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Governance issues, etc., will have to be sorted out to avert further debt restructuring: Verité Research

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By Rathindra Kuruwita

Unless Sri Lanka addressed its governance issues, the country would have to restructure its debt again like most countries that had unsustainable levels of corruption, Executive Director of Verité Research Nishan de Mel said in a recent televised interview.

Dr. De Mel said that as the government had decided to pay the Employees’ Provident Fund (EPF) only 9% for its investment until 2038 instead of the average Treasury bond interest rate of 13.5 percent, it would lose 12 trillion rupees.De Mel also said that Domestic Debt Optimization (DDO) was a phrase that the Sri Lankan government coined.

“Domestic debt restructuring usually means making credit owners take a loss for the benefit of the government. The word commonly used for this is restructuring, optimisation is a word that we have come up with,” he said.

De Mel said that the government’s proposal was to reduce the interest paid on the money at EPF and other such funds to 9.1 percent until 2038. However, the average interest paid for Treasury bonds over recent years was 13.5 percent, which is almost 50 percent more than the proposed interest for EPF, he said.

“We know the interest rates for Treasury Bonds because the government has released information about the interest rates of bonds issued because foreign creditors have been asking for transparency. By the end of 31 May this year, the average interest rate given to bondholders was 13.5 percent,” he said.

There had been years when interest rates for Treasury bills were below 9.1 percent. However, it was unlikely that the interest rates offered on Treasury bills would fall below 9.1 percent, he said. Sri Lanka was going through an uncertain time and governments could only lure people into buying bonds by offering attractive interest rates, de Mel added.

“We still can’t borrow from bond markets. So, the government will offer higher interest rates when it borrows from the domestic market. During the past two years, the government has paid about 30 percent interest to borrow from the domestic market. It is unlikely that interest rates for bonds will be less than 13.5 percent in the future,” he said.

De Mel said that at present there are 3.4 trillion rupees at the EPF, and it will reach about 25 trillion by 2038 at 13.5 percent interest. However, EPF funds would only grow to 13 trillion at 9.1 percent interest.

“That’s 12 trillion rupees less at 9.1 percent,” he said.

The Central Bank had a Monetary Board taking decisions on the EPF and there was a conflict of interest as CBSL was also entrusted with restructuring debt, de Mel said.

“A lot of people ask me why I am using 13.5 percent to calculate the losses. They tell me that the EPF already receives less than 13.5 percent in interest. The EPF is late in producing annual reports. The last available report was for 2020. The Central Bank produces its annual reports every year, but the EPF reports are delayed. There are many allegations about what happened. If someone tells me that EPF receives lower interest rates than the market rate for treasury bonds, that is another serious problem. All private sector employees are compelled to be a member of the EPF, so why are EPF beneficiaries receiving less than market rates?” he asked.

There are several pension funds, and CBSL workers have a special pension fund. De Mel said he was not aware if that pension fund, too, had been restructured.Although the parliament had approved a resolution on the domestic debt restructuring, the government could not change the interest rates given to EPF without changing some laws, he said.

“The laws governing the EPF say that the Central Bank must publish all investments it makes with EPF money. However, when we look at EPF’s financial statements, they have misinterpreted the above clause. Instead of listing out every investment, they are listing out every type of investment. This way, people can’t figure out what’s going on,” he said.

Those who are EPF beneficiaries will lose about 70 percent of the real value of their money because of inflation and the lower market rate of interest. However, foreign investors are only getting a 30 percent loss, he said.

“This is unequal treatment. There are two factors needed for sustainable domestic debt restructuring. One is that foreign creditors must take a deep haircut—over 50 percent. Secondly, the governance issues in a country must be addressed. Most countries have to restructure their debt more than once. And these countries have serious governance issues. So, to attain sustainability, we need foreign creditors to get a deeper haircut and we have to address our serious governance issues,.”



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AKD warns of far reaching economic consequences of Middle East war

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Anura

President Anura Kumara Dissanayake yesterday called for an immediate and peaceful resolution of the escalating Middle East conflict, warning that the crisis could have far-reaching repercussions on the global economy, including Sri Lanka.

Addressing Parliament, the President stressed that no military conflict benefited humanity, particularly at a time when destructive military technologies were rapidly advancing.

“Any military conflict does not create a favourable situation for any group of people,” he said, urging all parties to make urgent commitments towards peace. “As Sri Lanka, our position is that all parties involved in this war must, as soon as possible, take steps toward a peaceful world.”

He cautioned that Sri Lanka could not remain insulated from the fallout from the conflict, noting that disruptions to global oil and gas supplies, threats to migrant workers in the Middle East, and potential shocks to tourism, remittances, shipping and aviation were real concerns.

