Colombo (LNW): Lanka SATHOSA has slashed the prices of three types of rice.
The slashed prices are as follows:
What is known about the domestic debt restructuring (DDR) so far
It now seems that the cabinet has approved a DDR (or domestic debt ‘optimization’ as it is sometimes referred to) package that will most likely entail a maturity extension on T-bills held by the Central Bank of Sri Lanka (CBSL) and a voluntary extension of T-bonds held by the EPF and ETF. While this is considered a ‘soft restructuring’, allaying the fears of those in the financial sector of more drastic measures such as a forced haircut on all Government debt or even a maturity extension and reduction in the coupon on this debt, it is not recognised that it could have certain profound implications for Sri Lanka’s financial system and economy at large over the long-term. This is because it will cause the debt of the Government of Sri Lanka (GOSL), which has hitherto been risk-free, to have a risk premium attached to it.
What is the rationale for the DDR?
The request for the DDR is ostensibly coming from holders of international sovereign bonds (ISBs) as a precondition for their acceptance of a haircut, although it was recently presented to the cabinet by the Governor of the CBSL as necessary for achieving a sustainable level of debt servicing.
A number of commentators are arguing that the proposed DDR is not only ‘soft’ but does not treat all creditors equally; both all domestic creditors vis-à-vis one another and all foreign creditors vis-à-vis domestic creditors. What these commentators do not see is that there is no rationale for the DDR in the first place, at least not one pertaining to holdings of GOSL debt outside of the CBSL.
ISBs are bought in the knowledge that there is a risk of default by the GOSL, i.e., that it would not have the US dollars to service the debt. In contrast, domestic debt is bought in the understanding that they are ‘risk-free’ instruments since the money to service the debt can always be obtained by the GOSL from the CBSL. Foreign investors have the option of investing in local currency bonds but typically prefer to invest in US dollar-denominated bonds such as Sri Lanka’s ISBs to avoid losses emanating from currency depreciation. For example, a 5-year ISB issued by the GOSL in 2014 would have yielded an annual return of 6.4% in US dollar terms, while a 5-year rupee-denominated Treasury bond would have yielded minus 4.7% annually in US dollar terms. To argue that the restructuring of domestic debt should be on a par with the restructuring of foreign currency debt is to argue that the riskiness of the two asset classes is the same. The above example of the returns in respect of the two asset classes belies this.
Of note in this context is the legality of imposing haircuts and the like on domestic holders of Government debt when this debt was purchased on the understanding it is risk (from default) free. Indeed, doing so would be tantamount to changing the rule of the game in the middle of the game, something we doubt could be justified in a court of law.
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| Treasury Secretary Mahinda Siriwardena |
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| Central Bank Governor Dr. Nandalal Weerasinghe |
The fundamental consequences of the DDR
When taken in conjunction with the proposed Central Bank Act (CBA), the DDR introduces the possibility of default by the GOSL on rupee denominated debt. That is, it introduces a significant element of risk into the calculation of buyers of Government debt where no such risk existed prior to this, changing the fundamental nature of Government debt instruments.
One consequence of the DDR exercise and accompanying change in nature of the GOSL debt instruments is it undermines the use of interest rates on Government securities, especially T-Bills, as benchmarks for interest rates in respect of the pricing of private sector assets. With Government debt carrying a risk premium that is subject to variation, the interest rates on this debt can no longer be seen as a reliable benchmark for private sector debt and other asset classes. This begs the question what will replace the interest rate on Government debt as the benchmark rate.
A second consequence of the DDR exercise and accompanying change in the nature of Government debt is that it will put upward pressure on Government interest rates and via these the entire gamut of interest rates in the Sri Lankan economy. Henceforth, the Government of Sri Lanka will have to pay a risk premium to attract buyers of its rupee denominated debt, with variations in this premium depending on the economic environment and the pressures exerted on the Government’s budget.
