Business
Cabraal and Central Bank responds to debt default fears
Recent commentary on Sri Lanka’s credit outlook ignores the numerous policy initiatives of the Government of Sri Lanka, which have already started yielding results
The Government of Sri Lanka observes that the concerns expressed in the media in reference to recent reports on Sri Lanka’s ability to service its debt obligations by international banks are one sided, and do not take into consideration the numerous of policy measures that have been introduced to revive the economy and ensure macroeconomic stability. These innovative policy measures are not restricted to traditional debt-based solutions to service the current debt obligations. Measures to build resources through non-debt solutions, the preservation of foreign currency resources and the gradual phasing down of the relative share of foreign debt are already yielding desired results, with a high likelihood of harnessing further improvements during the remainder of the year and beyond.
Certain media reports published recently attempts to raise concerns about Sri Lanka’s ability to honour its debt service obligations, based on backward looking and linear assumptions, thus ignoring the expected outcome of the novel policy regime currently in place. While gross official reserves have moderated somewhat since end December 2020, such moderation is not expected to continue. When all relevant facts are considered, it becomes apparent that the fears raised in certain reports are, in fact, merely hypothetical. The Sri Lankan economy, which is over US dollars 80 billion, has major natural and regular sources of foreign exchange inflows, including merchandise and services exports, workers’ remittances, programme and project related inflows, equity investment, and other financial flows. Aided by the post-COVID revival of the economy, such foreign exchange inflows are projected at US dollars 32 billion in 2021, even without major forms of borrowings, such as floating International Sovereign Bonds (ISBs). These projected inflows are expected to increase by about US dollars 2-3 billion annually in the period ahead with the support of well targeted policies and strategies of the Government. At the same time, authorities will continue to take measures to build up official reserves with the help of measures already implemented and further measures as necessary in the period ahead. It is noteworthy that the Government has launched a major drive towards promoting real inflows of foreign exchange through actively facilitating various merchandise and services exports, in both traditional and non-traditional sectors. The import curtailment measures and the steady recovery in export earnings would continue to improve liquidity in the domestic foreign exchange market. Further, envisaged equity investment flows through the Colombo Port City and Industrial Zones and the reprioritisation of project financing would help reduce the share of foreign debt notably in the period ahead, thereby dispelling concerns about debt sustainability.
In this context, settling the maturing ISBs of US dollars 1.0-1.5 billion, per year, over the medium term, need not be viewed as a major source of concern, given the entire stock of outstanding ISBs account for only 16.7 per cent of Sri Lanka’s total government debt as of end February 2021. It is also stressed that lenders in the majority of 83.3 per cent of the debt stock have raised no concern whatsoever about Sri Lanka’s ability to honour debt obligations. The authorities remain committed to honoring all upcoming debt obligations, leaving zero probability of any form of default on any obligation, which would jeopardise the longstanding relations with stakeholders and the impeccable credit history of the country.
The engagement with the International Monetary Fund (IMF) continues at staff level and as a member state in technical exchanges of know-how. Exploration of liquidity facilitation arrangements with regional central banks is also continuing, with some discussions are at an advanced stage.
As indicated in the Budget 2021, the Government has adopted a novel approach in relation to foreign financing, while enhancing the effectiveness of already secured financing channels, aimed at reducing the share of foreign financing of the budget deficit over the medium term. Reflecting the impact of measures already put in place by the Government, the relative share of outstanding external debt has already declined notably. The Government aims to reduce its external debt over the medium term to around a third of the total debt, and already the share of external debt has declined to around 40 per cent by end 2020 from over 48 per cent at end 2019.
The measures introduced to manage non-essential imports helped ease trade deficit to USD 5,978 million in 2020 from USD 7,997 million in 2019. The trade deficit is further expected to shrink in 2021 to around USD 4 billion. Export facilitation is expected to continue through allowing intermediate goods imports unhindered and promoting domestic value chain improvements, which would result in export earnings of about USD 13 billion in 2021.
