By: Staff Writer

September 12, Colombo (LNW): India has strengthened its influence on neighboring Sri Lanka by extending financial assistance, providing a total of US$3.8 billion in 2022 to help the country navigate its economic crisis.

As part of the recovery process, Sri Lanka is now required to repay the loans extended by the Reserve Bank of India (RBI).

Official records indicate that by the first half of 2024, Sri Lanka’s central bank had repaid US$450 million to the RBI, with the total amount owed standing at US$2,001.43 million by June 2024.

When these figures were first disclosed in the third quarter of 2023, Sri Lanka owed the RBI US$2,601.43 million, signifying that at least US$600 million has been repaid in the interim. India’s Reserve Bank had offered Sri Lanka a currency swap agreement and permitted arrears to accrue under the Asian Clearing Union (ACU) arrangement.

According to an International Monetary Fund (IMF) report, Sri Lanka’s outstanding arrears to the RBI under the ACU agreement, along with penalty interest, have been consolidated into a US$2.2 billion swap.

This swap was combined with an additional US$400 million loan provided by the RBI under the South Asian Association for Regional Cooperation (SAARC) framework. Sri Lanka’s total liability of US$2.6 billion is set to be repaid between 2023 and 2026.

In response to these developments, the IMF program has adjusted a ceiling on Treasury guarantees to accommodate a Treasury guarantee for the swap. Critics argue that central bank borrowings through swaps enable the suppression of interest rates, delaying necessary corrections

They claim such actions exacerbate external imbalances and essentially refinance private sector debt with newly printed money by neutralizing the effects of foreign exchange interventions through liquidity injections. This mechanism is seen as contributing to further monetary instability.

Swaps, as a tool to delay rate hikes and inject liquidity into the economy, were first introduced by the Federal Reserve in the 1960s. T

his practice is believed to have played a role in the collapse of the Bretton Woods system between 1971 and 1973. However, since September 2022, Sri Lanka’s central bank has largely maintained a deflationary policy, avoiding inflationary measures such as excessive open market operations.

Despite these efforts, occasional pressure has been placed on the Sri Lankan currency due to the accumulation of liquidity from unsterilized dollar purchases, which has driven down interest rates and, in certain instances, prevented sufficient intervention to stabilize the local currency.

By: Staff Writer

September 12, Colombo (LNW): The government is set to establish a Financial Stability Fund aimed at boosting under the financial crisis management program led by the Central Bank of Sri Lanka (CBSL).

To kick start the Financial Stability Fund, an initial nominal amount of Rs. 1 billion will be allocated by the Finance, Economic Stabilisation, and National Policies Ministry, finance ministry sources revealed.  

“The fund will be gradually built up through annual budgetary allocations, adhering to financial limitations,” Cabinet Spokesman and Minister Bandula Gunawardena said at the weekly post-Cabinet meeting media briefing yesterday.

Cabinet of Ministers on Monday approved the establishment of this Financial Stability Fund tostrenthen the country’s bank resolution framework.

The Financial Stability Fund, is a key measure under Section 15 of the Banking (Special Provisions) Act No. 17 of 2023, is designed to ensure the smooth resolution of financial institutions in crisis, safeguarding financial stability in the country.

Under Section 15(2) of the Act, the Financial Stability Fund will be managed independently, separate from the other assets held and regulated by the CBSL.

The urgency of establishing the Financial Stability Fund stems from its inclusion as a priority policy procedure in the second subprogram of the financial sector stability and reform program.

This initiative is also supported by a US$ 200 million loan from the Asian Development Bank (ADB) to implement effective resolution procedures, backed by comprehensive guidelines.

Gunawardena said the Financial Stability Fund is expected to play a crucial role in enhancing Sri Lanka’s financial crisis management framework, ensuring the stability of the banking sector.

The proposal was presented by President Ranil Wickremesinghe in his capacity as Minister of Finance, Economic Stabilisation, and National Policies.

By July 31, 2024, indicators tied to the second subprogramme of the financial sector’s stability and reform programme will guide the implementation of the fund.

