Sri Lanka’s preemptive default declaration has been made by Central Bank Governor Nandalal Weerasinghe without any cabinet or parliamentary approval which is a pre –requisite for a debt default as Parliament had already voted the necessary funds for debt servicing at the time of approving the Budget 2022, top level official sources said.
As a consequence of Sri Lanka’s debt default there is now an increasing likelihood of forex creditors calling for local debt also to be re-structured, since the major part of the Sri Lankan Government’s debt servicing is that of local debt.
Their contention may be that for “debt sustainability” to be achieved, a local debt re-structuring must also be carried out.
It is possible that the International Monetary Fund (IMF) may also agree with such a contention given their past record in responding to debt sustainability situations in other countries, these sources claimed.
The rejecting of domestic debt restructuring after declaring external debt default by the Central Bank Governor Weerasinghe without the prior approval of the Monetary Board, the Attorney General, the Cabinet of Ministers or the Parliament is beyond the control of the monetary authority, several legal experts said.
This situation has arisen mainly from the hasty and reckless decision to default on the sovereign forex debt, and thereby putting Sri Lanka into an almost irretrievable position of despair and hopelessness, they claimed.
Sri Lankans for the past months have been enduring shortages of fuel, food and other essentials and daily power outages. Most of those items are paid for in hard currency, but Sri Lanka is on the brink of bankruptcy, saddled with dwindling foreign reserves and $25 billion in foreign debt. Nearly $7 billion is due this year.
“Sri Lanka has had an unblemished record of external debt service since independence in 1948,” the Ministry of Finance said in a statement.
“However Sri Lanka’s fiscal position that continued normal servicing of external public debt obligations has become a difficult task but not impossible, official sources said.
Central Bank’s sudden declaration of pre-emptive negotiated default of external debt on April 12 this year made at a time where there was an expected forex inflow of over US $ 10.7 billion in the pipeline as at April 4 to boost foreign reserves.
Of the above pipeline, a sum of $ 4.5 billion was confirmed as being in the final stages by April 3 and a further amount of around $2.6 billion was very likely to materialise over the short term, he disclosed.
This forex receipts would have enabled the Government to settle the maturing payments due in 2022, while also rolling over several other existing loans, including Sri Lanka Development Bonds and Foreign Currency Banking Unit (FCBU) loans, he revealed.
This forex receipts would have enabled the Government to settle the maturing payments due in 2022, while also rolling over several other existing loans, including Sri Lanka Development Bonds and Foreign Currency Banking Unit (FCBU) loans, he revealed.
This irresponsible and illegal decision of pre-emptive default plunged Sri Lanka into a serious abyss of economic and financial isolation as a “bankrupt” nation, with the consequential severely damaging repercussions due to haunt the nation for many years to come, several economic experts warned.
Based on that announcement of pre-emptive negotiated default of external debt by the Central Bank, the International Ratings Agencies have also placed Sri Lanka’s sovereign debt rating at a default status, while also downgrading all Sri Lankan banks, further aggravating the situation.
Global ratings agency S and P Global on Monday 15 slashed its rating on Sri Lankan bonds to ‘D’, representing default, following missed interest and principal payments.
The country which had defaulted on a bond payment earlier this year and has $12 billion in overseas debt with private creditors has been battling the worst financial crisis in its 74 year history of independence.
The ratings agency affirmed its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings on Sri Lanka, as well as reiterated the outlook for the island nation at ‘negative’.
Without taking action to manage forex debt servicing of $244 million in April 2022 using available forex inflows, the Central bank has suspended repayment of $ 789 million for May and June dragging the country into debt default abyss, an eminent economist said.
He stated that when a sovereign forex loan is not repaid, the credibility of the country will be lost, and investors will avoid that country.
It will be very difficult for the defaulting country to obtain new forex loans thereafter. The access to International Bond Markets may be lost for at least 5 to 10 years after the default.
The country’s banking system will be placed under a lot of pressure and face very serious difficulties when opening letters of credit and carrying out forex transactions, he pointed out
CB Governor Nandalal declares public debt default jumping the gun
CBSL Governor threatens Sunday Times Editor and Wijaya Newspapers Chief over news item!
Governor of the Central Bank of Sri Lanka (CBSL) Dr. Nandalal Weerasinghe has made threatening phone calls to the Editor of the ‘Sunday Times’ Newspaper and the President of the ‘Wijaya Newspapers’ Company over a news item written by its Business Editor, Senior Journalist Bandula Sirimanna.
The news item, titled ‘New Revelations Over SL Foreign Debt Default,’ published yesterday (21) revealed that last April 12, Sri Lanka officially announced a debt default on its forex repayments in the backdrop where the government was expecting to receive US$ 10.7 billion through debt and projects to strengthen the country’s forex reserves. The debt was expected to be procured from several overseas parties including India, China and Qatar, the news item added, unravelling the possibility of the country not being compelled to announcing a debt default at all, had the affair been successful.