Additionally, despite the projections of downturn in workers’ remittances, Sri Lanka recorded an increase of over USD 400 million remittances in 2020 with an aggregate of USD 7.1 billion. The policy measures to further incentivise remittances flows were facilitated with the Budget 2021 announcement of an additional Rs. 2 for conversion of per USD remittance, and the banks were required to sell 10 per cent of such remittance conversion to the Central Bank. The Central Bank has already commenced such absorption of conversions into its foreign exchange reserve. Further arrangements to improve foreign currency liquidity have been introduced, including a mandatory conversion of ¼ of export proceeds.
The Government is also in the process of channeling in official credit sources, with priority being envisaged for policy loans with a significantly high liquidity component. In addition, the commercial external financing component of the already lined-up term financing facility and other market financing components are envisaged in line with Budget 2021.
Sri Lanka Development Bonds (SLDBs) and loans of Overseas Banking Units (OBUs) also remain sources of foreign currency financing mainly from domestic foreign currency earning entities. The recently introduced measures to entice foreign investors to the government securities market and the real economy through an attractive foreign exchange swap arrangement are also likely to help enhance foreign currency inflows in the near term.
Real investment flows to the country remain a promising source based on the Colombo Port City related developments. The land reclamation work had been completed and the required legislation is being finalised. In December 2020, the Sri Lankan conglomerate, LOLC Group, signed an agreement with the Port City developers for a Mixed Development Project valued at USD 1 billion, which is set to break ground in mid-2021.
In this context, the Government reiterates its utmost commitment on meeting its external debt obligations, which will be facilitated not only through direct and indirect financing arrangements but also through highlighted policy measures and the current work plan to increase non-debt creating forex inflows.
The Government wishes to reiterate that even in the midst of various concerns raised by many parties on Sri Lanka’s debt service capability at the height of the COVID-19 pandemic, the Government was able to service its total external debt of around USD 4.3 billion in 2020.
The recent research reports indicate different figures of external debt obligations for 2021. The external debt obligations of the Government for 2021 amount to around USD 3.7 billion including the amortisation payments of USD 2.5 billion. Of this amount, thus far in 2021, the Government has settled over USD 500 million.
Sri Lanka will engage freely with all its investment and development partners and implement the envisaged measures to build up reserves through non-debt creating inflows while reviewing closely the international capital market developments.
Investors are invited to approach the Sri Lankan policy authorities at the highest levels who always remain open for constructive dialogue and will welcome any one-on-one engagement or roadshow discussions, without being dissuaded by premature one-sided opinion expressed without factoring the ground realities and the actual outcomes of policy measures introduced by the Government of Sri Lanka.
Business
Low-quality coal shipment affects Lakvijaya coal power plant operations
Operations at Sri Lanka’s main coal-fired power facility, the Lakvijaya coal power plant, suffered a significant disruption soon after a new shipment of coal was introduced, raising concerns over generation stability and environmental emissions.
Energy analyst Dr. Vidura Ralapanawa said in a social media post that the plant began using coal from “Ship 11” on Wednesday, following confirmation from officials of the Ceylon Electricity Board (CEB).
However, almost immediately after the new batch of coal was fed into the system, the plant’s generation capacity began to decline due to the poor quality of the fuel.
According to Dr. Ralapanawa, the plant’s output dropped by about 82 megawatts overall. Unit 1 recorded a drop of 45 MW, Unit 2 fell by 15 MW, and Unit 3 declined by 22 MW shortly after the coal was introduced.
The situation worsened later in the night when two coal mills in Unit 3 reportedly became clogged around 11 p.m., causing a rapid fall in generation capacity. Unit 3, which normally operates at a higher output level, was said to be running at around 170 MW following the malfunction.
Coal mills are a crucial component in coal-fired power generation. They grind raw coal into a fine powder before it is fed into the boiler for combustion. Each generating unit at the Norochcholai facility is equipped with five coal mills, and any obstruction in these systems can severely affect plant operations.