This means the premium could rise exerting upward pressure on interest rates in the Sri Lankan economy in the context of global economic downturns when typically the budget deficit expands due to a shortfall in revenues and increased demands on Government expenditure to mitigate the impact of the global recession on domestic economic activity. To limit the rise in interest rates the GOSL would have to try to temper the rise in the budget deficit resulting in it being less able to mitigate the damaging impact of recessionary global forces on the domestic economy.
In other words, the DDR exercise could well worsen Sri Lanka’s debt sustainability over the long-term even though it may tick all the sustainability boxes over the short-term. The damage done by the proposed DDR could in principle be somewhat mitigated if it is made clear that any future DDR would also be limited to CBSL holdings of T-bills. This would, however, be a hollow assurance if the CBA is passed and the CBSL is no longer permitted to buy GOSL debt. In which case it would be clear that the burden of restructuring domestic debt would fall on the holders of this debt in much the same way the restructuring of foreign debt would fall on the holders of this debt. This raises the question of who would want to hold GOSL rupee denominated debt given the ever-present danger of default whenever a shock hits the system.
Source: DailyFT
Colombo (LNW): There will be no revision of bus fares in this year’s month July, announced the National Transport Commission (NTC) today (30).
Accordingly, bus fares will not be revised during the annual bus revision due in July this year, said Commission Chief Shashi Welgama.
Therefore, the existing bus fares will be in effect further and remain unchanged, he added.
By: Staff Writer
Colombo (LNW):Issuing a statement, the World Bank said that its Board of Directors 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 World Bank Group’s Board of Executive Directors 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.
By: Staff Writer
Colombo (LNW): Sri Lanka’s tourism industry continues to thrive as arrivals have exceeded 600,000, showcasing the resilience and appeal of the country as a travel destination.
Despite being the off-peak season, the daily average of tourist arrivals has shown remarkable improvement, exceeding 3,200 visitors. This upward trend in tourist footfall further underscores the growing interest in Sri Lanka as a preferred destination among global travellers.
During the first 26 days of the month, 84,003 visitors have arrived in the country, with only 3,518 arrivals required to achieve the monthly target of 87,521.
“The surpassing of the 600,000 tourist arrival milestone signifies the resilience of Sri Lanka›s tourism sector and its ability to bounce back from the challenges faced in recent years. It is a testament to the concerted efforts made to revitalize the industry, showcasing Sri Lanka›s immense potential as a top travel destination,” Tourism Minister Harin Fernando said.
India takes the lead with 22,388 tourist arrivals or 28 percent of total visitors so far, followed by Russia with 7,179 tourists (9 percent), the UK with 6,597 tourists (8 percent), Australia with 5,444 guests (6 percent), Germany with 4,341 tourists (5 percent) and China with 4,240 (5 percent).
According to the recently released provincial data by the Sri Lanka Tourism Development Authority (SLTDA), tourists were from other countries like Canada, the Maldives, the United States, and France.
He said the sustained growth in tourist arrivals reflects the successful efforts made by Sri Lanka Tourism in attracting visitors from around the world. The collaborative initiatives between tourism authorities, hoteliers, and other stakeholders have played a crucial role in promoting the country›s unique attractions and ensuring a memorable experience for travellers.
“This diverse mix of international visitors highlights the global appeal of Sri Lanka›s rich cultural heritage, scenic beauty, and warm hospitality,” Fernando added.
With the positive momentum in tourist arrivals, Sri Lanka Tourism earlier this week expressed confidence in the industry’s potential to welcome two million arrivals and generate $ 3.7 billion in income this year, whilst setting its sights on increasing arrivals to 5 million and earning an impressive $ 21.6 billion by 2030.
By: Staff Writer
Colombo (LNW):Sri Lanka is now importing electric vehicles for local migrant workers working overseas following the the government’s approval to further extend the time line issued for importation till September 15 2023 violating global manufacturers recommendations , motor traders alleged.
This was the third time the Government decided to extend the timeline of the electric vehicles import scheme for migrant workers to encourage their remittances with good intension but it has turned to a racket by a set unscrupulous vehicle importers in hand in glove with corrupt officials , several leading motor traders complained.
