By: Staff Writer

December 29, Colombo (LNW): Former Sri Lankan President Ranil Wickremesinghe has highlighted the potential for Sri Lanka’s economic revival by aligning with India’s rapid growth and technological progress.

Speaking at the 7th Atal Bihari Vajpayee Memorial Lecture in New Delhi, Wickremesinghe emphasized that coupling Sri Lanka’s recovery with India’s sustained development could steer the island nation away from the debt-driven model that dominated its economy for two decades.

Wickremesinghe stressed the importance of the recent 2024 joint statement issued during President Anura Kumara Dissanayake’s visit to India. The statement proposes a shift from dependency on excessive borrowing to a collaborative economic strategy with India.

 He pointed out that India’s anticipated emergence as the third-largest global economy by 2040, alongside Tamil Nadu’s projected GDP exceeding $1 trillion, presents a critical opportunity for Sri Lanka to integrate regionally and tap into larger markets.

Sri Lanka’s economic collapse in 2022, triggered by unsustainable debts and a balance of payments crisis, led to the country declaring bankruptcy. India extended emergency assistance with loans worth $4 billion, stabilizing the situation until the International Monetary Fund (IMF) bailout.

However, domestic resistance to deeper economic cooperation with India persisted. Wickremesinghe recalled opposition from trade unions and political parties to initiatives like the Trincomalee oil tank farm project. Nonetheless, the pandemic and subsequent economic turmoil softened resistance, paving the way for a political consensus on closer ties with India.

This consensus was evident in 2023 when Sri Lankan parties united to support the India-Sri Lanka economic partnership vision. The National People’s Power party, previously a critic of these linkages, also endorsed the 2024 joint statement during President Dissanayake’s recent visit.

Wickremesinghe noted that Sri Lanka’s reliance on Chinese loans for large-scale infrastructure projects between 2000 and 2021 exacerbated its economic vulnerabilities. Projects like the Hambantota Port, funded with over $1 billion in Chinese loans, were eventually leased to a Chinese company for 99 years in 2017.

 Similarly, the Mattala Rajapaksa International Airport, financed by nearly $200 million in Chinese loans, has faced criticism for its inefficiencies.

Efforts to establish a comprehensive economic partnership agreement (CEPA) between India and Sri Lanka date back to 2001 under Atal Bihari Vajpayee’s leadership. Despite progress in forming a joint study group and negotiations during Wickremesinghe’s tenure as Prime Minister, both leaders’ exits from office in 2004 stalled the initiative.

While a Free Trade Agreement has been in place since 2000, a CEPA remains unrealized, despite its potential to deepen economic collaboration.

As Sri Lanka seeks a sustainable growth model, Wickremesinghe’s vision underscores the strategic significance of leveraging India’s economic momentum. This evolving partnership marks a pivotal moment in the bilateral relationship, offering a pathway for Sri Lanka to transition from its debt-ridden past to a more resilient future.

By: Staff Writer

December 29, Colombo (LNW): S&P Global Ratings has maintained Sri Lanka’s foreign currency sovereign credit rating at selective default (SD) due to the unresolved restructuring of a $175 million SriLankan Airlines bond guaranteed by the government. Meanwhile, newly restructured sovereign bonds have been rated at CCC+, reflecting modest improvements in the country’s financial outlook.

Sovereign Bond Restructuring

Sri Lanka recently completed a significant debt exchange, replacing $12.55 billion of its international sovereign bonds (ISBs) with new instruments to reduce external debt pressure. Bondholders representing 97.8% of ISBs consented to the exchange, facilitating the restructuring process. The restructured debt includes governance-linked bonds, macro-linked bonds, and past-due interest bonds with varying maturity periods and step-up coupon structures.

Through this restructuring, Sri Lanka aims to achieve a $9.5 billion reduction in debt service payments over four years under its IMF-backed Extended Fund Facility. The process has also extended the average bond maturity by over five years while reducing coupon rates by 31%.

Unresolved SriLankan Airlines Bond

Despite these steps, the $175 million SriLankan Airlines bond, which is in default, remains a sticking point. S&P has stated it will revisit Sri Lanka’s long-term foreign currency rating after the bond’s restructuring is complete.

