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.
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.
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.