The global manufacturers and authorized representatives were consulted to formulate a sustainable roll out of Electric Vehicles to SL considering the missteps of the past and failures of over 5,000 Nissan leaf vehicles which were imported against manufacturer recommendations.
This proposal was accepted and the first circular [MFE/DEV/HOB/03/ vol ii] was issued on 31st August 2022 by the Ministry of Labour and Foreign Employment Circular No; 02/2022).
However 09 days later, ALL of the global manufacturer recommendations benefiting consumers were suddenly reversed in a circular No; 02/2022 dated September 9 2022.
In this new circular Manufacturer warranty of 3 years was changed to a 3rd party warranty. Manufacturer recommendations of suitability to a country or region were completely ignored.
Today the electric vehicles are being imported by unauthorized parties totally against manufacturer recommendations, they pointed out.
The earlier wording limited the vehicle CIF value to a maximum of US $65,000 which still allowed vehicles from medium to luxury categories to be imported.
However, the altered circular has eliminated the maximum limit on the CIF which now enables ultra-luxury vehicles to be imported.
Such a change supported by the other alterations on the latest circular, clearly enables the ultra-rich living in Sri Lanka to import electric vehicles for their personal usage utilizing the migrant worker scheme, motor traders charged.
The cost of the High-voltage (HV) battery is about 50 percent of the total value of the EV. Hence, if the battery of the vehicle is faulty and needs replacement, the consumer and the country will have to bear almost 50 percent of the cost of the vehicle to import the battery.
This is due to the fact that almost all the EVs which have come through this scheme are used vehicles which does not carry the warranty of the manufacturer.
They asked as to why is this scheme not being opened for petrol, diesel or hybrid vehicles as those vehicles have better market acceptance, have ample spare parts available in the country even now and the technical skills are freely available for maintenance.
The CIF of an Electric Vehicle is about 30-40 percent higher than a similar petrol vehicle. Therefore, the country can import about 1300 to 1400 petrol vehicles with the quantum of forex used to import 1000 EVs, several leading motor traders pointed out.
At a time when the country is low on foreign reserves and the people are deprived of vehicle imports, wouldn’t it make better sense to allow petrol and diesel vehicles to be imported through such a scheme instead of EVs? , they asked.
A majority of migrant workers are from the lower and middle class income families. The vehicles they can afford would be motorcycles, scooters and small compact cars for themselves and their families in Sri Lanka.
As of now, nearly 100 permits for four wheelers have been issued. There seems to be mostly high end luxury vehicles being imported under this scheme, which does not represent the majority of the migrant workers who are toiling hard in foreign lands, they complained.
The President of the Democratic Socialist Republic of Sri Lanka, Hon. Ranil Wickremasinghe, in his capacity as the Commander in Chief of the Armed Forces, has promoted Air Vice Marshal Udeni Rajapaksa to the three star rank of Air Marshal with effect from today (30 June 2023) and appointed him as the 19th Commander of the Air Force.
Air Marshal Rajapaksa Appuhamilage Udeni Priyadarshana Rajapaksa, a distinguished military officer, was born on 29 January 1969, in Ihalagama, Gampaha District. He received his primary education at Parakrama Vidyalaya, Bandarawatta and Bandaranaike College, Gampaha. Continuing his academic journey, he pursued his secondary education at Ananda College, Colombo. Displaying a strong commitment to serving his country, he joined the General Sir John Kotelawala Defence Academy in Ratmalana as an Officer Cadet on 6 October 1988, as part of the 6th Officer Cadets’ Intake.
Air Marshal Rajapaksa underwent Basic Combat Training and pursued undergraduate studies as a Bachelor of Science in Electrical Engineering at the Kotelawala Defence Academy. Afterward, he successfully completed Basic Flying Training at No. 1 Flying Training Wing, Sri Lanka Air Force Base Anuradhapura, where he excelled and was recognized as the Best Flight Cadet in the 33rd Flight Cadets’ course. Following this achievement, he progressed to No. 2 Squadron, Sri Lanka Air Force Base Ratmalana, for Advanced Flying Training. On 5 October 1990, he was commissioned with the rank of Pilot Officer in the General Duties Pilots Branch.
