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Private sector borrowing continues downward trend

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By: Staff Writer

Colombo (LNW): Sri Lanka’s bank may need a 1.4 trillion rupee capital injection after bad loans from a currency crisis and debt -restructure hit their balance sheets, according to an analysis by the International Monetary Fund.

Private sector borrowing from the banking sector continued its dip in April amidst the prevalent high interest rate regime and contraction in the economy.

As per the Central Bank data, outstanding credit extended to the private sector declined by Rs. 43.2 billion in April 2023 to Rs. 7.1 trillion.

Credit to the private sector from the banking sector has been decelerating since June 2022 with the biggest drop of Rs. 107.6 billion in March due to high interest rate environment and downturn in the economy according to analysts.

As at December 2022 the outstanding amount was Rs. 7,426 billion (a peak of Rs. 7.6 trillion in August) as against Rs. 6,981 billion in 2021.

However the Central Bank said last week that the credit to the private sector is expected to gradually increase with the easing of monetary conditions and rebound in economic activity.

The banking sector debt increased by 62.5 percent to Rs. 8,525.7 billion at the end of 2022 from Rs. 5,247.9 billion in 2021 due to the increased debt to commercial banks and the Central Bank. Meanwhile, nonbank sector debt also increased by 27.8 percent to Rs. 6,164.1 billion at the end of 2022 compared to Rs.4,822.1 billion at the end of 2021.

Of the total domestic debt, the share of the banking sector debt increased to 56.7 percent by the end of 2022 from 47.3 percent at the end of 2021 whereas the share of the non-banking sector debt declined to 41.0 percent by the end of 2022 from 43.5 percent by the end 2021.

The medium and long term domestic debt stock increased by 24.2 percent to Rs. 9,882.1 billion by the end of 2022 from Rs. 7,957.4 billion recorded at the end of 2021.

However,the share of medium and long term debt in the total domestic debt stock further declined to 65.7 percent in 2022 from 71.7 percent at the end of 2021 due to the continued dependency on short term instruments for deficit financing in 2022 than medium and long term financing.

The share of Treasury Bonds of the total outstanding domestic debt stock declined to 57.9 percent at the end of 2022 from 62.8 percent at the end of 2021.

Key downside risks include a slow debt restructuring process, limited external financing support, a sharper global slowdown, and a prolonged recovery from the scarring effects of the current crisis. A lower-level external trade equilibrium could have contagion effects on domestic trade, economic activity, jobs, and incomes.

This and adverse effects from revenue-mobilization efforts could worsen poverty projections. The financial sector needs to be managed carefully, given rising non-preforming loans and large public sector exposures.

DP Education Founder Dhammika Perera Announces Removal of Financial Barriers to Education

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Dhammika Perera, President and Founder of DP Education, says that through the DP Education program, the obstacles that existed until now due to financial reasons have been completely removed while entering education.

“Money has been an obstacle to education for so long. We have completely eliminated that obstacle. Today, a YouTube package costs around 500 rupees per month. We provide the opportunity to become a software engineer of your choice. I think all of that can be achieved by December 2023. That’s why there will be no obstacle to learn IT from here on.

I am trying as much as possible to make it possible to learn this through the mobile phone. We are looking at how far we can program this mobile phone, and we are on it. There may be impossible opportunities, but we will install 331 centers within the next 3 years, one for each divisional secretariat in Sri Lanka called AI Coding and Robotics Campus. I hope that the society will understand that the debt burden of this country is not a big deal any more.”

Dhammika Perera said this while participating in the awarding of prizes to the winners of the recently held ‘DP Education Digital Thoran’ competition.

Cabinet Approves Lenient Policy for Police Clearance Reports in Foreign Employment Applications

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The Cabinet has decided to adopt a lenient policy in including previous offenses and minor offenses in the police clearance report to be obtained while leaving the country for foreign employment.

This approval has been given according to a proposal presented by the Minister of Public Security Tiran Alles to the Cabinet.

It is stated that the Foreign Employment Minister Manusha Nanayakkara has informed the Minister of Public Security about this as they have not been able to get foreign employment opportunities due to the inclusion of minor offenses in the police report required to leave for foreign employment.

Accordingly, the Minister of Public Security, Tiran Alles, has taken the advice of the Attorney General in this regard and has taken steps to prepare a new system.

