The independent MP group will be ready to rejoin the government if Mahinda Rajapaksa resigns from his premiership, a group led by former Minister Wimal Weerawansa has informed President Gotabaya Rajapaksa.
The message was conveyed to the President yesterday (16) and the President has informed the Prime Minister about the situation on the day itself, according to sources.
Namal Rajapaksa the eldest son of Mahinda Rajapaksa once told media that Wimal Weerawansa was like the ‘eldest brother’ of his family, but in a dramatic plot twist the so called ‘eldest brother’ is standing against Mahinda Rajapaksa who according to most devoted SLPPers is their ‘Leader of the Heart’ or the ‘Father.’
Sri Lanka’s unprecedented interest-rate hike has helped restore the Central Bank’s credibility, although it’s not enough to remove the risk of a debt default as a political crisis delays an International Monetary Fund (IMF) bailout, according to Citigroup Global Markets.
When interest rates increase to a very high level too quickly, it can cause a chain reaction that affects the domestic economy creating a recession in some cases, several eminent economists said adding that this action was taken too late.
A worsening crisis mutes the impact of disjointed financial lifelines, including a $1.5 billion currency swap from China in December and rice and diesel shipments from India.
The IMF notes that policies required to reduce debt to sustainable levels are neither economically nor politically feasible.
Hence, Sri Lanka’s $1 billion bond maturing in July trades at 67 cents on the U.S. dollar, compared to about 74 cents at the start of February. Haircuts will stretch from China to Wall Street, where market borrowings accounted for 47% of Sri Lanka’s foreign government debt as of April last year.
The Central Bank of Sri Lanka raised the key rate by 700 basis points on Friday, narrowing the negative gap in real interest rates, nominal rates adjusted for inflation to 420 basis points from 1,120 basis points previously.
“While this steep rate hike should help the rupee, stabilising it may require progress on bridge financing, alongside material progress to a Fund program,” Citigroup Hong Kong Chief Economist Asia Pacific Johanna Chua wrote in a report to clients. “We view the risk of default as now very high.”
If interest rates increase too quickly it is more of a risk than keeping it low for prolonged periods and the economy can grind to a halt, a senior economic advsor to the state said .
The problem of access to finance and the cost of borrowing is acute, he pointed out emphasizing that small and medium scale firms with overdrafts will have higher costs because they must now pay more interest.
On the other hand Customers with debts have less income to spend because they are paying more interest to lenders, he pointedout.
He said “ higher interest rates could mean that a person may not be able to get a loan to purchase a house on favorable terms, or that a company will lay workers off instead of financing payroll during a downturn”
An increase in interest rates can affect a business in two ways: Customers with debts have less income to spend because they are paying more interest to lenders.
Sales fall as a result. Firms with overdrafts will have higher costs because they must now pay more interest, economic experts said.
The Singapore Government will contribute USD 100,000 as seed money to support the Singapore Red Cross’ (SRC) public fundraising efforts for Sri Lanka’s vulnerable communities.
In a statement on Friday (Apr 15), the Singaporean Ministry of Foreign Affairs (MFA) said that the move would supplement SRC’s earlier commitment pledge.
On Wednesday, the SRC committed USD 100,000 for urgently-needed medical supplies and other basic necessities in aid of vulnerable communities in Sri Lanka.
This was in response to Sri Lanka’s economic and humanitarian crisis, which has led to widespread resource shortages across the country, said the SRCsaid. .
Citing the Sri Lanka Medical Association, SRC said that all hospitals in Sri Lanka lack access to imported emergency drugs and medical equipment, leading to the cessation of surgeries at several hospitals.
“The situation has compelled health authorities to curtail the operations in hospitals and also limit the issuance of medications to patients, which could result in an unprecedented humanitarian crisis in the country,” said SRC.
It also launched a public fundraising appeal to rally donations to support these communities with medical drugs and equipment.
Sri Lanka is in the grip of its worst economic crisis since independence in 1948, with severe shortages of essential goods and regular blackouts causing widespread hardship.
Demonstrations have raged across Sri Lanka for weeks as people angered by prolonged power cuts and shortages of fuel and medicine demand President Gotabaya Rajapaksa’s resignation.