Air Marshal Rajapaksa’s expertise as a pilot extends to a remarkable range of aircraft. He holds the distinction of being a VVIP Captain Pilot and is qualified to fly ten types of aircraft, including the CESSNA-150, HARBIN Y-12, HS-748, SF-260TP, IA-58 PUCARA, B-200T, AN-32 and C-130. Throughout his career, he has accumulated over 7000 flying hours, encompassing both combat and transport missions. His exceptional skills are underscored by holding the highest Instrument Rating, the “Master Green Rating,” as well as a civil Air Transport Pilots Licence (ATPL). Notably, he demonstrated his resilience and ingenuity during a night ejection from a Pucara aircraft in 1997, while on an operational bombing mission. Additionally, he has been commended for his outstanding handling of a serious emergency situation during a combat mission, earning him recognition from Martin-Baker Aircraft Co. Ltd. and fortunate to join the esteemed “Ejection Tie Club.”
Air Marshal Rajapaksa, in his pursuit of professional development, successfully completed the Junior Command and Staff Course at the Command and Staff Training Institute in Bangladesh. Additionally, he actively participated in the Flight Safety Officers Course in Pakistan and the Advanced Security Cooperation Course in the United States. Displaying his commitment to academic excellence, he obtained a Master of Science in Defence Studies in Management from General Sir John Kotelawala Defence University, achieving a “Merit Pass.” Moreover, he holds a Master of Science in Military Operational Art from the Air University in Alabama, USA, and a Master of Arts in International Security and Strategy from King’s College, London, UK, both with a “Merit Pass” distinction. Furthermore, he is a distinguished alumnus of the Air Command and Staff College, Air University, Alabama, USA, where he was awarded the “pass staff college (psc)” distinction. He also attended the Royal College of Defence Studies (rcds) in the United Kingdom, specializing in International Security & Strategy.
In recognition of his gallant and selfless contributions during humanitarian operations, Air Marshal Rajapaksa has been awarded the prestigious gallantry medal “Rana Sura Padakkama” on three occasions. Moreover, due to his exemplary and unblemished service, Air Marshal Rajapaksa has been honoured with the “Vishishta Seva Vibhushanaya” and the “Uttama Seva Padakkama” medals.
Throughout his career, Air Marshal Rajapaksa has assumed various significant appointments. He served as the Base Commander at SLAF Base Hingurakgoda from 1 May 2011 to 8 June 2012. Subsequently, he undertook the crucial role of Sri Lankan Defence Attaché to the Sri Lanka Embassy in the Russian Federation from 2012 to 2014. Following his tenure in Russia, he was appointed as the Senior Air Staff Officer (SASO) on 21 April 2014. Later, on 1 September 2015, he assumed the role of Base Commander at Sri Lanka Air Force Base Vavuniya. Additionally, he served as Air Secretary to the 16th Commander of the Air Force, Air Chief Marshal Kapila Jayampathi, from 12 September 2016 to 23 August 2017 and again from 7 August 2018 to 30 June 2019.
Air Marshal Rajapaksa’s leadership continued to flourish as he assumed command of various Air Bases. Notably, in 2020, he held the appointment of Commandant at the Sri Lanka Air Force Academy in China Bay and subsequently took on the role of Eastern Air Commander. Later, he assumed responsibilities as the Base Commander of Sri Lanka Air Force Base Katunayake, Southern Air Commander and Overall Operations Commander (Air Defence) during his tenure at Sri Lanka Air Force Base Katunayake. Progressing further, he became a Member of the Air Force Board of Management as the Director Air Operations from 14 February 2022 to 26 September 2022 and subsequently, he shouldered the esteemed appointment of Chief of Staff in the Air Force Headquarters from 27 September 2022 to 29 June 2023 before being appointed as the Commander of the Air Force.