A national programme was being formulated to mitigate the impact, he said, adding that its success would hinge on broader international efforts to restore stability, the President said.

Acknowledging public anxiety shaped by past economic hardships, President Dissanayake said social stability could not be ensured through rhetoric alone but required tangible guarantees that citizens would not face another crisis.

While noting that the government had successfully navigated multiple challenges since assuming office, he described the Middle East situation as distinct due to the uncertainty surrounding its duration and outcome.

The government, he said, was closely monitoring developments. The Central Bank had conducted a review with a report on the likely economic impact expected shortly. The Ministry of Finance is also preparing an assessment of the potential effects on public life, alongside measures to ensure the uninterrupted provision of essential services locally and for Sri Lankans overseas.

“The primary responsibility for finding a path out of the crisis rests with the Government,” he said, calling on Parliament and the public to collectively confront the challenge under a unified national plan.

Providing a detailed account of the country’s energy reserves, the President said storage capacity rather than supply remained the key constraint. Excluding the Indian Oil Corporation tanks in Trincomalee, total storage capacity at Kolonnawa and Muthurajawela stands at approximately 150,000 metric tons.

Diesel stocks were currently sufficient for 33 days, with refining contributing around 1,800 metric tons daily. Petrol reserves will last 27 days, with a 35,000 metric ton shipment due on March 7 or 8 expected to extend availability to around 40 days.

Aviation fuel stocks are adequate for 49 days, supported by both daily refining and imports. Scheduled shipments include vessels from RM Parks on March 14, Sinopec on March 17, IOC on March 21 and the Ceylon Petroleum Corporation on March 28.

Crude oil supplies were sufficient to operate the refinery for 26 days, with an additional shipment expected to extend operations by a further 18 days, the President said.

“Because of this, there is no crisis regarding oil,” the President assured Parliament.

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Pope invited to visit Sri Lanka

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President Anura Kumara Dissanayake has invited His Holiness Pope Leo XIV to visit Sri Lanka.

The official invitation was handed over by Minister Bimal Ratnayaka to the Vatican’s Under Secretary for Relations with the States, at the Vatican, yesterday, during the Minister’s official visit to Italy, the President’s Media Division said.

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New Tourism Act to strengthen legal action against visa violators

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The government is in the process of drafting a new Tourism Act to address legal loopholes that currently prevent the prosecution of foreign nationals who engage in unauthorised activities while on tourist visas. Speaking at a certificate awarding ceremony for the Vocational Initiative for Sustainable Ambassadors in Tourism (VISA) project at the Royal Kandyan Hotel, Suranjith Wavita, a member of the Presidential Task Force for Tourism Development, stated that the current Tourism Act No. 38 of 2005 was flawed as it does not prescribe specific punishments, beyond deportation, for such offenders.

Wavita highlighted that a significant number of foreigners, including Chinese nationals, had been deported over the past three months for working as illegal tour guides and engaging in various trading activities. He explained that due to a shortage of Chinese-speaking local guides, travel agents often brought in “Tour Leaders” from abroad on tourist visas, which was a serious violation. The proposed new legislation aimed to empower the Tourist Police Division to arrest and produce such violators, ensuring stricter enforcement than mere deportation.

The new Act is being formulated by a committee of experts, based on various proposals and ideas to make it mandatory for anyone involved in the tourism industry to be registered and properly trained. To facilitate this, the government has already lowered the basic qualifications required for registration, allowing more locals to enter the profession legally and prevent the negative impact of unauthorised operators on the industry’s future.

Discussing the industry’s growth, Wavita noted that Sri Lanka was now aiming for an annual target of three million foreign tourists. He specifically mentioned the success of the 311-km “Pekoe Trail” in the central highlands, which attracts around 500 tourists daily and helps channel tourism income into plantation-based communities.

He also emphasised the importance of environmental protection, noting that since 25% of Sri Lanka’s flora is endemic, some foreigners enter the country with the intention of “biopiracy,” making the role of trained local guides crucial in safeguarding natural resources.

The VISA training project was implemented by the National Cleaner Production Centre (NCPC) and ASSIST, with the support of VFS Global. The event saw the participation of high-ranking officials, including Manpreet Singh Aurora (Senior General Manager, VFS Global), H.C.P. Jayaweera (Director General of National Botanical Gardens), and Samantha Kumarasena (CEO, NCPC).

Wavita concluded by praising the increasing participation of women in the tourism sector, describing it as a vital contribution to both the industry’s progress and the national economy.

By S.K. Samaranayake

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