An outburst CBSL Chief, on the other hand, contacted Sinha Ratnatunga, the Editor of Sunday Times, and Ranjith Wijewardena, the President of Wijaya Newspapers, impulsively confronting that the news item is false.
“These are news items planted by people like former CBSL Governor Ajith Nivard Cabraal. Don’t be fooled by their lies. What I am doing is exactly right. And that Bandula Sirimanna is Ranil’s man. He is against me anyway. So, don’t allow such lies to be published again,” Weerasinghe the CBSL Governor told the newspaper agency, according to sources.
Sirimanna responded to a query by the Sunday Times Editor and the Agency Chief stating that the news item he wrote is factually accurate and that he accepts full responsibility for its content.
The veteran senior Journalist told LNW that he never published a false news and that he will stand for the content he writes. Mr. Sirimanna also recalled that Ajith Nivard Cabraal, Arjun Mahendran and Indrajith Coomaraswamy, the predecessors to Weerasinghe, were very friendly and cooperative with the media, and even provided relevant information through electronic mail upon any inquiry regarding such affairs. Dr. Weerasinghe, the current CBSL Chief, on the other hand, has never responded to the media despite several attempts to contact him for information, Sirimanna revealed.
Sirimanna also noted that he is politically loyal to no one and that he is doing his job well.
Needless to say, that it is better if Dr. Weerasinghe fulfills his duties properly as the Governor of the CBSL rather than lecturing media personnel on how to do their job. We as the media care less, should you find this disclosure threatening as well.
Chinese Spy Ship Líkāi (departs) from Hambantota Port this afternoon
Chinese spy ship Yuan Wang 5 The Yuan Wang 5, China’s missile and satellite tracking ship berthed at Hambantota port in Sri Lanka, will leave at 4 PM today (22),Ports and Shipping Ministry sources said.
China’s satellite tracking vessel Yuan Wang 5 on August 16 arrived at Sri Lanka’s southern Hambantota Port, despite India and the U.S. voicing concern with Colombo over the military ship’s visit.
Hours after the vessel reached the Sri Lankan port, China said the “marine scientific research” activities of the vessel were “consistent with international law” and did not impact “any other country’s security interests”.
According to Colombo-based official sources, both India and the U.S. had conveyed their apprehensions to the Sri Lankan Government at the highest level, citing the vessel’s “military capabilities” while in the Indian Ocean Region. Apparently addressing the concerns, Chinese Foreign Ministry spokesperson Wang Wenbin on August 16 said, “
The Yuan Wang 5 is one of China’s latest generation survey vessel officially entered Port of Hambantota in Sri Lanka on Tuesday 16th August 2022 replenishment purposes.
Sri Lanka granted permission for the high-tech Chinese tracking vessel Yuan Wang 5 to dock at the Hambantota Port in a backdrop marred with controversy.
Diplomatic clearance for the Chinese vessel to make a port call at the Hambantota port from 11-17 August, 2022 for replenishment purposes was granted by the Sri Lankan Ministry of Foreign Affairs, however due to concerns raised by various factions including India, the Ministry requested China to defer the visit of the said vessel to the Hambantota port.
However, the Ministry of Foreign Affairs did not provide any reason for the request.When the request to defer the visit of the vessel was made, the Yuan Wang 5 had already set sail to Sri Lanka leaving its port of origin on the 14th of July, and it was already in the Indian Ocean.
The vessel thereafter slowed down and moved over the Ninety East Ridge, a mid-ocean ridge on the Indian Ocean floor named for its near-parallel strike along the 90th meridian at the center of the Eastern Hemisphere.The Chinese Research Vessel fleet boats of twin vessels identified as Yuan Wang 5 and Yuan Wang 6.
On 16th August 2022, Sri Lanka’s Cabinet Spokesperson & Minister Bandula Gunawardena confirmed that the Chinese ballistic missiles and satellite tracking vessel was requested to delay their visit due to concerns voiced by India.
He said that a request was made from China to defer the arrival until Sri Lanka cleared out the concerns of its neighbor India.Yuan Wang 5 is a third-generation tracking ship of the Yuan Wang Series. It has top-of-the-line antennas and electronic equipment to track ballistic missiles and satellite.
IGP instructs to hand over IUSF arrestees to TID over any suspicion
The Inspector General of Police (IGP) has instructed that the arrested Inter-University Students Federation (IUSF) members — its Convener Wasantha Mudalige, Convener of the Inter-University Bhikshu Federation Ven. Galwewa Siridhamma Thero and Member Hashan Gunathilake — be handed over to the Terrorism Investigation Division (TID) over any suspicion of involvement in terrorism.