New Bond Ratings and Local Currency Outlook

New sovereign bonds have been rated CCC+, signifying that Sri Lanka’s creditworthiness remains vulnerable but is not in imminent crisis. The local currency rating has also been upgraded to CCC+, with a stable outlook. This reflects progress in debt restructuring balanced against ongoing fiscal and economic risks.

S&P highlighted three categories of new bonds issued post-restructuring:

Governance-Linked Bonds (GLBs): Maturing in 2035, these include performance-based interest adjustments. If specific fiscal targets are met, the coupon rate could decrease by 75 basis points by 2028.

Step-Up Bonds: Maturing in 2038, these offer gradually increasing coupons, starting at 1.0% and rising to 3.5% by maturity. Payments may also be made in local currency under certain conditions.

PDI Bonds: Maturing in 2030, these cover past-due interest and feature a fixed coupon of 4.0%.

Risks and Future Scenarios

S&P’s stable outlook for local currency ratings balances fiscal improvements against risks of inflation, rising interest burdens, and weak fiscal performance. The possibility of further domestic debt restructuring could result in a downgrade. Conversely, stronger-than-expected economic and fiscal improvements could enhance credit ratings.

 Completion of the SriLankan Airlines bond restructuring and sustained economic reforms are crucial for a rating upgrade. Post-restructuring ratings are likely to fall in the CCC or low B categories, contingent on the government’s ability to manage its restructured debt effectively.

While Sri Lanka’s recent debt restructuring has alleviated some financial pressure, the unresolved SriLankan Airlines bond and broader fiscal challenges underscore lingering vulnerabilities. The country’s future credit trajectory will depend on its ability to stabilize its economy, achieve fiscal targets, and restore investor confidence.

By: Staff Writer

December 29, Colombo (LNW): An audit report on the Water Supply and Sanitation Improvement Project reveals that the Sri Lankan Government has incurred losses of approximately Rs. 1.44 billion due to delays, inefficiencies, and mismanagement.

The report highlights significant setbacks in 38 urban and rural water supply schemes, sanitation projects for schools and indigenous communities, and rehabilitation efforts, with time extensions granted up to seven times. Delays ranged from 330 to 2,158 days despite measures to support contractors.

Launched in December 2015, the project aimed to expand access to piped water and improve sanitation in selected districts, alongside building institutional capacity. It was initially slated for completion by December 2020 but extended to December 2023.

With a total estimated cost of $183.9 million (Rs. 27,590 million), $165 million was funded by the International Development Association, while Rs. 2,840 million came from the Sri Lankan Government and community contributions.

Key issues included uneconomical investments, procurement violations, and cost overruns. For instance:

Kotiyakumbura Sand Filter Tank: Rs. 1.7 million was wasted on tanks that were never used.

Kilinochchi Water Supply Project: Rs. 599 million was lost due to improper project subdivision that violated procurement guidelines.

Mulankavil Water Supply Project: Additional work orders and scope changes increased costs by Rs. 267 million.

Community Contribution Shortfall: Rs. 551 million in expected contributions for rural water projects remains uncollected.

Direct Payments to Subcontractors: Rs. 19 million was paid directly to subcontractors in the Kilinochchi District, violating contract conditions.

These inefficiencies, compounded by improper project planning, contractor underperformance, environmental issues, and unforeseen challenges like the COVID-19 pandemic and economic crisis, severely hindered progress.

The National Audit Office has called for immediate action, urging thorough investigations, stricter procurement processes, and enhanced financial oversight to prevent further losses.

Despite the setbacks, a senior official stated that most sub-projects are now substantially completed. The official attributed the delays to unavoidable challenges, emphasizing the need for time extensions to support contractors under the Water Supply and Sanitation Sector Improvement Project (WaSSIP).

By: Staff Writer

December 29, Colombo (LNW): Sri Lanka has launched initiatives to expand two key airports, aiming to enhance tourism and international connectivity.

Jaffna International Airport Expansion

The Airport and Aviation Services of Sri Lanka Ltd. (AASL) has invited Expressions of Interest (EOI) for the expansion of Jaffna International Airport (JIA) in Palali, targeting a January 29, 2025, deadline for submissions.

The plan is to upgrade the airport to accommodate larger aircraft, such as the Airbus A330, which has a passenger capacity of 280-330, compared to the current ATR aircraft that carries about 70 passengers.

Renamed as Jaffna International Airport in 2019 and declared Sri Lanka’s third international airport, JIA began operations with flights from Chennai.

