Economic

Sri Lanka originally signed the swap deal available to SAARC countries in 2020 and repaid it in February 2021 after rolling it over once. On February 1, the Sri Lankan Central Bank settled the USD 400 million currency swap facility from the RBI. Central Bank Governor Lakshman said the same swap could be obtained after August.

The Sri Lanka-RBI swap deal came under the facilities available to SAARC countries in 2020. A few weeks back, Sri Lanka entered a 200 million dollar swap with the Bangladesh central bank. Lakshman said the signing of the agreement for the Bangladesh swap would happen soon.

Sri Lanka has to pay a billion US dollar sovereign bond in July 2020. Sri Lanka had 4.4 billion US dollars of reserves in April 2021. COVID-19 struck Sri Lanka in March 2020, putting its foreign reserves under strain since, as tourism, worker remittances and exports were badly hit.

The SAARC currency swap framework came into operation on November 15, 2012, to provide a backstop line of funding for short term foreign exchange liquidity requirements or short-term balance of payments stress till longer term arrangements are made.

The facility is available to all SAARC member countries, subject to their signing the bilateral swap agreements.

(NDTV)

Headline inflation, as measured by the year-on-year (YOY) change in the Colombo Consumer Price Index, increased to 4.1% in March 2021 from 3.3% in February 2021, the Central Bank said in a statement yesterday.

The government's Foreign Resource Mobilisation Strategy(FRMS) for the period 2020–2025 was marked with realigning its projectpipeline of almost USD 9 billion to be disbursed in the next 5–7 years, intohigh impact sectors, Finance Ministry sources revealed.  

It is  also ensuringthat wherever possible if the technology is available in the country and if theimport content is minimal such activities are to be executed through localfunds and local contractors.

This will reduce the dependency on foreign currency debtand thereby the currency risks, to finance development projects especially inthe context of alternatives being available.The Government’s financing strategy is more domesticcurrency tilted - it is nevertheless not envisaged to result in the crowding outof resources in the market.

The capital budget is to be implemented through domesticcontractors such that the funds will be circulated to the private sector viathe Government.

To support domestic industries given that the Governmentis the single largest procurer of goods and services, procedures wereintroduced to provide preference to domestic producers of construction,software and hardware, furniture and allied appliances.

However, at the same time, the Government has approvedthe construction of the elevated expressway of 16 kilometres, connecting theNew Kelani Bridge and Athurugiriya, which will in reality seamlessly connectthe Southern Port to the Colombo Port and also the Port City.

The contractor will Build, Operate and Transfer the elevated expressway to the Government at the end of 15 years after theconstruction.

Such modalities will enable the country to create assetsthat has the potential to generate significant value in the economy without thefiscal space being imposed at the outset itself.

A new consulting firm will be appointed by the Finance Ministry to promote Sri Lanka as an attractive destination for Foreign Direct Investment (FDI).

Cabinet approved a proposal by Prime Minister Mahinda Rajapaksa in his capacity as Finance Minister to take the necessary steps to obtain the services of a “leading international consulting firm” which contributes to the promotion of FDI, a statement released by the Government Information Department said.

Approval was given after Cabinet acknowledged the need to "implement a well-designed combination of centralised marketing and coordination strategies to demonstrate the attractiveness of Sri Lanka to investors."

The move comes after Cabinet last month approved the appointment of a new high-level ‘Investment Management Committee’ to be headed by the Treasury Secretary, to evaluate and fast-track investment proposals received by the Government.

Sri Lanka has traditionally struggled to attract substantial amounts of FDI, with the situation becoming more challenging following the Easter attacks and COVID-19. In 2019 the country attracted USD 793 million, which dipped to USD 548 million last year largely due to virus impact, data released by the Central Bank showed.

ICRA Lanka, a subsidiary of Moody’s Investment Services, releasing their Economic Highlights report on Monday, predicted FDI could slip to as low as USD 200 million in 2021 as global recovery continues to impact international investment.

However, the Government has projected FDI for 2021 at USD 2 billion with the possibility of Port City lease sales bringing in an additional USD 1 billion.

Sri Lanka is strongly focused on attracting investment to bolster reserves and help meet an estimated $ 6 billion in outflows for this year.

Of this amount, about USD 4.3 billion has been earmarked for debt repayments. Sri Lanka has to repay an average of USD 4 billion in debt for the next few years and requires better performance from investments and exports.

