January 01, Colombo (LNW): Private LP gas vendor LAUGFS Gas today (01) announced a price hike on their domestic LP gas cylinders, in response to the revised value-added tax (VAT).
Accordingly, the price of a 12.5 kg domestic gas cylinder will soar by Rs. 755 to Rs. 4,740.
The price of a 5 kg domestic gas cylinder will soar by Rs. 305 to Rs. 1,900.
January 01, World (LNW): Japan experienced a significant seismic event on Monday (01), as a potent earthquake with a magnitude of 7 on the local shindo scale rattled the nation, international reports claimed.
This marked the highest intensity on the scale, triggering tsunami alerts along the entire western coast.
Following the powerful shock, originating near Ishikawa Prefecture’s Noto Peninsula at approximately 4:10 p.m., tsunami waves swiftly reached some regions.
The earthquake, registering at a magnitude of 7.6, resulted in collapsed buildings trapping at least six individuals.
Reports from local authorities and fire departments indicated numerous houses collapsing in parts of Ishikawa, with approximately 32,500 homes losing power in the prefecture.
Wajima, Ishikawa, experienced a large-scale fire, according to local sources. Although injury figures were not immediately clear, NHK reported that several individuals were hospitalised in affected areas.
A major tsunami warning, the highest alert level, was issued for Ishikawa Prefecture’s Noto Peninsula, with the weather agency cautioning about potential 5-metre waves in the area.
Other regions along the Sea of Japan coast, spanning from Hokkaido to Nagasaki, were under tsunami warnings or advisories, predicting waves of up to 3 metres.
The warning for Ishikawa, Niigata, Toyama, and Yamagata urged residents to evacuate coastal areas promptly. By 4:21 p.m., waves exceeding 1.2 metres had reached the Noto Peninsula’s Wajima Port in Ishikawa. NHK emphasised that wave heights might vary based on specific locations.
The Meteorological Agency highlighted that a major tsunami warning of this magnitude had not been issued since the March 2011 Great East Japan Earthquake.
Areas experiencing strong shaking were cautioned about potential shindo 7 aftershocks over the following week, particularly in the next two to three days.
Prime Minister Fumio Kishida urged affected residents to remain vigilant in the face of potential aftershocks. He specifically called on coastal areas expecting tsunamis to evacuate promptly.
There is huge pressure on the Government to defer parate rights for 12 months to give some breathing space to the tourism sector and SMEs, largely due to the super high borrowing rates of 2022. For example, the hospitality sector debt as at April 2019 stood at $ 300 million. The amount has now nearly doubled to $ 700 million (mainly due to unrealistic interest rates and penalties) – which is simply not sustainable particularly as tourist arrivals are less than the 2018 figures and also the room rates are still less than 2018 rates.
Whilst bankers say they need to hold the whip of “parate rights,” SMEs say banks shouldn’t be allowed to crack it irresponsibly. What has happened in the recent past they say is irresponsible cracking of the whip. But the whip is important for banks because there are wilful defaulters who piggy back on the current sentiment to exploit the banking system. So, there is a need to be extremely cautious when compromising on parate rights to prevent these elements to exploit banks and also affect the ratings of banks. The bigger issue is some of the banks have the minimal or no collateral for large ‘too big to fail’ exposures, this could have cataclysmic impacts to banks and country if they go down.
Therefore banks need serious skills at board level to manage these challenges. Of course legislation could be brought to ensure that the genuine entrepreneurs are protected. CBSL needs to reach out to the respective banks on individual/group cases and put pressure on them to provide relief to the genuine cases. Banks certainly need good businesses to lend. So it is in their interest to help them to ride over the current crisis largely caused by the mismanagement of the economy and the COVID wave of 20-21.
 President Wickremesinghe terming the task of economic revival following bankruptcy a “formidable” one, recently noted, “Our country’s situation is now better than what it was a year ago. I am not saying that the economy has recovered completely. It has become comparatively better” |
Expectations from banks
Banks are only expected to pursue parate after exhausting all revival and recovery options, (typically after around 3 to 4 years of efforts – moratoriums, restructures, concessionary rebates and WC loans, revival efforts, etc.). Any compromise of the parate rights should not strengthen the claims of wilful defaulters. There is an increasing trend of stay orders and opportunity for fair hearing by courts where businesses get 1-2 years further breathing space. Once a precedent is created to defer it will be politically difficult to reintroduce. This will create moral hazard as even good customers will resist servicing debt causing an increase impairment levels of banks to rise further, threatening the banking sector stability.
