Galoya Plantations (Pvt) Limited (GOPL) has poured Rs. 12 billion into the construction of a cutting-edge factory. This ambitious project is set to crush 4,500 metric tons of sugarcane daily and generate a whopping 8.75 MW of electricity, with 5 MW fueling their own operations.

The brain behind this visionary initiative, Danesh Abeyratne, the Executive Director of the Galoya Plantation Company, shared his enthusiasm for their endeavor. He highlighted the significance of this venture, which is set to surpass the power output of the Inginiyagala Senanayake Samudraya Reservoir’s power plant by generating a staggering 15 MW of electricity.

The foundation stone for this groundbreaking project was laid just last month, with an ambitious goal to have it fully operational by 2025. Abeyratne went on to reveal that GOPL, which resurrected the former Hingurana Sugar Industries Limited in 2007, had faced significant challenges. However, through determination and commitment, they have succeeded in revitalizing the once-faltering sugar industry, making a substantial contribution to the local sugar production landscape.

Their journey wasn’t without its hurdles. Initially unable to secure local bank credit due to the previous management’s financial mismanagement, GOPL sought funding within their own group. Moreover, they faced the delicate task of rebuilding trust among sugarcane growers who had been repeatedly let down in the past. Abeyratne and his team addressed this by entering into forward buying agreements, ensuring that farmers would indeed reap the rewards of their hard work.

The results have been nothing short of remarkable, with many sugarcane growers switching from paddy cultivation to sugarcane farming, lured by the promise of better returns and reliability. GOPL has paid out approximately Rs. 14 billion to farmers to date, solidifying their commitment to local agriculture.

In a nation where 87% of sugar requirements are met through imports, GOPL has emerged as a beacon of hope, contributing a remarkable 36% to the local sugar production landscape. Their adoption of modern technology, including mechanization and drones, has not only boosted production but also sparked a renewed interest among the youth in sugarcane farming.

With unwavering dedication and strategic collaborations, GOPL proudly reported a Profit After Tax (PAT) of Rs. 5.6 billion for the 2022/23 financial year and foresees an increase to Rs. 6.1 billion in the 2023/24 FY. They have also contributed significantly to the nation’s finances, paying approximately Rs. 1,430 million in taxes since their inception, including a notable Rs. 600 million as corporate income tax for the year 2022/23.

During his two-day visit to Sri Lanka, Korean Labour and Employment Minister Lee Jung-Sik assured Minister Manusha Nanayakkara of increased job opportunities for Sri Lankans in Korea.

The two ministers discussed amending the EPS system to facilitate more employment for Sri Lankan job seekers in Korea, with a focus on sectors like garment and caregiving.

Minister Lee Jung-Sik also expressed admiration for the productivity and dedication of Sri Lankan workers in Korea, pledging continued support for strengthening bilateral relations and providing more employment opportunities in the future.

In response to an invitation from Sri Lanka’s Financial Intelligence Unit, a high-level delegation from the Asia Pacific Group on Money Laundering (APG) visited Sri Lanka recently. The high-level delegation consisted of eminent personalities, including Mr. Julien Brazeau: APG Co-Chair and Associate Assistant Deputy Minister of Canada’s Department of Finance in Ottawa within the Financial Sector Policy Branch, Dr. Gordon Hook: Executive Secretary, APG and Mr. David Shannon: Director Mutual Evaluations, APG.

Their aim was to provide crucial insights ahead of the upcoming mutual evaluation of Sri Lanka’s Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Framework.

The APG, an integral regional monitoring body under the Financial Action Task Force (FATF), focuses on guiding member jurisdictions in implementing international standards to combat money laundering (ML), terrorism financing (TF) and proliferation financing related to weapons of mass destruction (PFWMD). FATF oversees about 200 countries through nine regional bodies.

Sri Lanka has faced “Grey List” designation twice by FATF, in 2011 and 2017, with the European Union also blacklisting the nation in 2017 due to non-compliance.
Sri Lanka’s 3rd Mutual Evaluation is set for March 2025. It’s crucial to achieve Technical Compliance with FATF’s 40 Recommendations and ensure effective AML/CFT framework results. The country is actively engaging 24 stakeholders in this effort, coordinated by the Financial Intelligence Unit.

During the 3-day visit, the delegation met with key Sri Lankan figures, including the President, Chief Justice, Foreign Minister, Attorney General and Central Bank Governor. Sri Lanka’s leadership recognizes the importance of the upcoming mutual evaluation for economic and societal security.