Beyond his military achievements, Air Marshal Rajapaksa is an avid sportsman who has represented the Sri Lanka Air Force in Table Tennis, Tennis and Golf. He also held the Chairmanship of Sri Lanka Air Force Athletics. His prowess in golf was particularly noteworthy, earning him the Championship at the Commander’s Cup Golf, Eagles’ Challenge Trophy, in 2021. Furthermore, his exceptional performances in Golf at the 11th and 12th Defence Services Games in 2021 and 2023, respectively, brought him considerable recognition. In acknowledgment of his sporting achievements, he was awarded SLAF Colours for Tennis and Golf. Air Marshal Rajapaksa is married to Enoka and is the loving father of Miyuni and Inura.
Source: Sri Lanka Air Force
By: Isuru Parakrama
Colombo (LNW): Eric Walsh, Canadian Ambassador to Sri Lanka, paid a courtesy call to State Minister of Investment Promotion Dilum Amunugama.
The two held a cordial discussion and recalled further strengthening of 70 years of solidarity between the two nations.
The Canadian Ambassador also assured that the Canadian Government will continue to support Sri Lanka.
PMD: During a special press briefing held at the Presidential Media Centre on Domestic Debt Optimization (DDO), Dr. Nandalal Weerasinghe, the Governor of the Central Bank, emphasized the importance of relieving the burden on the banking system caused by the already excessive 50% taxes. This measure aims to safeguard the treasury, strengthen the economy, and ensure the protection of the 57 million public and private bank deposits in Sri Lanka.
The Governor highlighted the severe repercussions that would result from a collapse in the country’s banking sector. To prevent such a scenario, Friday, June 30th, was declared a bank holiday until the Parliament approves the restructuring of local debt.
Furthermore, Dr. Nandalal Weerasinghe assured the public that the existing Employee Provident Fund (EPF) would remain untouched. Additionally, he guaranteed a minimum interest rate of 9% for the EPF.
In attendance at the press conference were Dr. R.H.S. Samaratunga, the Senior Advisor to the President on Economic Affairs, Mr. Mahinda Siriwardena, the Secretary of the Finance Ministry, Mr. A.K. Seneviratne, the Deputy Treasury Secretary, as well as heads of media organizations and media representatives.
Dr. Nandalal Weerasinghe, the Governor of the Central Bank, further commented on the DDO;
In order to achieve a sustainable level of the government’s domestic debt, we must work towards stabilizing the current criteria within a 10-year timeframe, as agreed upon with the International Monetary Fund (IMF). For instance, by the end of 2022, the public debt as a percentage of the Gross Domestic Product (GDP) stood at 128%. However, our target is to reduce it to below 95% by 2032, which is the first criterion. The second criterion involves reducing the government’s total financing requirement, currently at 34.6% of the GDP annually, to an average level of 13% or lower during the 5 year period of 2027-2032.
The third criterion pertains to foreign debt servicing, which currently accounts for 9.4% of the GDP. Our aim is to bring it down to 4.5% during the period of 2027-2032. Achieving these goals will lead to a reduction of $16.9 billion in the relief required to bridge the external financing gap. Additionally, there are three other tasks that need to be accomplished in order to attain these three objectives.
There are three key aspects to address in the debt restructuring process. Firstly, discussions are underway regarding the restructuring of official bilateral debts. Secondly, there are on-going discussions regarding the money borrowed through sovereign bonds in commercial markets. Thirdly, there is a focus on optimizing domestic debt. The optimization of domestic credit plays a significant role in this overall process.
Through the restructuring of local debts, the aim is to reduce the government’s gross debt burden and meet its financial needs. If the proposed measures are implemented, it is projected that the gross financial need will decrease to 12.7, aiming for a value below 13. If successfully implemented, this would result in a reduction of public debt as a percentage of the gross domestic product, bringing it down to 90%.