According to the new system, been decided not to include the cases thus assigned in the police report regarding dishonest use under Section 378 of the Penal Code, criminal breach of trust under Sections 389 to 392 of the Penal Code, cheating under Sections 400 to 403 and Poisons, Opium, under the Dangerous Drugs Ordinance, before the Magistrate’s Court. It was also reported that in the event that a person has been acquitted from a legal matter or has been released from a legal matter, it is also not necessary to include it in the police clearance report.

The minister also emphasized that offenses under all acts aimed at ensuring national security and offenses under the Prevention of Terrorism Act will definitely be included in the police report.

Sri Lanka Original Narrative Summary: 07/06

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  1. Energy Minister Kanchana Wijesekara says the India-Sri Lanka grid connection will be implemented by 2030: explains regional energy integration has been discussed for more than 2 decades: also says the World Bank has been assisting the CEB to understand the technical requirements & business models to implement the project.
  2. Court of Appeal issues notice on former Minister Rishad Bathiudeen over a contempt of court application filed on his failure to comply with the Order in connection with the re-forestation of certain parts of the Wilpattu National Park.
  3. Speaker says a Parliamentary Select Committee headed by Minister Dr. Ramesh Pathirana has been appointed to inquire into the MV X-Press Pearl & MV New Diamond marine disasters.
  4. Speaker informs Parliament that the Supreme Court had determined that certain clauses of the proposed Anti-Corruption Bill are inconsistent with the Constitution & therefore should be tabled after amendments.
  5. Kilinochchi Magistrate’s Court issues an overseas travel ban on Ahila Ilankai Thamil Congress (AITC) MP Gajendra Kumar Ponnambalam over the recent incident of verbally abusing police officers during a function.
  6. Sri Lanka-born Ayesha Smart living in the UK becomes the youngest ever non-white and minority ethnic judge in the Crown Court which predominantly deals with serious cases of criminal offences in England and Wales: Smart, 34, completed an undergraduate degree in medical sciences at the University of Leeds, transferred to law, and was later called to the Bar in 2014.
  7. Public Security Minister Tiran Alles says the Police STF has seized 1,163 illegal firearms during the past 3 years: these included T-56 Assault Rifles, T-81 Assault Rifles, Pistols, and Revolvers: explains that following the end of the 3-decade long war, weapons reached the south of the country.
  8. Public Security Minister Tiran Alles reveals that a total of 5,400 security officers have been assigned for the protection of individuals who are neither Ministers nor MPs: also says necessary revisions will be made based on the particulars included in the relevant report on the security details of non-MP VIP personnel.
  9. Court of Appeal postpones the delivery of the verdict of the petition filed against State Minister Diana Gamage’s Parliamentary membership, until July 25.
  10. SL’s Women’s Cricket team Captain Chamari Athapaththu and batter Harshitha Samarawickrama have been nominated for the Women’s ICC Player of the Month Award for May: both batters were in excellent form during the recent home series in Bangladesh.

Rishad Bathiudeen Issued Notices for Failure to Comply with Reforestation Orders

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The Court of Appeal has scheduled a support hearing for June 28 following an application for Contempt of Court against former Minister Rishad Bathiudeen. The application was filed due to his non-compliance with the orders issued by the Court of Appeal regarding the reforestation of Maritchikattu and Karadikkuli forests, which are adjacent to the Wilpattu Forest Reserve.

The Court of Appeal had pronounced its verdict on November 16, 2020, after considering the petition. In its ruling, the court ordered respondent Rishad Bathiudeen to take necessary measures to reforest the areas that had been cleared. The Forest Conservation Department estimated that the cost of carrying out this task would amount to Rs. 1,067 million. However, the respondent, who is the former minister, has not made any arrangements to pay the required amount or initiate the reforestation process.

The petitioner in this case has accused the former minister of failing to comply with the court’s order and neglecting his responsibility to provide the necessary funds for reforestation. As a result, the Court of Appeal has issued notices to Rishad Bathiudeen, summoning him to appear before the court and address the Contempt of Court application.

