COLOMBO, June 29 (Reuters) – Sri Lanka is asking foreign investors in its international sovereign bonds to take a 30% haircut and is seeking similar concessions from domestic holders of its other dollar-denominated bonds as it seeks to restructure its massive debt, its central bank governor said on Thursday.

The government will also exchange shorter-term treasury bills into longer-term bonds as part of a domestic debt restructuring programme, Nandalal Weerasinghe told a press conference as he unveiled details of the long-awaited plan, which will cover part of the island nation’s $42 billion domestic debt.

Sri Lanka is struggling with its worst financial crisis since its independence from Britain in 1948 after the country’s foreign exchange reserves hit record lows and triggered its first foreign debt default last year. Widespread protests driven by the economic collapse forced former president Gotabaya Rajapaksa to flee the country last July.

Pledging to put its mammoth debt burden on a sustainable track, Sri Lanka locked down a $2.9 billion bailout from the IMF in March, which is due for its first review in September.

The domestic restructuring is needed to help the country reach the IMF programme goal of reducing overall debt to 95% of GDP by 2032.

Meanwhile, the government is also pushing forward with reworking its foreign debt with bondholders and bilateral creditors including China, Japan and India.

The domestic plan announced on Thursday did not give details on Colombo’s pitch to foreign lenders, but Weerasinghe indicated the government is proposing the same terms to both local and international creditors.

Under the domestic debt revamp, holders of locally issued dollar-denominated bonds such as Sri Lanka Development Bonds (SLDBs) will be given three options, Weerasinghe said.

The first would be treatment similar to that being proposed to investors in the country’s international sovereign bonds — a 30% reduction in the principal they are owed, with repayment in 6 years at a 4% interest rate, he said.

“We are asking foreign debt holders for a 30% haircut but that is still under discussion,” Weerasinghe said.

Sri Lanka currently has $12.5 billion in international sovereign bonds. It also has $11.3 billion in bilateral loans.

Weerasinghe would not comment on current talks with bilateral creditors. Sri Lanka has set a goal of finalising debt restructuring talks by September to align with the IMF review.

China wants multilateral lenders like the International Monetary Fund (IMF) and World Bank to absorb some of the losses, which those institutions and many developed nations, notably the United States, are resisting.

Japanese Finance Minister Shunichi Suzuki said he was unaware of Colombo’s call for a haircut for creditors and said he could not comment on its debt restructuring.

MORE INTERNATIONAL SUPPORT

The domestic debt proposals will be presented to parliament on Saturday for approval.

Earlier on Thursday, the World Bank approved $700 million in budgetary and welfare support for the country, the biggest funding tranche since the IMF deal in March. About $500 million of the funds will be allocated for budgetary support while the remaining $200 million will be for welfare support earmarked for those worst hit by the crisis.

As part of efforts to shore up its finances and win IMF support, the government has already raised taxes, cut spending and slashed subsidies on goods such as fuel, and the economy is starting to show signs of recovery.

Sri Lanka’s cabinet approved the domestic debt programme at a special cabinet meeting on Wednesday, a source at the president’s office told Reuters.

Domestic bondholders will have two other options:

– Similar treatment to that being proposed to bilateral dollar creditors: No reduction in their principal, but the maturity would be extended to 15 years with a 9-year grace period at a 1.5% interest rate.

– Exchange their holdings for local currency denominated instruments: No principal haircut with a 10-year maturity at the SLFR (Sri Lanka Standing Lending Facility Rate) + 1% interest rate.

Local currency bonds held by superannuation funds, including pension funds, will be replaced with new bonds which will have 9% interest, Weerasinghe added.

But banks’ local currency bonds have been excluded from the scheme to avoid putting further strain on the financial sector.

Sri Lanka’s sovereign U.S. dollar bonds were edging higher in early morning trade, with the bonds maturing in November 2025 and March 2024 gaining the most, 0.77 cents, by 0627 GMT, according to Tradeweb data.

Source: REUTERS

Shri K Annamalai, President of the Bharatiya Janata Party, visited the United Kingdom on 23-06-2023 to engage with the Global Tamil Civil Society and the 600,000-strong British Tamil community. During his visit, he participated in a significant event where he was given a warm welcome by the Tamil community. The event highlighted the strong bond between the Tamils of Eelam, Malayaga Tamils and Tamil Nadu, emphasizing their shared history, language, and culture. The meeting was first for combing the issues of both Malayaga Tamils and North-East Tamils and also addressing the plight of Tamil refugees in Tamil Nadu and other parts of India.