It will become more difficult for SMEs to borrow as banks will further tighten underwriting standards, this will stifle credit and GDP growth in 2024, weakening economic resurgence. If there is no economic resurgence in 2024 (following four consecutive years of negative growth) this will exacerbate youth and skilled migration, increase poverty levels and make it more difficult to attract FDIs. 80% of troubled SME businesses have revived with the current business environment, due to tourism and remittances rebounding in the last six months, but certainly there is a need for working capital requirements and debt payment support.
President Wickremesinghe terming the task of economic revival following bankruptcy a “formidable” one, recently noted, “Our country’s situation is now better than what it was a year ago. I am not saying that the economy has recovered completely. It has become comparatively better.”
Options for the Government
To address the challenges faced by SMEs under the current parate law, a more specialised and financial structure and financial engineering is necessary. The proposed amendments should aim at creating a balanced framework that protects the interests of both the banks and the SMEs. One credible option is to introduce a tiered recovery program. The parate law (which was introduced to prevent the undue law delays that gave undue advantage to borrowers) certainly needs serious reform. Therefore a good start would be to establish a structured tiered recovery program. This system would mandate banks to exhaust certain steps before resorting to parate action. These steps could include mandatory negotiation periods, structured repayment plans, and engagement with restructuring advisers. Such a system would ensure that parate execution is truly a last resort, especially for those businesses who were viable prior to COVID or before the interest rates went through the roof.
Another proposal is the creation of a specialised SME/tourism restructuring board to ensure that both parties have fair representation. The tribunal could offer alternative solutions like loan restructuring, temporary moratoriums on payments, or even partial loan forgiveness in extreme cases. Another compromise could be to limit the forced sale to a certain percentage of the asset value, giving the SME time to recover and pay off the remaining debt. This would prevent complete asset seizure at the first stage of default.
Also with the support of WB/IFC set up a mandatory financial counselling and support for SMEs. CBSL must mandate banks to provide financial counselling and support services to SMEs before initiating parate execution. This would include advice on financial management, assistance in restructuring businesses, HR solutions, governance and guidance on alternative financing options. With the support of the World Bank the Government should look to set up an insurance credit guarantee fund or a bad bank. This fund would act as a safety net, reducing the risk for banks and giving them more flexibility in dealing with loan defaults.
Tax credits for banks supporting SMEs is also an option. This could include tax breaks for banks that restructure loans instead of resorting to parate execution. Broadly should be a tax rebate to banks on the interest cost on the restructured loans. One option is to consider granting exemption from FS VAT for interest income derived from lending to thrust sectors such as tourism, renewable energy sector, etc., so banks can consider lending at subsidised rates.
In the final analysis given the role of tourism and SMEs in Sri Lanka, the Government needs to reach out to support them while also protecting the interests of the banking sector. The Government should not test the system beyond a point. Some push back with the IMF is required, but with the right human resources. Certainly not with half backed bureaucrats. It is therefore essential that any changes to parate law are carefully done to ensure a sustainable solution in the medium term for both SMEs and banks. Also not adversely impact their ratings.
The proposed bad bank is a must (a bad bank is a bank set up to buy bad loans and illiquid assets of financial institutions. The institutions holding the nonperforming assets will sell these holdings to the bad bank at market price) and finally the realignment of the two former development banks (Govt. has significant stakes) to help the industry with long-term money. We can no longer be experimenting with poorly baked solutions.
References:
https://www.pressreader.com/sri-lanka/daily-mirror-sri-lanka/20180720/282080572619387
http://island.lk/parate-execution-is-the-last-resort-to-protect-depositors-funds-slba/
Source: DailyFT
January 01, Colombo (LNW): SINOPEC announced it will provide a discount of Rs. 3 per litre for 92 Octane Petrol and Auto Diesel, hours after the announcement of the private energy solution provider’s fuel price revision.
Earlier this morning (01), SINOPEC and Lanka Indian Oil Company (LIOC) increased the fuel prices tallying with that of the state-run Ceylon Petroleum Corporation (CEYPETCO).
However, SINOPEC asserted that this discount will be given for the aforementioned two types of fuel in celebration of the New Year.
January 01, Colombo (LNW): The price of the domestic LP gas cylinders will be revised from today (01) in compliance with the revised value added tax (VAT), state-run LITRO Gas announced.
Accordingly, the price of a 12.5 kg domestic gas cylinder will soar by Rs. 685 to Rs. 4,250, said LITRO Chairman Muditha Peiris.