An internal memo from a major state-run hospital in Colombo revealed that only emergency, casualty and malignancy surgeries would be conducted from Apr 7 onwards because of a lack of surgical supplies.
Sri Lankans are also struggling with rocketing inflation that has hit middle-class families, with citizens overseas urged to send home money to help pay for desperately needed food and fuel after the country announced a default on its US$51 billion foreign debt.
Russian President Vladimir Putin speaks with Finance Minister Anton Siluanov.RIA Novosti/Reuters
The impending Russian debt default is likely to be one of the most difficult in history to resolve, Oxford Economics has said.
It could even result in the US seizing the Russian central bank’s frozen assets, the consultancy’s Tatiana Orlova said.
Russia still has a grace period in which to make dollar payments on its foreign bonds, but analysts say a default is likely.
The impending Russian debt default is likely to be one of the most difficult in history to resolve, and could even lead the US to permanently seize assets from the country’s central bank, according to a report from the consultancy Oxford Economics.
Russia is facing its first default on its foreign-currency debt since the aftermath of the Bolshevik revolution in 1918.
The US Treasury earlier this month blocked Russia from paying $650 million due on two bonds using funds held at American banks. Russia has instead tried to pay in rubles, but credit ratings agencies have said this would constitute a default.
Russia has a 30-day grace period from April 4 in which to pay in dollars. But thoughts are now turning to the next steps, and how bondholders might recoup their money.
Tatiana Orlova, lead emerging markets economist at Oxford Economics, said investors face a “very long and difficult” legal road. “Russia’s debt crisis will be among the most difficult in history to resolve, since the default has its roots in politics rather than finance,” she wrote in a report that was sent to clients Thursday.
One of the key problems is that political and financial relations between Russia and the West have completely broken down. That makes the usual default process, whereby bondholders and the government enter negotiations and thrash out a deal, seem unlikely to happen.
Orlova said another problem for bondholders is that Ukraine may lay a claim to Russian assets in international courts to pay for the rebuilding of the country. In that case, investors would have to weigh up whether they want to compete with the Ukrainian government for Russian assets.
The economist said the US might eventually end up seizing the money from the Russian central bank’s foreign currency reserves. Western governments have already frozen the bulk of the roughly $600 billion stockpile.
President Joe Biden earlier this year ordered that half of Afghanistan’s central bank reserves, which were also frozen, be made available as possible compensation for victims of 9/11 and to fund humanitarian support in the country.
“The US administration could possibly find a stronger moral cause for splitting the US-denominated portion of Russia’s FX reserves between Ukraine and bondholders,” Orlova said.
Russia’s Finance Minister Anton Siluanov has said the government has fulfilled its obligations by paying in rubles. He said last week Western governments are forcing Russia into a default and threatened to take legal action.
It’s not just holders of Russian sovereign debt who may have to take to the courts to try to get their money.
Orlova’s report said there is likely to be an “avalanche” of Russian corporate debt defaults, given that the US is taking a hard line and banning American banks from processing payments.
An international committee of banks last week deemed state-owned Russian Railways to be in default, after sanctions stopped the company from making bond payments.
There were roughly $98 billion of Russian corporate foreign-currency bonds outstanding as the war began in February, according to JPMorgan, with $21.3 billion owned by foreign investors.
Sri Lanka is now in a very weak position when they start negotiations with the International Monetary Fund (IMF)on Monday18 for a bailout package and support for its debt restructuring process.
This weak situation became worse following the downgrading of the country on its Long-Term Foreign-Currency Issuer Default Rating (IDR) by Fitch rating agency recently.
Fitch Ratings has downgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘C’ from ‘CC’. The issue ratings on foreign-currency bonds issued on international markets have also been downgraded to ‘C’ from ‘CC’.
The Long-Term Local-Currency IDR has been affirmed at ‘CCC’ and the Country Ceiling at ‘B-’. A full list of rating actions is at the end of this rating action commentary.Fitch typically does not assign modifiers for sovereigns with a rating of ‘CCC’, or below.
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The downgrade of Sri Lanka’s Long-Term Foreign-Currency IDR reflects Fitch’s view that a sovereign default process has begun.
This reflects the announcement by the Ministry of Finance on 12 April 2022 that it has suspended normal debt servicing of several categories of its external debts, including bonds issued in the international capital markets and foreign currency-denominated loan agreements or credit facilities with commercial banks or institutional lenders.