In light of this event, the Global Tamil Civil Society brought attention to three important requests that address the challenges faced by the Tamils in Sri Lanka. These requests were shared with Shri Annamalai, and the Global Tamil Civil Society urges him to advocate for them within the Bharatiya Janata Party leadership. The three key points are as follows:

Political Solution and Lasting Peace: The Tamils in Sri Lanka have an inherent right to self-determination, as recognized in the 1987 Indo-Lanka agreement. The Global Tamil Civil Society emphasizes the need for a political solution that ensures lasting peace and is acceptable not only to the Tamils in Sri Lanka but also to India, considering India’s growing strategic interests. The Tamils believe that a federal system, based on the Thimbu principles, would provide the necessary political power and resources to address their grievances, to protect their language, culture, religion, identity, and interests while fostering reconciliation and peace on the island.

Empowering Malayaha Tamils: The Global Tamil Civil Society highlights the historical grievances, discriminations and challenges faced by the Malayaha Tamil community in Sri Lanka, including obtaining meaningful citizenship, political participation, and access to education and land . They have also experienced discrimination and limited opportunities for economic development. The Global Tamil Civil Society urges the Government of India to provide economic support to the Malayaha Tamils, empowering them as a community to promote development and address their specific needs and concerns.

Refugee Support and Integration: The Tamil refugees who sought protection in Tamil Nadu after fleeing the brutal war in Sri Lanka have faced significant challenges in obtaining legal status, citizenship, and integration into the local society. Limited access to education and employment has hindered their prospects for development and economic security. The Global Tamil Civil Society requests that the Government of India expedite the return of those who wish to go back to Sri Lanka and provide legal status and integration opportunities to those who wish to remain in Tamil Nadu. This will enable them to build a brighter future in their host country.

The Global Tamil Civil Society deeply appreciates the support of the Indian Government, the Tamil Nadu State Government, and the magnanimity of the people of Tamil Nadu for providing shelter and assistance to Tamil refugees over the years. However, they emphasize the need to address the challenges faced by the refugees, including legal status, integration, education, and employment opportunities.

The Global Tamil Civil Society looks forward to building a continuing dialogue with Shri K Annamalai, President of the Bharatiya Janata Party, and the party leadership to address the concerns and aspirations of the Tamil community in Sri Lanka. They express their gratitude for his engagement and urge his continuous support in the future.

By: Isuru Parakrama

Colombo (LNW): Parliament will convene on July 01, 2023 at 09.30 am, Secretary General of Parliament Kushani Rohanadeera informed all MPs via a letter.

All MPs have been informed in compliance with the instructions of Speaker Mahinda Yapa Abeywardena.

An extraordinary gazette was issued two days ago (27) stating that Parliament shall convene at 09.30 am on Saturday, July 01, in accordance with the Standing Orders No. 16 of the Parliament of Sri Lanka.

By: Isuru Parakrama

Colombo (LNW): Private LP Gas vendor LAUGFS yesterday (28) assured it will be providing an uninterrupted supply of gas amidst reports on gas shortage in the country.

In a statement, LAUGFS revealed that the private vendor is currently operating at maximum capacity, filling and distributing its LP Gas cylinders islandwide to assure its valued customers and the public that the company has more than enough gas to meet the demand.

LP Gas cylinders for both domestic customers and hotels and restaurants can now be purchased effortlessly through islandwide LAUGFS Gas dealers, the statement added.

Colombo (LNW): The World Bank (WB) has approved a budgetary and welfare support of US $700 million for the crisis-hit Sri Lanka, reportedly the biggest funding tranche since the island nation entered a bail-out programme by the International Monetary Fund (IMF) in March this year.

Accordingly, about US $500 million will be allocated for budgetary support and the remaining US $200 million for welfare, a statement by the WB confirmed.

Sri Lanka suffers from its worst economic meltdown since independence, and the granting of the WB-loan indicates that the Sri Lankan government is unable to make ends meet, even when it does not have to service its loans upon being declared as a ‘defaulted’ nation, analysts pointed out.

Full Statement:

World Bank Group Adopts Country Partnership Framework for Sri Lanka to Help Reset the Economy, Protect the Poor

WASHINGTON, June 28, 2023—The World Bank Group’s Board of Executive Directors today discussed the new Country Partnership Framework for Sri Lanka, which aims to help restore economic and financial sector stability and build a strong foundation for a green, resilient, and inclusive recovery.