Currently, there are 4.1 trillion in treasury bills, with 62.4% held by the Central Bank. Conversion of treasury bills into long-term treasury bonds has been proposed previously. However, additional measures are required, prompting consideration of treasury bonds to fulfil the remaining financial requirements. Presently, there are 8.7 trillion in treasury bonds, with 36.5% held by the superannuation fund and approximately 36% held by banks. The remaining portion is owned by insurance companies and private individuals.
As the Central Bank, our primary concern is to find the best solution to ensure the stability of the banking system and the well-being of the Employee Provident Fund (EPF). The Central Bank, being the custodian of the EPF, actively participates in discussions and supports the proposed measures to safeguard deposits and protect public funds such as the EPF from any potential harm.
According to the proposal, the banking system has already made a significant contribution to reducing the government’s indebtedness. Currently, banks pay over 50% of their income as taxes, including 30% as company tax, 18% as VAT and financial services tax, and 2.5% as social security contribution. Therefore, more than 50% of the banks’ earnings are already allocated to taxes and contribute to the government’s revenue. In comparison, superannuation funds have a lower tax rate of 14%.
Hence, the first point to note is that the banking system is already making a considerable contribution.
Secondly, the banking system has incurred losses due to non-payment of loans resulting from economic challenges and grace periods provided. In the past, grace periods with a value of 1.6 trillion were granted, indicating that the banking system has already contributed to the economy.
Protecting the banking system and ensuring the safety of depositors’ funds are crucial responsibilities. The banking system plays a vital role in the economy, as evidenced by the 57 million bank accounts holding deposits from a population of around 20 million. Any harm to these funds would have a severe impact on the banking system. As the Central Bank, our primary objective is to safeguard the banking system and the currency. Recently, there were rumours about bank collapses, and concerns were raised regarding the safety of deposits. Withdrawing deposits from banks would lead to an economic collapse.
Therefore, the foremost effort is to protect the funds of depositors in the 57 million accounts without harming the banking system, as it would have the greatest social impact. Consequently, the banks should not be further burdened.
Moving on to the superannuation funds, which include the Employee Provident Fund (EPF) and the Employees’ Trust Fund (ETF), they are subject to a 14% tax rate, which is lower than the tax rate imposed on banks. The proposal suggests retrieving all existing treasury bonds from these funds and issuing new bonds in return. These bonds will earn 12% interest until 2025 and 9% interest thereafter. Importantly, the amount in the EPF will not decrease, as the government guarantees a future benefit of 9% interest. The government assures that if there is any deficit, the treasury will cover it.
Those who choose not to participate in the Treasury bond exchange have the option of paying a 30% tax instead of the standard 14% tax.
We aim to complete the bond exchange within a few weeks and finalize this process in July.
Finance Ministry Secretary Mahinda Siriwardena;
The domestic debt restructuring proposal has been officially submitted to the Cabinet and subsequently approved. Currently, it is being processed for submission to Parliament and is expected to receive approval by Saturday. It is widely acknowledged that public debt restructuring is a crucial matter, especially considering the International Monetary Fund’s declaration of Sri Lanka’s unsustainable debt. This restructuring involves both domestic and foreign loans. Although the foreign debt restructuring program is underway, significant emphasis has been placed on prioritizing the completion of the domestic debt restructuring program in a timely manner.
President’s Senior Economic Advisor Dr. R.H.S. Samaratunga
“Following the government’s decision to seek support from the International Monetary Fund (IMF), a staff-level agreement was reached in September of the previous year. However, the IMF has stated that the proposal cannot be implemented until Sri Lanka’s debt sustainability is established.
As a result, extensive discussions took place between the government and international creditors from September 1st to March 20th. The primary objective was to obtain a financing certificate from these lenders, and we successfully completed this process in the second week of March. Consequently, by March 20th, the IMF agreed to accept our request and proceed further.
This program is designed to run for a period of four years and consists of five key elements. Firstly, there is a focus on revenue-based fiscal consolidation, particularly due to the significant drop in the country’s gross domestic product to 8% in 2020-2021. This element involves enhancing tax collection and addressing related issues.