To prepare effectively and avoid economic consequences tied to FATF grey-listing, Sri Lanka prioritizes Focus on Effectiveness:

• Emphasize the ability of the AML/CFT system to produce operational results that address Sri Lanka’s specific risks effectively
• Enhanced Monitoring: Stakeholders should intensify monitoring of progress and operational outcomes to support the advancement of priority implementation plans and surmount any obstacles to effectiveness.
• Timely Legislation: Expedite the passage of critical AML/CFT-related legislation to ensure the availability of the necessary tools for achieving operational outputs.
• Resource Allocation: Allocate resources to agencies responsible to implement the AML/CFT framework to facilitate the achievement of operational outcomes.
• Inter-Agency Coordination: Sustain inter-agency coordination through effective leadership and well-supported mechanism for targeted planning and progress monitoring in line with implementation plans.
• Prosecutor: Enhancing the capacity and active involvement of prosecutors in money laundering and terrorism financing cases.
• Law Enforcement: Bolster implementation by law enforcement agencies, particularly through the clearance of backlogs in money laundering cases and increase in the scope of asset recovery and money laundering-related activities.
• Judiciary: Improve the capacity of the Judiciary for timely and effective adjudication of money laundering cases and terrorism financing cases
• Private Sector Engagement: Encourage active involvement of the private sector, fostering shared goals with the government for priority implementation of AML/CFT systems.
• International Cooperation: Strengthen and focus on international cooperation, recognizing its pivotal role in demonstrating effectiveness. Foster deeper collaboration with countries that share key money laundering and terrorist financing risks.

By diligently following these priorities, Sri Lanka aims to secure a positive outcome in its mutual evaluation and mitigate the economic consequences associated with FATF Grey-Listing. Stakeholders are committed to addressing AML/CFT Framework gaps effectively.

Minister of Agriculture Mahinda Amaraweera has provided reassurance that egg and chicken prices in Sri Lanka are anticipated to decrease next year and maintain stability thereafter. He also indicated that the country may no longer need to import eggs from the coming year.

Speaking at a press conference held at the Presidential Media Centre on September 14, Minister Amaraweera attributed the temporary decline in Sri Lanka’s poultry and egg production industry to reduced animal feed production caused by the COVID-19 pandemic and the economic crisis. He highlighted that the private sector currently manages the entire poultry and egg production, with the total chicken population on farms exceeding 3,420,000.

Minister Amaraweera noted that many of these chickens are expected to begin laying eggs by December, which is expected to significantly boost egg production in the country. Additionally, the government has allowed industrialists to import maize for poultry feed production, a move that is expected to benefit consumers in the future.

The minister also mentioned that the mid-term Livestock Development Program has allocated Rs. 37 million to enhance livestock services in the Northern Province. Furthermore, the Small and Medium Scale Poultry Development Project, focusing on producing one-day-old country chicken chicks and improving egg production in rural areas, has received funding of Rs. 48 million.

Before the COVID-19 pandemic and the economic crisis, Sri Lanka’s annual chicken meat production stood at 230,000 metric tons, with a per capita chicken meat consumption of 11 kg per year. However, recent challenges and the pandemic have led to a 30% reduction in local chicken meat production.

Industrialists are optimistic that the production of chicken meat can rebound to pre-crisis levels by the end of this year, thanks to the addition of more broiler chickens to farms. Consequently, it is expected that chicken and egg prices will continue to decrease.

To achieve self-sufficiency in milk production, the Ministry of Agriculture has devised both short and long-term plans, including the National Dairy Policy for 2023 to 2028. Sri Lanka imported 82,087 metric tons of milk and milk-related products in 2021, highlighting the reliance on imports to meet domestic demand.

The government is also taking steps to improve grass and fodder cultivation, enhance breeding farms, and expand artificial insemination services to boost milk production. Additionally, a large-scale animal production farm has been initiated at the Polonnaruwa Farm, with an investment of approximately Rs. 250 million.

The Employees’ Provident Fund (EPF) has announced its proposal to exchange the portfolio of Treasury Bonds held by the fund as part of the Domestic Debt Optimization (DDO) program.

In a statement, the Central Bank of Sri Lanka revealed that this offer has been extended by the EPF Fund as an eligible participant, with the approval of the bank’s Monetary Board.

This decision aligns with an invitation extended by the Ministry of Finance following a Resolution passed by Parliament.