This CPF comes at a time when the country is navigating a severe economic crisis that is having devastating impacts on people’s lives and livelihoods and which demands deep reforms to stabilize the economy and protect the poor and vulnerable. Sri Lanka’s poverty rate is estimated to have doubled from 13.1 to 25 percent between 2021 and 2022—an addition of 2.5 million poor people—and is projected to increase by another 2.4 percentage points in 2023.

“The extent of the crisis in Sri Lanka is unprecedented, but offers a historic opportunity for deep reforms to reset the country’s economic storyline,” said Faris H. Hadad-Zervos, World Bank Country Director for Sri Lanka. “The CPF supports this shift. Through a phased approach, the World Bank Group strategy focuses on early economic stabilization, structural reforms, and protection of the poor and vulnerable. If sustained, these reforms can put the country back on the path towards a green, resilient and inclusive development.”

The CPF, which covers the years 2024-2027, lays out a two-phased approach that starts with a focus on urgent macro-fiscal and structural reforms and support to protect the human capital and most vulnerable population. After the first 18-24 months, and subject to successful implementation of the reform program and international debt relief and financial support, the CPF focus will gradually shift to investments in longer-term development needs that will help promote private sector job creation—particularly for women and youth—and boost resilience to climate and external shocks.

“A strong and engaged private sector is crucial for Sri Lanka, especially in overcoming the economic crisis. Sri Lankans urgently need jobs and livelihood opportunities to rebuild lives affected by the crisis,” said Shalabh Tandon, Acting Regional Director for IFC South Asia. “Promoting private sector-led growth is therefore critical in revitalizing the economy. IFC’s focus for Sri Lanka will be on supporting export-oriented sectors, promoting climate financing, and enabling digitization – all of which will foster inclusive, resilient, and sustainable growth.”

To prepare the CPF, the World Bank Group held extensive countrywide and online consultations with key stakeholder groups, including the government, the private sector, civil society, think tanks, academia, media, and other development partners.

The World Bank Board of Directors also approved $700 million in financing for two operations to help Sri Lanka implement foundational reforms that restore macroeconomic stability and sustainability, mitigate the impact of current and future shocks on the poor and vulnerable, and support an inclusive and private-sector-led recovery and growth path.

The Sri Lanka Resilience, Stability and Economic Turnaround (RESET) Development Policy Operation ($500 million) will support reforms that help improve economic governance, enhance growth and competitiveness, and protect the poor and vulnerable. It will provide budget support in two equal tranches against agreed prior actions.

The Social Protection Project ($200 million) seeks to support Sri Lanka in providing better-targeted income and livelihood opportunities to the poor and vulnerable and improving the responsiveness of the social protection system.

The active World Bank portfolio as of June 26 is composed of IBRD financing worth $1.09 billion and IDA financing worth $1.17 billion. Sri Lanka lost IBRD creditworthiness and cannot access additional IBRD financing. Upon the Government’s request, a reverse graduation to regain access to IDA concessional financing was approved. Until IBRD creditworthiness is re-established, Sri Lanka will have access only to IDA resources.

The CPF will leverage the close cooperation across the World Bank, IFC, and MIGA and with development partners.

As the largest global development institution focused on the private sector in developing countries, IFC has invested close to $1 billion in Sri Lanka since the onset of the COVID-19 pandemic, helping businesses and sustaining jobs. Recently, IFC provided a cross-currency swap facility to three of the country’s leading national banks that deal with over 30 percent of Sri Lanka’s remittances and exports. The facility intends to support the private sector with critical financing, contributing to the country’s urgent need to stabilize the economy. IFC will continue its efforts to promote private sector led growth by supporting innovation, product diversification, growth-enabling sustainable infrastructure as well as in deepening social and financial inclusion.

MIGA will continue to explore opportunities to support cross-border investment and lending. MIGA does not currently have any projects in Sri Lanka but will continue to work together with the World Bank and IFC to promote FDI. Sri Lanka is included in the list of target countries where MIGA can implement its Trade Finance Guarantees Program (in collaboration with IFC). MIGA will also look for opportunities to apply its Gender Strategy Implementation Plan in the projects it supports.

By: Isuru Parakrama

Colombo (LNW): Chairpersons of Lakehouse and Jathika Rupavahini have reportedly decided to step down from their positions.