The upcoming support hearing on June 28 will provide an opportunity for the court to further assess the situation and gather any additional information related to the case. The Court of Appeal will carefully consider the allegations and the respondent’s response in order to make a fair and just decision regarding the Contempt of Court applica

Weather Forecast: Showers and Strong Winds Expected in Various Provinces

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The Department of Meteorology Issues Advisory on Rainfall and Wind Patterns

The Department of Meteorology has released its latest weather forecast, indicating the possibility of showers or thundershowers in certain regions of Sri Lanka. According to the forecast, Western and Sabaragamuwa provinces, as well as Galle and Matara districts, may experience intermittent showers or thundershowers throughout the day.

In the Sabaragamuwa Province, Galle, Matara, and Kalutara districts, fairly heavy showers of approximately 100mm are anticipated in certain areas. Simultaneously, the North-Western province can expect several spells of showers.

As the day progresses, Uva and Central provinces, along with Ampara and Batticaloa districts, may witness showers or thundershowers in the evening or at night. The occurrence of strong winds, ranging from 40-45 kmph, is also expected in Northern and North-Central provinces, as well as Hambantota, Puttalam, and Trincomalee districts.

To ensure safety and minimize potential damages caused by temporary localized strong winds and lightning during thundershowers, the general public is strongly advised to take adequate precautions. It is essential to remain vigilant and stay informed about the weather conditions in their respective regions.

Litro Gas Reduces Prices, Raises Concerns of Unfair Consumer Exploitation by Laughs Gas

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Litro Gas Lanka Company has reduced the price of its product by 452 rupees this month as usual compared to the international market price and related to the local gas price formula.

It was a relief for Litro Gas customers, while Laughs Gas customers did not get the same relief. Laughs Gas Company is still selling a 1.5 gas cylinder at a price that is Rs 804 more than Litro gas. The current price of 12.5 cylinder of Litro gas is Rs. 3186 while Laughs company is selling it at an unreasonable price of Rs. 3990.

Selling the same gas cylinder in a wide price range is a violation of the rights of a particular consumer segment and is also legally unacceptable.

On this basis, Laughs Company earns an unfair profit of Rs. 24 crore rupees in addition to its monthly profit.

We are waiting for those responsible to open their eyes to this unfair consumer exploitation.

Cabinet Approves Reduction In Maximum Retail Price Of Medicines

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In a significant move, the Cabinet of Ministers in Sri Lanka has given the go-ahead to a proposal aimed at reducing the maximum retail price of 60 medicines, effective from June 15, 2023. Additionally, the Cabinet has mandated a regular review of medicine prices every three months.

The Ministry of Health had previously approved an increase of up to 97% in the maximum retail price of medicines due to the depreciation of the Sri Lankan Rupee against the US dollar. However, with the recent substantial appreciation of the Sri Lankan rupee against the US dollar, Minister of Health Keheliya Rambukwella announced during a Cabinet press conference held on June 6 that his proposal to reduce medicine prices was approved.

Minister Rambukwella emphasized that the preparation of the necessary gazette notification pertaining to the price reduction is currently underway. As a result, the maximum retail price of 60 medicines will witness a reduction of 16% from June 15 onwards.

This move by the Cabinet is expected to alleviate the financial burden on the public and make essential medicines more affordable. The reduction in medicine prices is a proactive step towards ensuring accessible healthcare for all citizens.

Regular reviews of medicine prices every three months will enable the government to closely monitor fluctuations in the currency exchange rate and take appropriate measures to adjust prices accordingly. Such periodic assessments will help maintain a fair and balanced pricing system for pharmaceuticals, benefiting both consumers and healthcare providers.

SL Banks Rebound With Interest Rate Reduction Expecting Economic Resurgence

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By: Staff Writer

Colombo (LNW): Sri Lankan banks rebounded from the impact of the pandemic with strong revenue growth and improved profitability in the first quarter this year.

This trend continues since the end of last year with the bank’s balance sheet in Sri Lanka increasing to Rs 1.59 trillion in December from 1.58 trillion in November of 2022, central bank sources said.

The IMF is of the view that Sri Lanka’s financial system is heavily exposed to the public sector, moderately capitalized, and could face material capital and forex shortfalls following debt restructuring.

Consequently, there is a possibility that banks could face significant capital and forex shortfalls as a result of a sovereign debt restructuring.