The statement applies only to the government’s external debt obligations. Fitch understands from the announcement that locally issued government debt, whether in local or foreign currency, is not affected and assumes service on this will continue.
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Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns.
These scores reflect the high weight that the World Bank Governance Indicators have in our proprietary Sovereign Rating Model. Sri Lanka has a medium World Bank Governance Indicator ranking in the 46th percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption, Firch analysis statement read
Sri Lanka has an ESG Relevance Score (RS) of 5 for Creditor Rights as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight. The downgrade of Sri Lanka’s rating to ‘C’ reflects Fitch’s view that a default-like process has begun.
Cash-strapped Sri Lanka’s loss-making national carrier revealed plans Thursday to lease up to 21 aircraft, just two days after the government announced a default on its $51 billion foreign debt.
The island nation is in the grip of its most painful economic downturn since independence in 1948, with severe shortages of essential goods and regular blackouts causing widespread misery.
Huge protests have called for the resignation of the government, which has begged Sri Lankans abroad to send cash home to help pay for essential imports.
Despite the crisis, state-owned Sri Lankan Airlines has unveiled plans to expand its fleet from 24 to 35 planes in the next three years and replace some of its ageing jets.
“Sri Lankan Airlines has issued four requests for proposal to lease up to 21 aircraft to support its long-term business strategy,” it said in a brief statement.
The announcement came after the government suspended repayment of all its foreign borrowings, ahead of negotiations for a debt restructure with the International Monetary Fund next week.
The national carrier did not say how it planned to finance the leases, with its balance sheet showing a $1.7 billion debt and a carried forward loss of $1.56 billion in March 2020.
It also came the same day international ratings agency Fitch downgraded $175 million in bonds issued by the airline from C to CC, suggesting the carrier was “near default”.
Fitch said the airline’s new rating, on debt due in June 2024, was in line with Sri Lanka’s default announcement.
The IMF has repeatedly urged Sri Lanka to privatise the airline, saying it was a white elephant the country cannot afford.
The airline was profitable before the government cancelled a management agreement with Emirates of Dubai in 2008, following a personal dispute with current Prime Minister Mahinda Rajapaksa.
The carrier had refused to bump fare-paying passengers and give their seats to members of Rajapaksa’s family, who were returning from a holiday in London.
Rajapaksa removed the Emirates-appointed chief executive of Sri Lankan Airlines and made his brother-in-law Nishantha Wickremasinghe head of the company.
An earlier plan to lease eight Airbus A350 jets during Rajapaksa’s tenure is subject to an ongoing criminal investigation.
The airline’s then-chief executive Kapila Chandrasena and his wife were arrested two years ago after an international investigation found they received at least $2 million in kickbacks over the order.
Police are reported to have interfered a protest in Galle this morning (17) which was held in support of the ongoing protest by the people near the Galle Face against the President and the government.
A large number of officers of the Police Riot Control Unit have come and removed the tent of the protesters.
Sources say that Prime Minister Mahinda Rajapaksa is preparing to resign from the post.
Sources say that considering the public protests in the country and the situation in Parliament, he will often give the post of Prime Minister to a young politician and he will resign.
It is said that if Mahinda Rajapaksa resigns, the post of Prime Minister will probably be given to his son Namal Rajapaksa and the names of former Ministers Ramesh Pathirana and Dullas Alahapperuma have also been proposed for this purpose.
Sources close to President Mahinda Rajapaksa said that he was hoping to step down as Prime Minister in the current situation.
He had earlier agreed to resign from the post of Prime Minister on April 03, but later changed his mind following pressure from a group of ministers.
Sources say that Johnston Fernando will be given a ministerial post in the new cabinet to be sworn in.
It is said that the new cabinet which was originally proposed to be limited to 15 ministerial posts has now been increased to 22.
However, former ministers Prasanna Ranatunga, Bandula Gunawardena, and Mahindananda Aluthgamage have reportedly refused to accept new cabinet posts.
Sources further said that although the government is ready to give the post of Sports Minister to Jeewan Thondaman, he has refused to accept the post and has promised not to sign the no-confidence motion against the government.
