Friday, August 19, 2022
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Sri Lanka halts repayments of airline bond, Airport debt

Sri Lanka has suspended interest payment on a 175 million US dollar sovereign guaranteed bond of the national carrier and loans taken to build a China-backed airport and expand a runway at the main airport, a Finance Ministry report said.

The bond was sold to fund losses after then President Mahinda Rajapaksa terminated a management contract with Emirates and re-nationalized the airline.Interest on the bond is “on hold”, the report said.

Repayment on two loans by the Airport and Aviation Services Sri Lanka taken to expand at airport at the main Katunayake Airport in Colombo and loan from China to build an airport in Mattala in the South was also suspended.

Sri Lanka defaulted on its foreign debt after running out of reserves in the wake of seven years of aggressive open market operations under discretionary flexible inflation targeting and output targeting (printing money for growth).

The state was expanded rapidly under ‘revenue based fiscal consolidation’ where cutting costs (spending based consolidation) was abandoned, leading to spending as a share of GDP rising from 17 percent to 20 percent.

In December 2019 taxes were cut saying there was a persistent output gap after two currency crises reduced growth. The International Monetary Fund taught the central bank to calculate an output gap effectively encouraging it to print money to boost growth.

State-run Airport and Aviation Services (Sri Lanka) Ltd entrusted with the task of Airport operations is running at a total loss of Rs. Rs. 755 million last year as the country gradually opens up for international traffic.

Coupled with the reduction of administrative cost and Net Finance cost, the bottom-line impact of the AASL shows an improvement in 2021 having a reduction of total loss to Rs. 755 million in 2021 from the loss of Rs. 3,733 million in previous year, the company balance sheet showed.

Operational revenue of the Airport and Aviation Services (Sri Lanka) Limited (AASL) has declined by 5 percent to Rs. 7.4 billion in 2021.

The revenue streams of AASL mainly comprise the aeronautical operations and non-aeronautical activities amounted to Rs. 2.3 billion and Rs. 5.1 billion, respectively in 2021.

However, the other operational income of AASL in 2021 has shown a trivial declined to Rs. 3.8 billion compared to Rs. 3.9 billion in 2020.

Airport and Aviation Services (Sri Lanka) Limited Airport operation is one of the key industries which facilitates for connecting people, countries, and cultures, providing access to global markets by generating trade and tourism, and forging ties between developed and developing countries.

The year 2020 and 2021 proved difficult for the aviation industry’s existence due to the global spread the COVID-19 disease.

Majority of aircraft operations around the world have been constrained or grounded, with very few flight movements recorded over the years.

According to the International Air Transport Association (IATA), net industry losses approximated to US $ 51.8 billion in 2021, demand was around 40 percent of 2019 levels in 2021, total passenger numbers was around 2.3 billion in 2021.

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