Nonetheless, previous attempts to establish ‘one-stop-shops’, ‘single investment windows’ and integrated committees, to fast-track FDI has yielded limited results.

Last year, Sri Lanka only managed to improve one notch in the World Bank’s ‘Ease of Doing Business Index’, moving to 99th, up from 100th in 2019, out of 190 economies across the world.

According to the World Bank, Sri Lanka maintained its score obtained in the 2019 edition for the second consecutive year, at 61.8 points.

The Board of Investment (BOI ) strives to  ensure uninterrupted services for export-oriented enterprises amidst private sector concerns over the impact of the latest lock down in view of the worsening third wave of the COVID-19 pandemic.

Sri Lanka’s tax regime will be maintained stable at the present level in the next five years without undergoing any changes, Presidential Secretary Dr. P.B. Jayasundara has vowed sternly.

Sri Lankan government debt is leading gains in Asian dollar bonds this year as investors bet that the nation will avoid defaulting on its short-term notes, with the help of a Chinese funding facility.

The planned annual utilization of foreign loans as agreed with the World Bank, Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA) will be approximately USD 1,400 million with plans to obtain bilateral development loans of approximately USD 400 million.

This was revealed in the Report of the Committee on Public Finance presented in Parliament.      

The government has pledged to utilize local resources, technology and knowledge to the maximum possible limits so that the most of the funds will be utilised within Sri Lanka.  

It has also given special attention to enhance Digital Governance using Information Technology as a tool to simplify government mechanisms as well as market structures and processes, thus ensuring efficient and people-focused service delivery and exchange of knowledge.  

Under the government's vision to create a ‘Technology based society and digitally inclusive Sri Lanka”, emphasis will be paid to expand the availability of mobile and fixed broadband services throughout the country by developing required infrastructure..  

The Government also intends to introduce a simplified tax policy with a mandatory 'E-filing: system for all companies, and use of Tax Identification Number (TIN) in all tax related transactions.

It is also intended to launch suitable programmes to enhance the professional skills of the security forces in keeping with the Government's primary policy of "Priority to National Security" to provide "a safe and a secure country for all", in a medium term plan.  

It is expected that the exchange rates (USD/LKR) will remain stable with minor fluctuations.

It is also expected that the real GDP growth rate will be 5.0 during the year 2020.  

An economic stimulus package will be introduced to revitalize the economy through a simplified tax system relying on large transactions while reforming corporate management structures of State Owned Enterprises and combining effects on economic activities.  

This has become necessary due to lockdown of the country coupled with imposition of curfew in selected areas to counter the spreading of COVID-19 and the country was expected to return to normalcy from mid 2020.

Sri Lanka stocks fell 1.42 percent on Thursday though foreign investors bought 527 million rupees of Windforce Limited, a renewable energy firm which debuted on the market, after a successful 3.2 billion rupee initial public offering.

The Colombo benchmark All Share Price Index fell 105.53 points to close at 7,327.91.The S&P SL20 index of more liquid stocks fell 1.54 per cent or 45.73 points to close at 2,931.59.Turnover was 2.6 billion rupees with 36 stocks gaining and 143 falling.

LOLC Holdings fell 9.75 rupees to close at 319.75 rupees contributing most for ASPI’s fall, Brown and Company fell 5.75 rupees to close at 174.50 and Browns Investment fell 10 cents to close at 6.30 rupees a share.

LOLC Finance closed 20 cents down at 6.10 rupees.Expolanka Holdings fell 1.80 rupees to close at 47.80 rupees a share.Melstacorp Holdings closed 2.10 rupees down at 45.70 rupees a share.

Hayleys Plc closed 2.20 rupees down at 76.20 rupees with key subsidiaries Dipped Products falling 1.20 rupees to close at 56.50 rupees and Haycarb Plc falling 4.00 rupees to close at 104.00 rupees.

John Keells Holdings closed 50 cents down at 146.25 rupees a share and Vallibel One fell 2.10 rupees to close at 56.30 rupees a share The Kingsbury closed flat at 6.10 and Singer Sri Lanka closed 1.10 rupees down at 19.00 rupees.

A 131 million rupees negotiated trading was seen in Windforce at 18.00 rupees a share and the stock Closed 2.50 rupees or 15.63 percent higher, a share at 18.50 rupees after began trading above its price of 16 rupees per share after raising 3.2 billion rupees for wind power projects in Sri Lanka and Senegal.