Therefore, plans are under way for the capital restoration of systemic banks following asset quality reviews to strengthen the resilience of the state owned banks. Meanwhile, financial sector supervision and the crisis management framework will be strengthened to make Sri Lanka’s financial system more robust.

However, the context changed dramatically in 2022 due to a series of shocks in the operating environment, including sharp economic contraction, downgrading of the sovereign rating, liquidity constraints in both rupee and foreign exchange markets, spiraling inflation which required sharp interest rate increases, and so on.

In the local banking industry, state-owned banks play a crucial role in promoting financial inclusion, supporting economic growth, and ensuring stability in the banking sector while working closely with the Government To implement policies and programs that promote development and social welfare of the country.

The state banks having almost 49 percent of the total assets of the banking sector (comprising licensed commercial banks and licensed specialized banks) continued to dominate the banking industry in 2022.

However, due to the adverse macroeconomic conditions that prevailed in the economy and other negative factors affecting the banking industry in 2022, the state banks faced significant pressure in managing liquidity, profitability, and capital adequacy.

During 2022, the total profitability of the state owned banking sector decreased by 43.5 percent to Rs. 59.2 billion compared to the Rs.104.9 billion in 2021.

This was mainly due to the drop in net interest margin and increased impairment of investments in foreign currency denominated Government securities.

The state banks contributed to 30.8 percent of the total profit earned by Sri Lanka’s banking sector in 2022.

The state banks’ combined branch network, including service delivery points, expanded to 1,924 by addition of 4 new branches in 2022 while almost all the banks adopted digital platforms to serve their customers.

With Sri Lanka’s economy still subdued—and political uncertainty prevailing—banks continue to be presented with clear credit risks amid a fragile operating environment.

According to S&P, the Sri Lankan banking system’s nonperforming loans (NPLs) were estimated at 4.5 percent of total loans at the end of last year. This figure is almost certain to have risen since then

Banks also play a crucial role in Sri Lanka by absorbing remittance payments from Sri Lankan expatriates working abroad.

According to the central bank, such remittances have been a “key pillar of Sri Lanka’s foreign currency earnings”, providing a substantial cushion against the trade deficit and thereby enhancing the external-sector resilience of the country.

Government Strives To Fulfill Its Commitments To The IMF By September 2023

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By: Staff Writer

Colombo (LNW): Since the commencement of negotiations for the IMF-EFF arrangement in early 2022, Sri Lanka has completed nine prior actions by March 2023 and has formulated a mechanism for meeting the structural benchmarks.

The completion of these prior actions was instrumental in paving the way for broader reforms to be implemented in the next four years under the EFF.

The prior actions that have been already completed by Sri Lanka include, obtaining Cabinet approval for revenue measures to support fiscal consolidation during 2023 in line with programme parameters.

The there obligations were the , obtaining Parliamentary approval for a revised 2022 budget, submission of the 2023 Appropriation Bill to the Parliament, obtaining Cabinet approval to automate monthly retail fuel price adjustment,to automate semi-annual cost-recovery based electricity price adjustment, Cabinet approval of the new Central Bank Ac.

Cabinet approval for the amendments to the Banking Act, strengthening key elements of the Central Bank’s crisis management powers hiring an independent firm to conduct banking sector diagnostic exercise, and increasing policy interest rates by 100 basis points to ensure forward looking real policy interest rates are on a firm upward path.

In addition to the above, three important upfront measures were also implemented which include Parliamentary approval of the 2023 budget that was in line with programme parameters, Parliamentary approval of necessary legislative revisions to implement the 2023 revenue measures, and updating the Emergency Liquidity Assistance framework for banks.

Further, Sri Lanka is required to implement several structural benchmarks related to fiscal matters, State Owned Enterprises (SOEs), social safety net reforms,and monetary and exchange rate policies and reforms related to fiscal sector and governance in the period ahead.

The programme is expected to trigger additional financing assistance with budget support from the World Bank and the Asian Development Bank of US dollars 3.75 billion, of which US dollars 900 million is expected in 2023.

It is also expected that with the recovery in the economy and buildup of buffers,Sri Lanka would be able to access international markets to raise funds in terms of sovereign bond issues in 2027.

These resources, together with external public debt service relief, will close the external financing gap and allow Sri Lanka to rebuild its gross international reserves.