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20230914_participation_of_the_employees_provident_fund_in_the_domestic_debt_optimisation_programme_e.pdf

Fitch Ratings has downgraded Sri Lanka’s Long-Term Local-Currency (LTLFC) Issuer Default Rating (IDR) to ‘RD’ (Restricted Default) from ‘C’The ratings on its local-currency bonds tendered in the domestic debt exchange have been downgraded to ‘D’ from ‘C’ while its other four local-currency bonds not tendered in the domestic debt exchange have been affirmed at ‘C’.

The Long-Term Foreign-Currency (LTFC) IDR has been affirmed at ‘RD’, and the ratings on Sri Lanka’s foreign-currency bonds have been affirmed at ‘D’.

All issue ratings have subsequently been withdrawn.

The global credit rating agency typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

Fitch has withdrawn the issue ratings of Sri Lanka’s foreign and local-currency bonds as these are no longer considered to be relevant to the agency’s coverage.

Key Rating Drivers

Distressed Debt Exchange: The downgrade of Sri Lanka’s LTLC IDR reflects the partial completion of an exchange of Sri Lanka’s T-bonds on 14 September as part of a broader domestic debt optimisation (DDO) launched in July 2023. The DDO also includes conversion of T-bills held by the Central Bank of Sri Lanka (CBSL) into treasury bonds (T-bonds), which has not yet been completed.

In Fitch’s view, the exchange of T-bonds constitutes a distressed debt exchange (DDE) under the agency’s criteria, given that the maturity extension of the tendered bonds represents a material reduction in terms versus the original contractual terms, and given that the exchange is needed to avoid a traditional payment default.

Reduction in Terms: Eligible bonds for which tenders were received and accepted have been exchanged into 12 new instruments of equal size and the same aggregate principal amount, maturing between 2027 and 2038. Accepted tenders reached about 37% of the outstanding principal amount of eligible bonds outstanding as of 28 June 2023. Accepted tenders were predominantly by superannuation funds, which will face higher tax rates on income from T-bonds if they did not meet a participation threshold.

Local-Currency Debt Service Continuing: Fitch believes that Sri Lanka has continued to service the T-bonds throughout the DDO process, and that T-bonds not tendered in the exchange will continue to be serviced as per their original terms, including but not limited to the entirety of the 12 series of T-bonds (out of 61 eligible series) for which no valid tenders were received. Four of these 12 series were rated by Fitch and were affirmed at ‘C’ prior to withdrawal.

Local-Currency Restructuring Incomplete: Under Fitch’s rating criteria, the LTLC IDR will remain in ‘RD’ until the debt exchange is completed in its entirety. Fitch deems the process incomplete, as the exchange of T-bills held by CBSL is still pending. Fitch regards the T-bills as public debt securities, and they are also held by private investors.

Foreign-Currency IDR in Default: The sovereign remains in default on foreign-currency obligations and has initiated a debt restructuring with official and private external creditors. The Ministry of Finance had issued a statement on 12 April 2022 that it had suspended normal debt servicing of several categories of external debt, including bonds issued in international capital markets, foreign currency-denominated loans and credit facilities with commercial banks and institutional lenders.

ESG – Governance: Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model (SRM). Sri Lanka has a medium WBGI ranking in the 45th percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

ESG – Creditor Rights: Sri Lanka has an ESG Relevance Score of ‘5’ for Creditor Rights, as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight. The affirmation of Sri Lanka’s LTFC IDR at ‘RD’ and downgrade of LTLC IDR to ‘RD’ reflect a default event.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

– The Long-Term IDRs are at the lowest level, and cannot be downgraded further

– The Short-Term Local-Currency IDR will be downgraded to ‘RD’ on the completion of the exchange of T-bills

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

– Following completion of the debt exchange with CBSL, Fitch will assign Sri Lanka’s LTLC IDR based on a forward-looking assessment of its willingness and capacity to honour its local-currency debt

– For the LTFC IDR, completion of the foreign-currency commercial debt restructuring that Fitch judges to have normalised relationship with private-sector creditors may result in an upgrade

Sovereign Rating Model (Srm) and Qualitative Overlay (QO)

In accordance with the rating criteria for ratings in the ‘CCC’ range and below, Fitch’s sovereign rating committee has not used the SRM and QO to explain the ratings, which are instead guided by the agency’s rating definitions.

Fitch’s SRM is the agency’s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LTFC IDR. Fitch’s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the LTFC IDR, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

Country Ceiling

The Country Ceiling for Sri Lanka is ‘B-’. For sovereigns rated ‘CCC+’ or below, Fitch assumes a starting point of ‘CCC+’ for determining the Country Ceiling. Fitch’s Country Ceiling Model produced a starting point uplift of zero notches. Fitch’s rating committee applied a +1 notch qualitative adjustment to this, under the balance of payments restrictions pillar, reflecting that the private sector has not been prevented or significantly impeded from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.