The IUSF activists were arrested during a protest held on August 18 and were referred to questioning under a 72 hour-detention order.
The Police have requested the Defence Minister to question the IUSF activists subjugated to detention of 90 days under the Prevention of Terrorism Act (PTA) but no approval has yet been granted in this regard.
The Peliyagoda Police have taken Mudalige, who is currently in custody, out of the station, but the whereabouts remain unknown.
MIAP
Petitions against 22A taken up for consideration
The petitions filed against the draft 22nd Amendment to the Constitution tabled in Parliament were taken up for consideration before the three-member Supreme Court Bench chaired by Chief Justice Jayantha Jayasuriya and comprising Justices Buwaneka Aluvihare and Arjuna Obeysekara today (22).
Nine petitioners including Nagananda Kodithuwakku, Dr. Gunadasa Amarasekara, Attorney-at-Law Nuwan Bellanthudawa and Tissa Bandara Ratnayake filed these petitions citing the Attorney General as the respondent.
The petitioners pointed out that certain provisions included in the 22A are contrary to the provisions of the Constitution and violate the basic human rights guaranteed by the Constitution and demanded that an order be issued declaring that the relevant clauses be passed by a two-thirds majority in Parliament and a referendum.
MIAP
President’s actions contradict his own words on the use of PTA: SJB (VIDEO)
Despite President Ranil Wickremesinghe’s promise on the Prevention of Terrorism Act (PTA) being enforced to boost the economic development of the country, the Act is being used to repress political activists, alleged Samagi Jana Balawegaya (SJB) MP Tissa Attanayake, speaking to media today (22).
As of now, a group of protesters including student activist Wasantha Mudalige has been arrested and the government should reveal reasons as to why they were charged under the PTA, the MP noted.
The Opposition MP questioned how marching against the President and calling for an election is an act of terrorism, adding that the government is now enforcing the emergency regulations for repression instead of solving the people’s problems.
MIAP
Ex President Gotabaya Rajapaksa’s return to SL delayed
Former Sri Lankan President Gotabaya Rajapaksa’s return to the country will further be delayed dismissing early reports on his return on August 24.
Although the ex President is expecting to return to the island his return will not take place on the 24th, according to Private Secretary Sugeeshwara Senadheera.
His exact date of return has not been confirmed yet.
Rajapaksa fled the nation amidst growing objections from the public leading to the historic ‘Aragalaya’ anti-government protests and he landed on Maldives and later Singapore. His route continued to Thailand and the ex Sri Lankan President has been allowed to stay there for several months.
MIAP
C B Chief Nandalal contradicts President Ranil’s view on domestic debt restructure
Central Bank Governor Dr. Nandalal Weerasinghe expressed confidence on the gradual recovery of the ailing economy and reaching debt sustainability without re-structuring domestic debt with forex inflows coming in normal banking channels following the ban on open account transactions.
The economic growth is projected to contract to over 8 percent this year from the earlier projection of 7.5 percent while the inflation would come down to around 60- to 65 percent from the earlier projection of over 70 percent.
Foreign exchange inflows are now adequate to pay for essential food, fuel and medicine imports owing to Central Bank’s policy measures, he claimed.
Contradicting the President’s view of possible restructuring of massive domestic debt, Dr Weerasinghe said that there was no need to restructure domestic debt at present as the monetary authority has taken measures towards debt sustainability safe guarding the banking sector.
At least two recent public meetings President Ranil Wickremasinghe categorically stated that domestic debt stock was serious and it needs to be restructured as well and that external consultants were looking into it.
He told the Organisation of Professional Associations (OPA) annual conference and awards ceremony held in Colombo this week that Sri Lanka’s International Sovereign Bond (ISB) holders may exert pressure on the government to restructure the domestic debt
He noted that they alone may not be keen to accept a steep haircut under a debt sustainability plan, which is a prerequisite to secure an International Monetary Fund (IMF) bailout.
However Dr Weerasinghe disclosed that still there was no request for domestic debt restructuring and the Central Bank is fully convinced that it would be able to make it sustainable.
“The government position is to re-structure external debt,” Dr Weerasinghe said adding that the banks liquidity position will be affected by domestic debt restructuring. .
The Central Bank is holding one to one talks with banks to discuss ways and means to minimise the impact on the local banking system and maintain debt sustainability.
He emphasised the need of minimising any adverse impact on banking system, to maintain financial stability which will help expedite economic recovery.
The Governor expressed the belief that external creditors could recover their liabilities faster than expected with relief on dues by not resorting to domestic debt restructure.
He revealed that International Monetary Fund (IMF) team will be visiting Sri Lanka by the end of this month to reach Staff-Level Agreement on macroeconomic programme and debt restructuring target in the next 10 years’.