Subsequently, the price of a 5 kg domestic gas cylinder will soar by Rs. 276 to Rs. 1,707, and the price of a 2.3 kg cylinder, by Rs. 127 to Rs. 795.
Facilitated by Ashoka Jayatunga (from Washington, D.C.)
January 01, New York, USA (LNW): Mahinda Samarasinghe, having completed two terms as a diplomatic representative in Australia and Switzerland, in 1988 entered representative politics through the Provincial Council system, later serving as Chief Government Whip and Chief Opposition Whip in Parliament.
He held office during five Cabinets as a Minister holding seven portfolios. He also has held the post of elected Chairman of the Committee on Human Rights of Parliamentarians representing the 168-member countries of the Inter-Parliamentary Union, earning recognition and prestige for Sri Lanka. Let us, at the dawn of the New Year, discuss his contribution as the current Sri Lankan Ambassador to the United States:
Q: In your role as Ambassador to the United States, are you satisfied with what you have achieved?
A: Yes. I have paved the way to serve the country over and above what I could do through political representation.
Q: What is this new pathway you have carved?
A: My background based on international experience and connections has been the basis for this. Previous leaders did not fully utilize my thirty years of being an elected representative and my experience. Former President Gotabhaya invited me to take on this Ambassadorship as Sri Lanka’s representative to the most powerful nation and because I could provide a greater service, I took on this responsibility. I have achieved more than I thought possible.
Q: What was your contribution to reviving a collapsed Sri Lankan economy?
A: I am someone who has tertiary education and experience in the economic field. It was with that foundation that I functioned in the United States. It was necessary to interact and work with a global organisation such as the IMF in order to restore international confidence in the Sri Lankan economy. On the advice of the former President, I discussed Sri Lanka’s economic challenges with the leadership of the organisation. Thereafter, two senior IMF officials visited Sri Lanka and held discussions with the former President. One of those two
is today the Governor of the Central Bank of Korea.
Within two to three days, the former President communicated to the IMF that we were ready for an IMF Programme. Consequently, if President Ranil Wickremesinghe had not taken a political decision to commit to domestic reform measures, IMF consent and financialsupport would not have been made available to the country.
Q: How have your interventions helped in Sri Lanka receiving medicine and related assistance?
A: Sri Lanka faced a shortage of medicines due to limitations of foreign reserves. The Ministry of Health, through the Ministry of Foreign Affairs, informed Embassies to seek medical assistance. A list of medical items required was communicated.
I contacted the heads of several institutions and organizations with which I had established contact. We were able to secure free medical assistance from these organizations to Sri Lanka. Within a short time, we were able to secure over USD Fifty-three Million (over LKR Sixteen Billion). It is a matter of pride for me and the Embassy of Sri Lanka in Washington, D.C. that we have been able to facilitate the provision of this assistance. High-cost medicines of a premium standard including heart and other cancer medicines were sent. We were able to also ensure that the cost of transportation was borne by American donors.
Q: In this effort, was the “Sri Lankan medical mafia” a hindrance or a problem? Did you have to face challenges?
A: Procuring free medical assistance from the United States of America was far easier than obtaining the approval from relevant authorities for the import of these medicines into Sri Lanka. I had to even communicate with the President on several occasions on this matter. Some honest officials helped in this effort.
Q: Are you gaining any profit from sending more medicines to Sri Lanka…. or are Sri Lankans being lab-rats for American medical tests?
A: In which world are commissions earned from free medicines? It is only when medicines are purchased that commissions can be earned.
We have sent medicines of the highest globally accepted standards. These are not cheap sundried medicines like from other countries.
Q: Apart from medicines have you been able to gain any additional support for Sri Lanka from the United States?
A: USAID has provided USD Three Hundred Million over the past one and a half years to Sri Lanka. Fertilizer for the previous Maha season was provided. The DFC has provided USD One Billion in financial support to Sri Lanka. This includes USD Five Hundred and Fifty-three Million to the Colombo Western Terminal. We are talking to its head in order to bring a host of investments to Sri Lanka. We have facilitated assistance to Sri Lanka from a number of U.S. agencies and institutions.
Q: You have been a minister, a member or an ambassador in every administration. How did that happen?
A: From 1988 in the Provincial Council and from 1994 in Parliament, I have been a popular representative elected by the people. During this period some leaders and some governments, recognizing my abilities, have utilized my services for the country. I am happy about it.
Q: This is an election year. Will you return to politics?