Fitch does not assign Country Ceilings below ‘CCC+’, and only assigns a Country Ceiling of ‘CCC+’ in the event that transfer and convertibility risk has materialised and is affecting the vast majority of economic sectors and asset classes.

References for Substantially Material Source Cited as Key Driver of Rating

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights as WBGI have the highest weight in Fitch’s SRM and are highly relevant to the rating and a key rating driver with a high weight. As Sri Lanka has a percentile rank below 50, for the respective governance indicator, this has a negative impact on the credit profile.

Sri Lanka has an ESG Relevance Score of ‘5’ for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGI have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Sri Lanka has a percentile rank below 50 for the respective governance indicators, this has a negative impact on the credit profile.

Sri Lanka has an ESG Relevance Score of ‘4’ for Human Rights and Political Freedoms, as the Voice and Accountability pillar of the WBGI is relevant to the rating and a rating driver. As Sri Lanka has a percentile rank below 50 for the respective governance indicator, this has a negative impact on the credit profile.

Sri Lanka has an ESG Relevance Score of ‘5’ for Creditor Rights as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight. Sri Lanka’s LTFC & LTLC IDRs are ‘RD’ as the sovereign is in default on its foreign- and local-currency debt obligations.

The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision.

–Fitch Ratings

Today, on September 15, the Sri Lankan Rupee has shown a modest appreciation against the US Dollar when compared to the previous day’s rates at commercial banks in Sri Lanka.

At Peoples Bank, the buying and selling rates for the US Dollar have decreased from Rs. 316.91 to Rs. 315.69 and from Rs. 331.14 to Rs. 329.87, respectively.

Meanwhile, Commercial Bank reports a drop in the buying rate of the US Dollar from Rs. 317.68 to Rs. 316.21, with the selling rate also reducing from Rs. 328 to Rs. 327.50.

Sampath Bank has seen a similar trend, with the buying and selling rates for the US Dollar falling from Rs. 319 to Rs. 318 and from Rs. 329 to Rs. 328, respectively.

Starting today, September 15, the new Anti-Corruption Act comes into operation, ushering in measures aimed at bolstering transparency in governance and public trust in the government. This legislation also establishes an independent commission tasked with identifying and investigating allegations of bribery, corruption, asset and liability declarations, and related offenses.

The Act seeks to fulfill Sri Lanka’s obligations under the UN Convention against Corruption and other international agreements on corruption prevention, embracing global standards and best practices to cultivate a culture of integrity within the nation.

With the commencement of the Anti-Corruption Act No. 9 of 2023, the Bribery Act (Chapter 26), the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) Act, No. 19 of 1994, and the Declaration of Assets and Liabilities Law No. 1 of 1975 are repealed.

Furthermore, as of today, the Assistance to and Protection of Victims of Crime and Witnesses Act No. 10 of 2023 also takes effect, providing additional support and safeguards for those impacted by crime.

Meanwhile, Speaker of Parliament Mahinda Yapa Abeywardena recently endorsed the Central Bank of Sri Lanka (CBSL) Bill and the Banking (Special Provisions) Bill. Following their passage in Parliament, these bills are now officially recognized as the Central Bank of Sri Lanka Act No. 16 of 2023 and the Banking (Special Provisions) Act No. 17 of 2023.

The world has been seeing the bright side of India. In August it landed a spacecraft on the Moon. In the latest quarter gdp grew at an annual rate of 7.8%, making it the world’s perkiest big economy. Narendra Modi, the prime minister, has just hosted a g20 summit where other leaders, including Joe Biden, courted Asia’s rising behemoth. Yet inside India the talk has turned to whether Mr Modi’s hunger for power and dreams of national renewal could lead him to bend the constitution. There are signs he wants to increase the clout of national politics and the central government, and dilute the influence of India’s 28 states—many of which are not run by his party.

The constitution grants autonomy to the states in many areas, reflecting India’s size and diversity. The reform under consideration is obscure but sensitive: synchronising state elections with national polls, potentially creating a single event every five years when India votes (a general election is due in spring next year). Next week Mr Modi is convening an unusual special session of parliament. It could be used to advance this idea. On September 1st he formed a committee to examine the feasibility of unitary elections.

His critics say this is a power grab that will upset a delicate regional balance. Although Mr Modi dominates national politics, his Hindu-nationalist Bharatiya Janata Party (bjp) does not control any states in the more prosperous and dynamic south: in May it lost control of Karnataka, India’s tech hub. Synchronised polls could help Mr Modi exploit his personal popularity in regional elections, enabling the bjp to expand its reach.