Accordingly, Chairperson of Lakehouse Anusha Pelpita, who also serves as the Secretary to the Ministry of Mass Media has submitted his letter of resignation to Subject Minister Bandula Gunawardena.

W.B. Ganegala, Chairperson of Jathika Rupavahini, has also decided to submit his letter of resignation to the Minister, according to sources.

Hajj Message

In these challenging times, as we strive for a future filled with renewed hope, the advent of the Hajj festival this year is of extreme significance.

The sacred festival of Hajj, embodies values and fulfilment derived from engaging in humanitarian endeavours, seeking solutions for the impoverished, without the expectation of respite from one’s own difficulties. It is a testament of the spirit of selflessness and compassion.

Prophet Ibrahim, his son Prophet Ishmael, and Mother Hagar stand as timeless symbols of dedication and sacrifice. For centuries, they have been revered universally, with their sacrifices being a source of gratitude and admiration.

In recent times, Sri Lanka has faced its own share of adversity. However, it is through the unwavering dedication, sacrifice and patience of our citizens that these challenges have been faced and reached the present state. The Hajj festival is an opportune occasion to memorialize and honour those sacrifices.

The collective efforts, interventions and participation of everyone, are crucial in overcoming the economic and social difficulties being currently faced. Therefore, I invite all Sri Lankan citizens to join hands during this Hajj festival, and be united in a common cause to achieve our domestic, regional and global goals.

As we celebrate this joyous Hajj festival, I wish to remind the present generation, as well as the elderly, on the importance of not passing on the burdens of hardship to our future peer groups. Instead, let us nurture them as a proud nation, one that is respected by the global community while ensuring sustainable happiness.

May this Hajj be a source of happiness and joy for all, especially our Sri Lankan Islamic brothers and sisters, as well as the Muslims across the world!

Ranil Wickremesinghe
President
Democratic Socialist Republic of Sri Lanka

PMD: State Minister of Finance Ranjith Siyambalapitiya stated that a series of unique recommendations including the establishment of a special court will soon be submitted for the President’s approval to resolve the legal problems emerging in tax collection.

The State Minister stated that the plan incorporates several particular topics to address practical challenges linked to tax collection.

According to the Minister, raising state income is a key economic concern in the country, thus it is critical to collect taxes legally in order to enhance state income. As a result, the Minister instructed the liquor manufacturing companies that have already defaulted to pay the related amount within 14 days. He also mentioned that a special order has been issued.

The Minister stated that the country still has a voluntary tax system, which should be rectified immediately.

State Minister Ranjith Siyambalapitiya expressed these views while attending the press conference organized by the Presidential Media Centre (PMC) today (28) under the theme ‘One path to a stable country’.

The State Minister of Finance further commented;

By 2022, the country would have the lowest tax revenue in relation to GDP. This amounts to 7.3%. However, Government spending ranged between 19 and 20%. The Government at the time attempted to compensate for this difference. There, the country was in a financial crisis. It was even necessary to print money. The decline in Government revenue became a vital component in the recent economic crisis.

Increasing Government revenue is a crucial concern in the country’s economy. Government revenue can be increased only by increasing taxes. Tax collection, whether direct or indirect, is a difficult undertaking. However, the current tax system has been brought to a suitable level. I would like to congratulate everyone who has paid their taxes despite the country’s economic problems. To some extent, the people have recognized the importance of the Government.

State revenue increased from 7.3% of GDP in 2022 to 15.8% in the first quarter of 2023. It is a crucial junction. In general, a Government attempts to raise direct taxes. The Government’s goal is to keep the existing tax rate constant. The administration does not intend to levy new taxes on citizens.

When possible, the Government attempts to offer help to the people. The Government is well aware of the recent increase in bank interest rates. The Government reduced the bank interest rate by 2.5% last week. Similarly, we intend to make certain tax-collection concessions to the people in the future.

Only 300,000 persons are now paying taxes. The amount of income files should be 1 million in order to enhance state tax collection. If this occurs, it will be possible to cut the amount of taxes levied on specific individuals in the country.

Tax filings foster better Government ties. The Government has invited 14 eminent groups of experts in the society to open the tax files. Taxpayers are considered as strong citizens of the country.

Also, the Government spends people’s tax money with proper management. Six circulars have been issued concerning the use of tax money. No Government has ever managed tax money as well as the current administration. So there should be no issues. The Government has taken steps to secure the taxpayers’ money.