The Sri Lankan economy is expected to make a notable recovery in 2021, supported by policy stimulus and improving business sentiments, the Central Bank (CB) announced revealing that it has targeted 3-3.5 per cent growth in the first quarter this year.

Given the low inflation environment, the Central Bank is in the process of actively supporting the Government’s economic agenda focused on developing a production-based economy while focusing on non-debt creating investments.

Positive sentiments fuelled by the COVID-19 vaccination drive in the country and the impact of growth promoting policies are expected to support the economic revival over the short to medium term, Governor Prof. W.D Lakshman told a media conference in Colombo recently.

He said that credit to productive sectors is vital in ensuring a sustained economic recovery and the growth of credit to the private sector is expected to gather pace supported by low lending rates.

He disclosed that the Central Bank will be setting priority sector lending targets for banks on lending to the micro, small and medium scale enterprises (MSME) sector.

The rising demand for credit is to be driven by improving investor sentiments but the private sector credit has come down to LKR 25 billion in January from LKR 74 billion a month earlier.

The Central Bank has set a target of LKR 850 billion private sector credit growth to Micro, Small and Medium Enterprises (MSMEs) in 2021 to revive economic activity.

He reiterated that Sri Lanka has no intention of defaulting debt service obligation this year as it hopes to get more foreign inflows while strengthening the external sector performance.

He disclosed that the external sector performance is being closely monitored by the CB. Several successful meetings were held by the relevant government officials and the Central Bank with the stakeholders of the external sector to discuss ways and means to tackle challenges faced by them and increase foreign exchange inflows.

Discussions with the banking community and other stakeholders are ongoing to rectify deficiencies in extending credit to productive, growth-supportive, sectors.

Negotiations are underway with international agencies and donor countries for rapid financial instruments and necessary funding to strengthen foreign reserves, he said, expressing optimism on fulfilling debt servicing obligations.

Discussions are continuing on securing foreign financing. Furthermore, increased non-debt creating foreign exchange inflows are expected, supported by the measures introduced by the Government and the Central Bank.

In spite of adverse speculation, all debt service obligations of the Government have been duly met thus far in 2021, and the Government remains committed to maintaining its impeccable debt service record in the future as well.

Sri Lanka foreign reserves will fall to uncomfortable levels after the July 2021 repayment of USD 1 billion is repaid, economic experts said, but CB officials expressed optimism in boosting reserves.

Forex reserves were estimated at USD 4.6 billion in February 2021, down from USD 4.8 billion a month earlier, Director of Economic Research, Chandranath Amarasekara said. (Sunday Times)

The cash strapped Sri Lankan government has been compelled to introduce a Regulatory Framework to facilitate foreign currency borrowings by Licensed Finance Companies.

Sri Lanka foreign reserves will fall to uncomfortable levels after the July 2021 repayment of USD 1 billion is repaid but they may still muddle through next year.

Forex reserves were estimated at USD 4.6 billion in February 2021, down from USD 4.8 billion a month earlier, Director of Economic Research, Chandranath Amarasekara said.

“Official reserves were provisionally estimated at USD 4.6 billion by the end of February,” Amarasekara said.

In 2021, the total debt service payment is estimated to be USD 6865 million and USD 1514 million as interest payments.

These details were revealed in a memorandum of financing the Budget 2021 formulated by the Finance Ministry recently.

The interest payments and capital repayment of Foreign Currency Banking Unit loans( FCBUs) and SLDBs are estimated at USD 2664 million.

During the year 2021, it is expected to raise USD 2000 million (LKR 376 billion) through the issuance of SLDBs, Memorandum disclosed.

In addition, USD 1170 million worth of FCBUs raised from the Bank of Ceylon and the Peoples Bank will be matured this year and the Treasury will raise loans to repay it from the same channel.

The government will also be appealing for international investors to roll over bonds maturing this year, a further sign of the island nation's grim financial situation.

The government estimates  gross FX reserves of USD 5.86 billion in Oct is enough to cover about 55% of total external financing requirements.

Capital and import controls help slow the pace of reserve decline and the rupee does not look grossly misaligned.

If we assume that short term debt and official loans are rolled over, and China lends an additional USD 800 million to Sri Lanka in 2021, reserves should fall to USD 3.5 billion at the end of 2021 giving the authorities enough wiggle room to muddle through next year.

The Central Bank repaid a USD 400 million swap to the Reserve Bank of India in February 2021.

Deputy Governor Dhammika Nanayakkara said that it had not sold any dollars to defend the rupee during the month.