In many ways the goal of “one India” is sensible. For too long the economy was balkanised, with myriad local markets and taxes (try looking up “octroi”). Mr Modi has simplified this since he won power in 2014, replacing many local levies with a national goods-and-services tax (gst). Along with better infrastructure this has created a deeper single market which is boosting growth. He has also promoted national digital-payment and welfare schemes. Strengthening central government, which doles out less than half of public spending, can be wise.

A simpler electoral calendar is also a legitimate goal. Non-stop campaigning for state elections disrupts the business of government. Other democracies hold polls simultaneously. But if Mr Modi goes ahead, risks loom. He may be tempted to circumvent the rules (on paper, constitutional amendments are needed, which may require a supermajority of parliament and the approval of most states). And if foiled he might weaponise regional tensions to stoke resentment in the bjp’s northern heartlands. The bjp has form: it has weakened the courts and incited anti-Muslim chauvinism.

Such divisiveness is always dangerous in India, with its many languages and at least six major religions. It poses a particular threat in the next decade as the regional balance shifts. Economically the south is pulling far ahead, leading to rows about why its taxes subsidise the backward north. In political terms a long-delayed redrawing of constituencies after 2026 will cause northern states to gain parliamentary seats, and the south, with its lower birth rates, to lose out.

Handled badly, such tensions could disrupt the single market and trigger unrest. To manage them India needs to safeguard the federal system, which creates flexibility and facilitates co-operation. Mr Modi’s landmark reform, the gst, came after painstaking negotiations with the states to achieve unanimity. That spirit should govern other constitutional reforms, including of election sequencing. Political federalism is not an impediment to India becoming a superpower; it is a condition for it.

THE ECONOMIST

1. President Ranil Wickremesinghe is set to take the helm of the Sri Lankan delegation at the 78th session of the United Nations General Assembly in New York. President Wickremesinghe will address the General Assembly on September 21. His speech will revolve around the theme ‘Rebuilding trust and reigniting global solidarity: accelerating action on the 2030 Agenda and its Sustainable Development Goals towards peace, prosperity, progress and sustainability for all.’
2. UGC has commenced the calling in of applications for university admissions from those who passed the 2022 G.C.E. Advanced Level Examination for the academic year 2022/2023. The applications will be accepted from September 14 to October 05, 2023.
3. Sri Lanka Police have reportedly introduced a new hotline to report incidents of ragging (initiation ritual) that take place at universities in Sri Lanka. This new hotline will operate 24/7. Any information pertaining to incidents of ragging can be provided to the hotline 1997.
4. President Ranil Wickremesinghe has granted a special state pardon to a total of 933 prison inmates, in commemoration of the 25th National Prisoners’ Day.
5. Speaker Mahinda Yapa Abeywardena today (14) endorsed the certificate on the recently approved Central Bank of Sri Lanka Bill and the Banking (Special Provisions) Bill.The CBSL Bill was passed in Parliament by a majority vote last month with amendments, and the Banking (Special Provisions) Bill without a vote on July 21.
6. Minister of Agriculture Mahinda Amaraweera assures that egg and chicken prices will likely decrease next year and remain stable thereafter. He confirms that there will be no need for egg imports from next year.
7. The first review of the Extended Fund Facility (EFF) programme of the International Monetary Fund (IMF) to Sri Lanka commenced on Septemeber 14. State Minister of Finance Shehan Semasinghe says that the review is a significant milestone towards securing the second tranche for Sri Lanka.
8. Urban Development Authority (UDA) announced calls for Request for Proposals (RFPs) to restore and develop two unique and iconic properties in the city of Colombo. One notable project underway is the renovation of a building situated at No. 11, Sir Baron Jayatillake Mawatha, Colombo 01. Another exciting project on our horizon is the development of a high-end boutique hotel at No. 25, Independence Avenue, Colombo 07.
9. The government has decided to recall retired doctors and specialists for service on contract basis, Minister of Health Keheliya Rambukwella says. This aims to address the prevailing doctor shortage at hospitals due to brain drain prompted by the economic crisis.
10. Sri Lanka beat the World No. 1 ranked ODI team, Pakistan, to qualify for the Asia Cup final for the record 12th time. Sri Lanka will now play India on Sunday at the R Premadasa Stadium. Kusal Mendis scores a classic 91 runs. He is also the highest run-scorer of the Asia Cup 2023 with 254 runs.