 2019 during the tenure of Premadasa as Minister of Housing, Construction and Cultural affairs.

Dissanakaye insisted that only a JVP-led government can fight corruption and bring various parties accused of corruption to justice. Their government alone can solve Sri Lanka’s crises, he said, without elaborating on proposed solutions.

“The people must given an opportunity to elect a government of their choice. There is no other answer. An interim government won’t end this stalemate. It’ll be the same people. Three of us, 222 of them,” he said, referring to the three NPP legislators including himself.

Responding to questions about the country’s ability to afford an election at this juncture, Dissanayake said his party has a duty to “save” the people and the country when they’re i peril. (Colombo/May02/2022)

ECONOMYNEXT – Sri Lanka health authorities warn of a possible rise in dengue cases with data showing a spike in the cases during the first quarter with the health ministry is facing a shortage of chemicals to control dengue mosquitoes amid a severe shortage of dollars.

Sri Lanka is facing its worst economic crisis since the independence from the British Colonial rulers in 1948 with shortages of essentials like cooking gas, medicines, and fuel due to acute shortage of dollars.

“We have run out of chemicals that we use to control the dengue (mosquito) population. We see the cases are rising especially in Northern and Western provinces,” Chairman of the Public Health Inspectors Union Upul Rohana told EconomyNext.

“And we have run out of fuel as well and chemicals that are being use to do full blood count test in order to identify dengue patients have also run out.”

The total dengue cases in the first three months of 2022 has increased to 17,123, nearly half of 35,924, the total dengue cases in 2021 when the country was mostly locked down.

Rohana said, with measures to prevent the mosquito population and the dengue cases being disrupted, the number of dengue infected people and possibly the fatalities will increase.

The National Dengue Control Unit (NDCU) has identified Colombo, Gampaha, Kalutara, Kandy, Galle, Matara, Jaffna, Batticaloa, Trincomalee, Kalmunai, Puttalam, Rathnapura and Kegalle districts as high risk dengue areas in the country.

According to the data issued by the NDCU, in the month of March 2022 alone 3,040 dengue patients have been identified, an increase by 31.4 percent from 2,312 a year earlier.

The Director of the NDCU, Sudath Samaraweera stated that pesticides which are needed for prevention programs are running out of stock.

“Some of the pesticides we have are low in stock. We have identified it now and we have informed it to the ministry. And we have been informed that those stocks will be refilled as soon as possible,” Samaraweera told EconomyNext.

“So far we do not have any issues because the unit request the necessary funds for programs from the Ministry and they will issue that,”

Samaraweera said that the dengue prevention plans are being continued as planned and the health officers are already implementing strategies in high risk areas to control the dengue cases.

“There is a 22.6 percent increase in week 16, compared to the previous week. Of all reported cases 47.3 percent were from Western Province [Colombo Municipal Council – 5.0 percent, Rest of the Colombo District – 16.4 percent, Gampaha District – 10.5 percent and Kalutara District – 15.4 percent],” NDCU report showed.

“Jaffna 8.1 percent, Ratnapura 5.3 percent, Galle 6.5 percent, Matara 4.7 percent and Kandy 4.6 percent districts also has reported higher number of cases.” (Colombo/May 2/2022)