A: I can perform a greater service through this position than through politics. Many people acknowledge that I have proved this. I am ready to continue with this service for the country.
It is because of strengthening diplomatic relations with the United States that much of the assistance is being received. We have also signed a bilateral agreement with Mexico which includes strengthening commercial ties.
Q: What is the message you would like to convey to the Sri Lankan people including the people of the Kalutara District for 2024?
A: Patience, respect for the law, unity, commitment to the country as well as rejection of corruption and waste should be the resolutions we make for 2024. Developed countries have reached their current stage not through magical means but through commitment to these ideals and Sri Lankans should dedicate themselves accordingly.
By: Staff Writer
January 01, Colombo (LNW): Sri Lanka will reduce the threshold to change a cascading Social Security Contribution Levy from 120 million to rupees 60 million, a government statement said.
The draft bill to amend the Social Security Contribution Levy Act No.25 of 2022 was approved by Cabinet of ministers recently.
The Cabinet also approved to amend the Value Added Tax Act No. 14 of 2002, reducing the threshold to charge the tax from 60 million rupees from 80 million rupees of revenues per year.
Both actions will widen the businesses from which the tax is charged.From January 1, 2024, value added tax is to be raised from 15 percent to 18 percent. A comprehensive list of exemptions has not been made public yet.
However, certain individuals are circulating misconceptions about this measure. There are claims that life will become challenging from 1 January, and families will face substantial expenses due to the tax revision.
It is important to clarify that while there will be some additional expenses resulting from the tax reform, they may not be as significant as some are suggesting.
Additionally, the Government is actively taking measures to alleviate the burden on the public by eliminating other taxes imposed on goods and services subject to VAT and making appropriate tax adjustments.
For instance, currently, port and airport taxes are levied on specific imported goods. To mitigate the impact of the VAT increase, positive measures are being implemented, including the removal of port and airport taxes on these goods, with only VAT being maintained.
Ministry of Finance, Tax Policy Adviser Thanuja Perera said that the Government is diligently addressing the impact of the Value Added Tax (VAT) revision. This involves the elimination of additional taxes on goods and services under VAT and implementing necessary tax adjustments.
It was highlighted that even individuals with expertise in economics are circulating a misconception, suggesting that family monthly expenses will increase by an additional Rs. 40,000 post the VAT implementation on 1 January.
Moreover, it was emphasised that nearly 90 types of items, including educational services, electricity, health, medicine, passenger transportation, as well as all vegetables and fruits, are exempt from VAT. Additionally, VAT does not apply to 65 types of items subject to the Special Commodity Levy.
Perera said the VAT was initially introduced in Sri Lanka through Act No. 14 of 2002, marking two decades since its inception. Originally set at two rates, it was later revised to three rates.
The VAT rate underwent various changes and was reduced to 8% in 2019, resulting in a significant decline in State income. Subsequently, it was raised to 15%.
The VAT Amendment Act, presented to Parliament last month, further increases the VAT rate from 15% to 18%, effective 1 January 2024. It is challenging for us to continue relying on concessions.
It must be emphasised that this tax amendment has been implemented to address the crucial matter of increasing State income.
Several vital tax reforms have been implemented in the past, including adjustments to the VAT registration limit. From 2019, the limit stood at Rs. 15 million, increased to Rs. 300 million on 1 January 2020, rendering many VAT-registered files inactive.
However, the limit was later reduced to Rs. 80 million and, as per the recent amendment, lowered to Rs. 60 million from 1 January 2024.
Additionally, the new amendment eliminates numerous tax exemptions, aiming to recover substantial revenue lost by the Government.
By: Staff Writer
January 01, Colombo (LNW): Among the top 10 export markets, Italy and France have shown a strong performance in both the month of November 2023 and the period January to November 2023 when compared to the corresponding periods in the previous year.
Furthermore, UAE has shown significant performance during the period January to November 2023 compared to the corresponding period in the previous year, Export Development Board (EDB) data shows.
Exports to the United States of America, Sri Lanka’s single largest export destination, decreased 7.27 % to $ 223.26 million in November 2023 compared to November 2022. Further, exports to the United States decreased by 18.24 % to US $ 2,504.82 million in the period January to November 2023 compared to the same period in 2022.
In November 2023, exports to Free Trade Agreement (FTA) partners constituted 6.5% of the total merchandise exports, experiencing a notable 14.45 % decrease to reach $ 60.35 million compared to November 2022.
Specifically, both exports to India and Pakistan recorded decreases of 13.89 % and 19.78 %, respectively, during the month of November 2023 compared to November 2022.