Secondly, debt restructuring is a critical aspect as highlighted by the IMF, which has raised concerns about Sri Lanka’s debt sustainability. The third element pertains to establishing price stability within the country. Fourthly, it is crucial to preserve the stability of the financial sector. Lastly, the government needs to adopt an anti-corruption policy. These goals require the implementation of structural reforms.
With regard to these elements, the government has already implemented policies on various matters apart from debt restructuring. The total domestic debt discussed today amounts to 42.1 billion US dollars, out of which 19.8 billion will be allocated for restructuring. This includes debt owed to the Central Bank of Sri Lanka, commercial banks, other banks, the Employees Provident Fund, and four other institutions that have provided loans to the government.
While debt restructuring among these institutions will occur through different methods, the ultimate aim is to provide the government with some relief through a mixed program.”
In addition, journalists raised several questions regarding the Domestic Debt Optimization measures to which the officials responded.
Question;
There are varying opinions within the country concerning the Employee Provident Fund and how the funds received are handled at the end. Some advocate for the funds to be managed under the existing Treasury bill system, while others support the proposed 30% tax system, in either situation what happens to the funds?
Dr. Nandalal Weerasinghe
At present, the amount received by the beneficiaries of the Employee Provident Fund remains unaffected, and they continue to earn a 9% interest on their investments. Consequently, there is no disparity between the current scenario and the proposed future arrangement. However, if the 30% tax is not paid, it might hinder the ability to provide the 9% interest. In such a situation, a lower interest rate of 7% or 8% might be applicable.
Therefore, it is crucial to make the most optimal decision for the members of the Employee Provident Fund. We firmly believe that it is feasible to sustain the 9% interest rate while ensuring the fund’s collection remains intact.
Question
Given the varying opinions surrounding the debt restructuring program, it is inevitable that differing perspectives will arise. In response to this, has the government developed a program to effectively communicate the accurate situation and foster a sense of social awareness?
Mr. Mahinda Siriwardena;
Taking action today to educate and inform the public about the current situation is crucial. Many questions are being raised, including concerns about the potential collapse of the banking system and the adverse impact on the country. This is a distressing situation for me personally, as the nation is facing significant challenges that are yet to be resolved. It is imperative to implement programs that can help overcome these challenges.
Our priority is to safeguard both the banking system and the Employee Provident Fund, ensuring fairness for all. It is essential to disseminate information widely about these programs, particularly reaching out to impoverished individuals in remote villages who may be unaware or unable to participate actively. Furthermore, it is crucial to understand that without restructuring domestic debt, foreign debt restructuring will not be feasible.
Currently, we have entered into a program with the International Monetary Fund, and failing to pursue debt restructuring will have repercussions on this program. The consequences for the future of our country under such circumstances are unimaginable. Therefore, it is vital to recognize the sensitivity of this issue and address it accordingly.
Question
For several years, there has been an acknowledgment of the lack of debt sustainability in Sri Lanka. In light of this, it raises questions as to why there was an increase in investments in bonds issued by the Employee Provident Fund.
Dr. Nandalal Weerasinghe;
In 2020, even the International Monetary Fund acknowledged the lack of debt sustainability in Sri Lanka. Subsequently, in 2021, the proposal for debt restructuring was introduced.
Considering the investments within the country, there arises a question regarding alternative investment options for the funds allocated to the Employee Provident Fund. Approximately Rs. 500 million is contributed to the Employee Provident Fund annually. It is not only the Employee Provident Fund but also the insurance fund that should be invested in Sri Lanka. As such a substantial amount cannot be solely invested in the stock market. When the government faces difficulties in repaying its debts, it unfortunately resorts to using treasury bills.
This situation highlights the need to address the existing challenges and find sustainable solutions for prudent investment management.
Question
Can individuals access the Employee Provident Funds upon retirement?
Mr. Nandalal Weerasinghe
Certainly. There are no obstacles in availing the funds. Once the Employee reaches retirement, they are eligible to receive the EPF funds owed to them.