 The initial redevelopment was jointly funded by Sri Lanka and India. However, the airport currently handles only two to three flights per week. Sri Lanka hopes to attract more tourists from India and promote Jaffna as a growing tourist destination.

To ensure neutrality, proposals are restricted to consultancy firms or joint ventures from countries outside the Colombo Flight Information Region (FIR)—excluding India, the Maldives, Indonesia, and Australia—citing potential conflicts of interest.

 Eligible bidders must have completed at least one feasibility study for an international airport in the last decade.

Bandaranaike International Airport (BIA) Development

In parallel, AASL has extended the deadline to March 18, 2025, for Japanese firms to bid on Phase II Stage 2-Package A1 of the Bandaranaike International Airport (BIA) Development Project.

Funded by the Japan International Cooperation Agency (JICA), this project involves constructing a main terminal building, two new piers, and related works, including an elevated roadway.

The project initially began in December 2020 under Japan’s Taisei Corporation, with a scheduled completion by December 2023. However, due to Sri Lanka’s economic crisis and JICA freezing funding, the project was terminated in December 2022, with only six percent progress achieved.

Now back on track following Sri Lanka’s debt restructuring efforts, the re-advertised tender seeks to complete the remaining work using materials and equipment already procured by Taisei.

The BIA expansion is anticipated to take 30 months once the contract is awarded. While Sri Lanka is utilizing an existing JICA loan to fund the construction, it has requested additional financing, which is currently under review by the Japanese government and JICA.

 These strategic developments aim to bolster Sri Lanka’s aviation infrastructure, stimulate tourism, and support economic recovery.

December 29, Colombo (LNW): The Sri Lankan government is embarking on a comprehensive reform of its teacher training system, with an ambitious plan to integrate cutting-edge digital technologies into the country’s education sector.

Backed by a grant from China, the initiative will unify the nation’s 19 existing teacher training colleges into a single, advanced digital network, ultimately forming the Sri Lanka University of Education (SLUE).

SLUE is set to become a key institution in producing highly skilled educators who can lead the transformation of Sri Lanka’s education system in the digital age.

The university’s vision is to establish a “Smart University,” positioning itself as a leader in global education innovation.

This strategic move is aligned with the government’s broader goals of advancing digital transformation across the country’s educational landscape, empowering future teachers with the necessary tools and knowledge to thrive in the modern world.

One of the core objectives of SLUE is to enhance the digital proficiency of educators, equipping them with the skills required to create dynamic, technology-driven classrooms.

The project is expected to have a far-reaching impact on both the Sri Lankan economy and society, cultivating an environment where innovation and adaptability are central to the educational experience.

By fostering digital literacy among teachers, the initiative aims to transform the way education is delivered, making it more accessible, engaging, and relevant to the needs of today’s learners.

The roll-out of the program will be carried out in stages to ensure its successful implementation and integration across the nation’s campuses:

1. Pilot Phase: Testing essential systems, including a Learning Management System (LMS) and smart classrooms, to iron out any initial issues.
2. Year One: Laying the groundwork for digital infrastructure, including the establishment of high-speed SD-WAN (Software-Defined Wide Area Network) connections and the setup of smart classrooms equipped for distance learning.
3. Phase Two: Expanding the use of smart classrooms and centralising distance learning platforms, with a focus on achieving full Wi-Fi coverage across all campuses.
4. Phase Three and Four: Further development will see the introduction of biometric access control systems and artificial intelligence (AI)-powered educational tools to personalise learning experiences and enhance data-driven analysis.
5. Final Phases: Continued innovation through global partnerships and research, ensuring SLUE remains at the forefront of educational technology.

The development of SLUE is part of a wider drive to digitise the entire educational system in Sri Lanka. A key component of this transformation is the “Policy for Digital Transformation of Education,” introduced in May 2023.

This policy outlines the government’s commitment to providing both students and educators with essential digital tools and fostering digital literacy at all levels of schooling.

It also prioritises investments in infrastructure, teacher training, and ensuring that all students have access to the necessary devices.

In addition, Sri Lanka has secured further support for its digital education agenda from the Chinese government. In July 2024, China agreed to fund the provision of 1,000 smart boards to be distributed across schools in Sri Lanka.

This generous donation is part of China’s ongoing assistance to Sri Lanka in achieving its digital education goals.