For example, under the ‘Aswesuma’ welfare benefit payment program, the Government makes every effort to offer welfare benefits solely to those who deserve. True information should also be provided while supplying information under ‘Aswesuma’. Furthermore, the person obtaining the information is obligated to receive accurate information. These are disliked by many people. In the midst of multiple accusations and challenges, the Government is attempting to provide eligible individuals with ‘Aswesuma’ welfare benefits. The system of granting social benefits depending on political ties should be abolished immediately.

So far, plans have been put in place to collect taxes from persons who have evaded from paying their taxes. Our country has a tax structure that is entirely voluntary. For example, we might query about someone’s earnings. That is where the tax collection process begins. Some resort to court in order to collect taxes. There will thereafter be years of court proceedings. Many cases remain unresolved. There are numerous practical issues with the tax collection process. A proposal has been sent to President Ranil Wickremesinghe in order to find solutions to the practical challenges of tax collection. It has been proposed to establish a special tax court.

Meanwhile, excise duty has been raised by 20%. In addition, the liquor manufacturing companies were given a special order to pay the unpaid taxes within 14 days.

We currently owe 83 billion dollars as a country. Of that, 41 billion dollars have been paid as foreign loans and 42 billion dollars as local loans. Everyone must make some sacrifices in order to make the country stable. In the future, we can talk about technical aspects of domestic debt restructuring. But now is the time to try to rebuild the fallen country.

How many scapegoats wandered in this country when the assistance from the International Monetary Fund was sought? This is such a country. Banks are closed for a few days to prepare this structure with proper management. Account holders, bank stability, and pension funds will be unaffected. Now some people are trying to destabilize the country through ‘Aswesuma’. We must contend with a classic opposition. Sri Lanka is an ordinary country. Nothing new will be accomplished if conspiracies are made again. This will cause the country to regress even worse. The Government follows a well-planned and a visionary strategy.

1. Cabinet approves Domestic Debt Restructuring Programme: President’s Office says it will be submitted at the next Parliament session: CB Governor’s presentation indicates that only T-Bills held by the Central Bank are to be re-structured: T-Bonds maturing between 2024 and 2032 to be renewed at 9% without reduction: however, interest given to EPF Members for 2023 to be limited to 9%, even while interest rates were well over 30%: T-Bills & Bonds held by Banks not to be re-structured: analysts say the plan is unlikely to be acceptable to Sri Lanka’s external creditors who are likely to be asked to suffer a “hair-cut” of 60% of their loan balances.
   
2. Cabinet approves new Gambling Regulatory Authority to be in charge of the industry, revenue collection, and overall course of gambling development in the country: draft bill submitted by President Ranil Wickremesinghe.
   
3. CoPF Chairman Harsha Silva says the CoPF has summoned key agencies linked to debt re-structuring, over the Govt’s debt restructuring plan “to resolve outstanding issues”.
   
4. World Bank approves USD 700 mn in budgetary and welfare support for Sri Lanka: USD 500 mn for budgetary support while the remaining USD 200 mn will be for welfare support: granting of the loan indicates that the Govt is unable to make ends meet, even when it does not have to service its loans.
   
5. Merchandise exports fall 5.6% in May 2023 from a year earlier to USD 989.7 mn: decrease due to a drop in apparel, textile and coconut exports: in the first 5 months in 2023, exports have fallen 8.3% from a year earlier: demand from Western nations dwindling.
   
6. Banks overload their Automatic Teller Machines (ATMs) to avoid customer panic due to various comments made on Domestic Debt Re-structuring: senior bankers say banks are worried about some of the comments made by the authorities.
   
7. Finance Ministry says 383,232 appeals & 5,045 objections have been received so far over the “Aswesuma” social security scheme.
   
8. SriLankan Airlines flight UL 454 which left for Narita, Japan from the Bandaranaike International Airport returns to Colombo after 2 hours due to a “technical fault”.
   
9. Shipping Minister Nimal Siripala de Silva expresses SL’s strong commitment to become a prominent hub for seafarer training and employment, with a target of increasing the number of trained seafarers to over 50,000 in the coming years.
   
10. SL Tourism Development Authority says necessary funds have been cleared for the repairs and renovations of national tourist holiday resorts: expects “significant development” to take place in the next 6 months to attract domestic and foreign tourists.