When mills become clogged, plant operators often have to rely on diesel-fired burner guns to stabilise the flame inside the boiler. While this helps maintain combustion, it significantly increases operating costs because of the high price of diesel.
The heavy use of diesel has another consequence. According to Dr. Ralapanawa’s post, when diesel firing increases, the plant’s Electro-Static Precipitators (ESPs) must be shut down. ESPs are designed to capture and remove particulate matter such as fly ash before emissions are released through the chimney.
With the ESPs switched off, large amounts of fly ash may be released into the atmosphere, potentially affecting surrounding communities.
Dr. Ralapanawa further noted that the coal shipment appears to have low calorific value, low volatile matter, and high ash content, all of which reduce combustion efficiency. In addition, the coal reportedly has a low grindability index, making it harder to pulverise and increasing the likelihood of mill blockages.
He added that while the immediate clogging of the mills may be cleared within a day, the underlying quality issues with the coal could make the problem persistent.
The development comes amid earlier assurances from officials of the Ceylon Electricity Board that the Norochcholai plant could be operated effectively even with lower-quality coal supplies.
The Norochcholai facility, with an installed capacity of 900 MW, is the largest power station in Sri Lanka and a critical component of the national grid. Any disruption to its operations can have wider implications for the country’s electricity supply, potentially forcing the system to rely on more expensive oil-based power generation.
Engineers are currently working to address the clogged mills and stabilise generation, but energy analysts warn that unless the fuel quality improves, similar operational issues could recur.
By Ifham Nizam
Business
CSE regains some positive terrain but challenges remain
CSE trading yesterday was positive overall on account of local economic growth prospects but concerns deriving from West Asian tensions lingered.
The market is still recovering from previous days’ uncertainties, market analysts said.
The All Share Price Index went up by 256 points, while the S and P SL20 rose by 63.8 points. Turnover stood at Rs 5.68 billion with nine crossings.
Seven crossings were reported in HNB Finance where 130 million shares crossed to the tune of Rs 1.1 billion; its shares traded at Rs 8.50, LMF four million shares crossed for Rs 348 million; its shares traded at Rs 87, Commercial Bank 661,000 shares crossed for Rs 142 million; its shares traded at Rs 215, Seylan Bank (Non-Voting) 750,000 shares crossed for Rs 49 million; its shares sold at Rs 75.50, ACL Cables 500,000 shares crossed for Rs 49 million; its shares traded at Rs 98, HNB 100,000 shares crossed for Rs 43.2 million; its shares sold at Rs 432 and Access Engineering 500,000 shares crossed for Rs 38.5 million and its shares fetched at Rs 77.
In the retail market companies that mainly contributed to the turnover were; HNB Finance Rs 331 million (34.8 million shares traded), Lanka Credit and Business Finance Rs 184 million (21.6 million shares traded), LOLC Holdings Rs 180 million (320,000 shares traded), Commercial Bank Rs 167 million (774,000 shares traded), Softlogic Capital Rs 138 million (twelve million shares traded), Sampath Bank Rs 124 million (789,000 shares traded) and ACL Cables Rs 123 million (1.26 million shares traded). During the day 330 million share volumes changed hands in 36639 transactions.
It is said that the banking and financial sectors performed well. HNB Finance was active in the financial sector, while Commercial Bank and HNB were active in the banking counters.
Further, National Development Bank has received Colombo Stock Exchange approval in principle to list Rs 16 billion of 11.50, 11.04 and 11.85 percent debentures, it said in a CSE filing.
NDB will issue 120 million Tier 2, listed, rated, unsecured, subordinated, redeemable Basel III compliant GSS+ bonds with a non-viability conversion, at Rs 100 each.
Yesterday the rupee was quoted at Rs 310.70/85 to the US dollar in the spot market, weaker from Rs 310.30/60 the previous day, dealers said, while bond yields were broadly steady.
