The 2nd Round of Bilateral Political Consultations between Sri Lanka and Georgia was convened in Tbilisi on 19th June 2023. State Minister of Foreign Affairs, Tharaka Balasuriya headed the Sri Lanka delegation while the Georgian Delegation was led by the Deputy Minister of Foreign Affairs Alexander Khvtisiashvili.
Discussions centred on the multifaceted nature of the relations between the two countries including opportunities for collaboration in tourism, education, construction, renewable energy and IT sector.
Training for Georgians in Sri Lankan hotel schools, possible foreign employment opportunities for Sri Lankans in Georgia, and education for Sri Lankan students in Georgia, particularly in the field of medical studies were looked at during the consultations.
In view of the potential for further enhancing economic relations and people-to-people links between the two countries, State Minister Tharaka Balasuriya invited Georgia to consider opening up a diplomatic mission in Sri Lanka.
On the sidelines of the main meeting, State Minister also had discussions with Georgia’s Innovation Technology Agency (GITA) and the National Tourism Administration and visited a state-of-the-art coffee manufacturing plant. He also met with the Head of Georgian American University and entrepreneurs from the Georgian business community. During State Minister’s meeting with Gela Geladze, Deputy Minister of Education and Science of Georgia, both discussed avenues of cooperation in the education and skills development sectors.
The Sri Lanka delegation was comprised of the Ambassador of Sri Lanka resident in Türkiye and accredited to Georgia, Hasanthi Urugodawatte Dissanayake and Director, Europe and North America at the Ministry of Foreign Affairs of Sri Lanka Madusanka Jayasinghe. Meanwhile from the Georgian Foreign Office, Director and Head for Department for Asia-Pacific, Ambassador Alexander Nalbandov, Counsellor at the International Law Department, Christina Tamoeva and Counsellor at the Department of Asia-Pacific, Merab Chachuawere associated with the meeting.
Nino Makhviladze,Honorary Consul for Sri Lanka in Georgia too was associated with severalside-line meetings.
Colombo (LNW): The Parliamentary Committee on Public Finances (CoPF) has approved the government’s proposed domestic debt restructuring (DDR) programme.
This was when the CoPF was convened under its Chairman MP Harsha De Silva’s patronage at the Parliamentary complex this (30) afternoon.
Accordingly, the government’s DDR proposal will be tabled in Parliament tomorrow (01) for approval.
Colombo (LNW): The official Facebook Page of the Department of Government Information has been under hackers’ attack since this (30) afternoon, announced the Director General of Information.
As of now, technical and legal actions are being taken in this regard, and the updating of the Info Dept’s official Facebook Page has been temporarily suspended.
The Director General of Information expresses his apologies for the inconvenience occurred to the users upon accessing the Page.
Colombo (LNW): Electricity tariffs will be slashed by 14.2 per cent as concluded by the Public Utilities Commission of Sri Lanka (PUCSL).
Accordingly, the tariff of Rs. 30 charged from the group consuming 0 – 30 units has been slashed to Rs. 10, with the fixed monthly tariff slashed to Rs. 150 from Rs. 400.
The tariff charged per unit from the group consuming below 60 units has been slashed to Rs. 32 from Rs. 42, with the fixed monthly tariff slashed to Rs. 300 from Rs. 650.
The tariff charged per unit from the group consuming 91 – 120 units has been slashed to Rs. 35 from Rs. 42, with the fixed monthly tariff slashed to Rs. 1,000 from Rs. 1,500.
Colombo (LNW): The Committee on Public Finances (CoPF) is meeting today (30) for the third consecutive day to build a constructive dialogue on the government’s proposed domestic debt optimisation (DDO) plan and to reach a consensus, Committee Chief and SJB MP (Dr.) Harhsa De Silva said.
The CoPF Chief yesterday (29) made a public statement regarding the progress of the discussions on the government’s proposed DDO plan following the wrapping up of the second consecutive day of discussions.
In his statement, MP Silva revealed that concerns have been raised on the impact of the government’s proposed DDO plan on the superannuation funds such as the Employees Provident Fund (EPF).
Below is the full statement by MP Silva regarding the DDO process.
Update on DDO Discussions: Progress, Equity & Economic recovery in Sri Lanka
Today’s (29) CoPF meeting discussed the Domestic Debt Optimisation (DDO) plan but concerns were raised about burden falling on superannuation funds especially the Employees Provident Fund (EPF) without considering the consent of depositors. Let’s explore this issue.
While banks were excluded due to existing stress & non-performing loans, the EPF/ETF, which carries most of the burden, faces potential opportunity loss and lacks a say in decisions impacting peoples’ life savings. This raises questions about equity and transparency.
Meeting acknowledged the urgency of passing DDO swiftly for success of the International Monetary Fund (IMF) programme and economic growth. However, there is no contingency plan if foreign debt relief and primary surplus targets are not met, leaving the EPF/ETF exposed to add. burden without alternative solutions.
Productive discussions were held with creditors including banks and insurance funds, who expressed relief over the proposed DDO plan. The exclusion of banks allows them to aggressively participate in the market, supporting businesses, especially the hard-hit Micro, Small and Medium-Scale Enterprise sector.
We appreciate the tireless efforts of the Central Bank of Sri Lanka (CBSL) and the Treasury officials in stabilising and reviving the Sri Lanka economy. However, it’s crucial to address the concerns of superannuation funds EPF/ETF depositors, ensure consent and explore a more balanced burden-sharing approach.
Tomorrow (30), we meet again to reach a consensus & proceed to Parliament debate. We’ll also brief non-CoPF members for better understanding and fruitful debates this weekend. Stay tuned for updates on this critical step towards our economic recovery!
Colombo (LNW): All children under the age of 12 will be given the opportunity to visit the Dehiwala Zoo free of charge subsequent to a number of special programmes organised for a period of one week starting from July 03, 2023, in celebration of the 87th Anniversary of the Department of National Zoological Gardens.
On this special occasion, programmes to develop knowledge about protecting animals and other living environments, as well as many fun activities for children to gain knowledge will be implemented, Deputy Director of the National Zoological Department, Dinushika Manawadu said.
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.
Treasury Secretary Mahinda Siriwardena
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.
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.