 The Ministry of Finance will provide comprehensive guidelines for the fund’s operation, using the initial allocation to ensure an effective resolution framework.

The program adopts a programmatic policy-based loan (PBL) modality with two subprograms of $200 million each to properly sequence reforms and ensure the needed flexibility while implementing multi-year policy reforms in a crisis period.

Subprogram 1 prioritizes immediate reforms to enhance the crisis management regulatory framework and stabilizing the financial sector while subprogram 2 prioritizes follow-on reforms to build a resilient and inclusive financial system.

It will be supported by an attached transaction technical assistance (TA) for subprogram 2 and post-program partnership framework (PPPF) activities. 

A programmatic approach that combines policy-based loans, TA, and knowledge support was selected as it allows complex and challenging reforms to be addressed comprehensively.

By: Staff Writer

September 12, Colombo (LNW): Port City Colombo is set to transform into a leading regional financial center, driven by the recent enactment of Offshore Banking Regulations in parliament. This development is expected to attract significant Foreign Direct Investments (FDI) into the city with effective management and investor confidence.

Currently, discussions are underway with seven local banks and three international banking corporations to establish offshore banking branches in the Colombo Port City Special Economic Zone. Six prominent local banks, including Commercial Bank of Sri Lanka, Sampath, HNB, DFCC, NDB, and NTB, have already been authorized by the Colombo Port City Economic Commission (CPCEC) as official “Authorized Persons” (APs) to operate within this zone.

The operations of these offshore banking branches will be governed by regulations first gazetted on July 26, 2024. They will also be under the supervision of the Central Bank of Sri Lanka and the Financial Intelligence Unit, enhancing investor trust in the Port City as a regional investment hub.

These offshore banking regulations form the foundation of Port City Colombo’s financial ecosystem.

They offer a wide range of benefits to potential investors looking to establish their businesses, such as the ability to conduct transactions in designated foreign currencies with other offshore units or non-residents.

Banks can accept savings and time deposits from both Authorized Persons and non-residents, further enhancing the business environment in Port City.

Additionally, these regulations cover the extension of loans to non-residents, borrowing foreign currency, and conducting other approved financial transactions.

The offshore banking framework is expected to foster a thriving international banking ecosystem, paving the way for other financial products, including stock trading and fund management.

By enabling higher transactional efficiency and strengthening the exchange of securities, businesses can leverage their capital to expand.

 Companies focused on exporting services will also benefit from enhanced foreign currency transaction flexibility, helping retain more foreign currency within Sri Lanka.

The presence of international offshore banks will boost financial stability and create opportunities for large-scale investments. The increased flow of foreign currency within Port City will help establish a circular financial economy, further contributing to the city’s economic growth.

The offshore banking system will complement the existing incentives of the Colombo Port City Special Economic Zone, which includes tax exemptions for over 25 years, 100% capital and profit repatriation, and full foreign ownership.

These benefits reinforce Port City Colombo’s ambition to become a competitive offshore economy and a premier business destination in the region.

September 12, Colombo (LNW): Sri Lanka has witnessed a strong influx of nearly 1.4 million tourists so far this year, reflecting a robust recovery in the country’s tourism sector.

The Sri Lanka Tourism Development Authority (SLTDA) announced that, from January 1 to September 8, a total of approximately 1,395,773 visitors arrived on the island.

February saw the highest number of arrivals, with 218,350 tourists recorded, while both January and March also exceeded 200,000 visitors.

This steady stream of tourists highlights Sri Lanka’s appeal as a destination despite global economic uncertainties and challenges in the travel industry.

Tourists from India, Britain, Russia, Germany, and China constituted the majority of international visitors, showcasing a diverse mix of arrivals from both neighbouring and distant countries.

Sri Lanka has been actively promoting its rich cultural heritage, scenic landscapes, and hospitality to attract these key markets, leading to the encouraging numbers recorded this year.

In comparison, the previous year saw a total of 1,487,303 tourists, and 2024 is on track to potentially surpass that figure.

The island nation’s tourism sector, a critical contributor to the economy, has been recovering steadily after years of disruption caused by the pandemic, and these latest figures signal a positive outlook for the rest of the year.