By Hiran H Senewiratne
Business
Indian Ocean under fire: Parliament explodes over the sinking of ‘IRIS Dena’
A new crisis looms with a second Iranian vessel at the doorstep
Sri Lanka’s parliament became a secondary battleground yesterday as the sinking of the Iranian frigate IRIS Dena ignited a fierce debate over national sovereignty, regional maritime priciples, and the government’s perceived ‘strategic paralysis.’
While the Navy’s rescue of 32 sailors was initially painted in shades of heroism, Opposition MPs have now unfurled a narrative of missed warnings and geopolitical betrayal.
In a scathing address, Opposition firebrand Chamara Sampath Dissanayake challenged the circumstances of the vessel’s arrival in Sri Lankan waters. The IRIS Dena had been a guest of the Indian Navy during the MILAN-2026 exercises just days prior. Dissanayake alleged that at the conclusion of the fleet review, the vessel was effectively ‘put out’ of India, leaving the crew with no choice but to steer toward Sri Lanka.
“This was a deliberate attempt by the host to put a guest in harm’s way,” Dissanayake charged, stopping just short of naming India directly while making the implication undeniable. He argued that Sri Lanka had been ‘set up’ to deal with the fallout of a targeted strike that occurred only 11 nautical miles from Galle.
The debate took a darker turn when SJB MP Mujibur Rahman dropped a bombshell regarding the timing of the attack. Rahman alleged that the IRIS Dena had signalled for permission to enter Sri Lankan waters 11 hours before it was struck by U.S. torpedoes.
“Why did the authorities keep silent?” Rahman demanded. He blasted the government for failing to act on humanitarian grounds, suggesting that Colombo’s hesitation provided the necessary window for what U.S. Defense Secretary Pete Hegseth termed a ‘Quiet Death.’ Rahman’s critique painted a picture of a government ensnared in superpower machinations, unable to uphold the principles of the Indian Ocean as a ‘Zone of Peace.’
Responding to the barrage of questions, Cabinet Spokesman Dr. Nalinda Jayatissa confirmed a chilling new development: a second Iranian vessel is currently positioned in the Exclusive Economic Zone (EEZ) off Colombo.
While Jayatissa assured the House that the President and the Security Council are ‘fully aware’ and making ‘necessary interventions’ to protect those on board, the lack of specific details fueled further anxiety. Political analysts suggest that the government’s failure to announce a clear, proactive neutral policy has left it in a state of ‘vacillation,’ unable to decide whether to grant refuge to the second ship or risk another tragedy on its doorstep.
The parliamentary clash was punctuated by the visit of former president Ranil Wickremesinghe to the Iranian Embassy yesterday to offer condolences for the passing of Supreme Leader Ayatollah Ali Khamenei. Wickremesinghe had warned on March 2 – just 48 hours before the sinking – that the current ‘leadership eviction’ methodology in the Middle East could destabilise the Indian Ocean.
As the death toll from the IRIS Dena stands at 87 with 60 still missing, the ‘can of worms’ opened in parliament reveals a nation at a crossroads. The government’s silence during the Dena’s final hours and its current ‘intervention’ with the second vessel will likely define Sri Lanka’s standing in a rapidly fragmenting global order.
As the House adjourned, one question remained hanging in the air: In the face of a superpower conflict, does Sri Lanka have the ‘backbone’ to be truly neutral, or is it merely a spectator to its own maritime destiny?
by Sanath Nanayakkare
-
Features5 days agoBrilliant Navy officer no more
-
Opinion5 days agoSri Lanka – world’s worst facilities for cricket fans
-
News2 days agoLegal experts decry move to demolish STC dining hall
-
Features5 days agoA life in colour and song: Rajika Gamage’s new bird guide captures Sri Lanka’s avian soul
-
Business2 days agoCabinet nod for the removal of Cess tax imposed on imported good
-
Features6 days agoOverseas visits to drum up foreign assistance for Sri Lanka
-
Features6 days agoSri Lanka to Host First-Ever World Congress on Snakes in Landmark Scientific Milestone
-
Latest News2 days agoAround 140 people missing after Iranian navy ship sinks off coast of Sri Lanka