The negative performance of India was driven by lower exports of animal feed (-38.62%) and petroleum oil (-42.15%), while Pakistan’s negative performance was led by decreased exports of betel leaves.
Exports to Free Trade Agreement (FTA) partners accounted for 7.2% of total merchandise exports decreased by 1.88 % to $ 846.45 million during the period January to November 2023 compared with the corresponding period the previous year.
Exports to India and Pakistan decreased by 1.76 % and 3.22 % respectively during the period January to November 2023 compared to the corresponding period in 2022.
The negative export performance of India was driven by lower export of animal feed (8.67 %), while Pakistan’s negative performance was led by decreased export of sheet rubber and other articles of stones.
Exports to the European Union (EU) that comprised 21% of Sri Lanka’s exports during the month of November 2023 decreased by 0.02 % y-o-y to $ 228.31 million.
Further, exports to the EU decreased by 11.2 % y-o-y to $ 2,485.88 million during the period January to November 2023 compared to the corresponding period the previous year.
During the period January to November 2023, the breakdown of exports to the top five EU markets that accounted for 78 % of Sri Lanka’s total exports to the EU were: Italy $ 632.04 million (increased by 7.16 %), Germany $ 529.8 million (decreased by 22.63 %), the Netherlands $ 306.46 million (decreased by 20.95 %), France $ 285.45 million (increased by 18.09 %) and Belgium $ 205.24 million (decreased by 213.42 %).
January 01, Colombo (LNW): The Sri Lankan Rupee remains somewhat steady against the US Dollar on the first day of the new year in comparison to last year’s last week’s Friday, as per the official exchange rates released by the Central Bank of Sri Lanka (CBSL).
Accordingly, the buying price of the US Dollar has increased to Rs. 319.23 from Rs. 319.17, and the selling price remains unchanged at Rs. 328.77.
The Sri Lankan Rupee, meanwhile, indicates appreciation against several other foreign currencies.
By: Staff Writer
January 01, Colombo (LNW): As 2024 approaches, it’s time to reflect on the past and anticipate the future for Sri Lanka as the treasury confirmed that the Government was well-equipped with sufficient funds to hold the upcoming elections scheduled for mid this year.
As Sri Lanka welcomes New Year 2024, some new rules including tax revisions such as VAT hike comes into effect as it’s the first day of the month several changes will come into effect.
This year, more than 40 countries, including seven with large populations, are scheduled to hold national elections, potentially leading to significant changes in leadership.
The Treasury disclosed that the Government was well-equipped with ample funds to conduct the upcoming elections scheduled for this year.
The Election Commission (EC) recently stated that it had submitted a total budget estimate of Rs. 10 billion to the Treasury for three upcoming elections, including the Presidential Election this year.
As per the EC report, the forthcoming Presidential Election is expected to take place between 16 September and 17 October next year, and the anticipated date for the General Election is 2025.
Meanwhile, President Ranil Wickremesinghe recently informed Parliament that both the Presidential and Parliamentary Elections were scheduled to be held next year.
As per Central Bank of Sri Lanka (CBSL) statistics, the trade deficit narrowed in October and November 2023 compared to a year earlier, as a result of the combined impact of an improvement in exports and a compression in imports.
Exports recorded a Year-on-Year growth for the first time since September 2022 Sri Lanka’s merchandise exports increased by 4.4% to US$ 968.8 Million in November 2023 compared to October 2023 as per the provisional data released by the Sri Lanka Customs.
However, it is a 2.67 % decrease when compared to the value recorded in November 2022.
Monthly workers’ remittances continued to exceed $ 500 million and recorded a notable increase in November 2023, compared to the corresponding period in 2022. Tourist arrivals soared during the festive season, contributing to high earnings from tourism.
Foreign investments in the Government securities market continued to record a net outflow since July 2023, but remained positive on a cumulative basis during the year.
Gross official reserves amounted to $ 3.6 billion by end-November 2023. The Sri Lankan Rupee continued to remain stable against the US Dollar during November 2023.
The Central Bank absorbed $ 117 million from the domestic foreign exchange market on a net basis during November 2023. Overall, the Central Bank has purchased around $ 1.8 billion on a net basis during January to November 2023.
Furthermore, the Central Bank in its ‘Financial Stability Overview 2023’ released on Friday (29) has stated that the easing of domestic monetary policy since mid-2023 is anticipated to facilitate the recovery in financial intermediation, which was witnessed through the gradual recovery in banking sector credit during Q3 of 2023.