The country’s forex inflows were much better at present following the restriction on non essential imports and prohibition of open account transactions of importers and high export earnings.
The essential food commodity importers were given a relief to import essential food items on open account transactions on directive from the high authority and released them with required foeign exchange via banks, he revealed.
This has helped to tackle shortage of essential food items and reduce prices to some extent adding that the ban will be re-imposed soon.
Govt makes tough commitments for IMF bailout loan
The government will go all out to convince China to support Sri Lanka with the aim of finalising the International Monetary Fund (IMF) bailout loan although it has to repay more debt to the West as International Sovereign Bond payments official sources closely connected to ongoing negotiations said.
Sri Lanka is set to submit a comprehensive economic reform programme including the policies needed to correct structural imbalances over an extended period along with debt restructuring report prepared by financial and legal advisory firms Lazard and Clifford Chance LLP very soon (this month) a senior official said. .
He noted that those negotiations with the IMF were more difficult and complex due to the country’s inability to service debts owing to dwindling reserves and dollar scarcity.
Once a staff-level agreement is reached, the country’s economic reform and debt restructuring plan (structural adjustment) will be submitted to the IMF Board of Directors for approval.
As of 2021, a staggering 81 percent of Sri Lanka’s foreign debt was owed to U.S. and European financial institutions, as well as Japan and India and 10 percent owed to China Finance Ministry data shows. .
According to ministry statistics as of the end of April 2021, the majority of ists foreign debt around 47 percent is owned by Western venture funds and banks..
The top holders of the Sri Lankan government’s debt, in the form of international sovereign bonds (ISBs), are BlackRock (U.S.),Ashmore Group (Britain),Allianz (Germany),BS Switzerland), HSBC (Britain), JPMorgan Chase (U.S.) and Prudential (U.S.), a senior government official said.
The Asian Development Bank and World Bank were the other debtors which, own 13 percent and 9 percent of Sri Lanka’s foreign debt, respectively. Asian Development Bank (ADB) also owns a marginal percentage.
Japan, owns 10% of Sri Lanka’s foreign debt while India 2 percent by end of last year. According to Sri Lanka’s economic programme (structural adjustment plan) the government has to make at least nine commitments via fiscal policy measures.
According to the Plan, major policy decisions to be taken on Increase income tax rates, reduce income tax thresholds, increase VAT rate and reduce VAT threshold, setting up an independent debt office, Continuation of high interest rate, Continuation of high interest rate, and no more fixed exchange rates.
The other commitments are the listing minority stakes of some SOEs in the stock market, making SOEs more transparent, restructure Sri Lankan Airlines, CPC and CEB and consider Samurdhi as more targeted welfare.
The government is also committed to introduce several other policy measures such as to introduce cost-based fuel pricing formula, Electricity pricing formula, electricity bill increase, repeal Monetary Law Act and pass the Central Bank bill to reduce political intervention in CB as well as relaxing import restrictions
OQ Trading and Siam Gas compete again for LPG term contract
Litro Gas Lanka Limited has successfully tackled the LPG crisis restoring supplies while reducing prices after streamlining the management and expediting the shipments to meet the demand for the next three months and beyond, company sources revealed.
It has awarded a short-term LPG contract for 100,000MTs and received the quantity of 33,000 MTs of consistently since July this year effectively easing the shortage in the market through a proper distribution system of LP gas cylinders, a top official of the company said.
The Litro gas has floated a term contract of 280000 MTs for one year (2022-2023) and the tender evaluation process now underway with the securing of bank credit lines to service the contract, he added.
The present Supplier OQ Trading of UAE and Siam Gas of Singapore the eliminated bidder of the previous controversial LP Gas Tender for 280,000 MTs cancelled by Litro Gas Lanka on July 24 2022 are in the contest once again to gain the contract from the fresh tender.
This was revealed at the bid opening of the new tender called to procure 280,000 MTs of LP Gas on Monday 15.
Only two prospective bidders at the bid opening were the OQ Trading and Siam Gas who submitted bids for the tender re-called by Litro Gas Lanka Limited in accordance with the directive of the Parliamentary Committee on Public Enterprises (COPE) to procure LPG for the period of 2022- 2023.
The COPE has recommended that an investigation be conducted by the Auditor General’s Department on the cancellation of the Term tender, which had been approved by the Cabinet to purchase LP gas from Siam Gas at US$ 96 per MT and opting to buy 100,000 MT of gas at a cost of $ 129 per MT from OQ Trading.
According to official documents, OQ Trading was awarded an order to supply 100,000 Metric Tons of LP Gas of which almost 33,000 MTs have already been supplied. The supply of the balance quantity of 67,000 MTs is scheduled to be completed by October 2022.
It is believed that Litro Gas Lanka would conclude the evaluation process soon and report to the COPE of the new successful bidder, who is expected to start delivery from November 2022.