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Fitch: Onus on debt negotiations after Sri Lanka’s IMF Staff Agreement
The IMF staff-level agreement with Sri Lanka on a USD2.9 billion programme, confirmed on 1 September, appears to signal a sharp change in policy settings in order to achieve macroeconomic stability, including through large fiscal adjustment, greater exchange-rate flexibility and more central bank autonomy, says Fitch Ratings. This should facilitate negotiations with official and private creditors, but the timing of any debt restructuring agreement remains uncertain.
The Extended Fund Facility will not be approved by the IMF’s Executive Board until the government has implemented a number of agreed prior actions (not publicly specified), financing assurances have been received from official creditors, and good faith efforts have been made to reach agreement with private creditors. The IMF has assessed Sri Lanka’s debt burden as unsustainable, so the outcome of negotiations with creditors should involve debt relief.
Tax reform will be an important element of the agreed programme. Personal income tax will be made more progressive and corporate income tax and VAT will be broadened, with a goal of achieving a primary fiscal surplus of 2.3% of GDP by 2025, compared with a deficit of 5.7% in 2021.
In line with this, the interim 2022 budget unveiled by the new government on 30 August laid out plans to raise the standard rate of VAT to 15% from 12% from 1 September, and proposed compulsory tax registration for all residents aged over 18 years. The budget sought to raise government revenue/GDP from 8.2% in 2021 to 15% by 2025, and to reduce public debt/GDP from around 110% at end-2021 to not more than 100% in the medium term. The revised budget deficit for 2022 is projected at 9.8% of GDP, up from 8.8% of GDP in the original 2022 budget.
We believe the government has some room to reduce capex, but its non-discretionary expenditure is large. Interest payments and wages were equivalent to 1.3x government revenue in 2021. We expect additional revenue raising to be the main driver of fiscal consolidation, but the budget signalled there will be reallocation of expenditure towards social spending to cushion the effects of the economic crisis.
Political instability will pose risks to the implementation of reforms and the distribution of IMF funding, even if a debt restructuring is agreed. Additional social spending may not be sufficient to prevent public opposition, particularly given that the government’s public support appears weak, in our assessment, and that the economic growth recovery in 2023-2024 will be constrained by the strong fiscal consolidation.
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New prison regulations for monks serving jail terms soon: President’s Office
The Presidential Secretariat (PS) yesterday said that prison regulations concerning Buddhist monks serving prison sentences were expected to be adopted within the next two weeks.
The PS said: “Once they come into effect, arrangements will be made for Buddhist monks to be taken outside prison in their robes, based on the recommendation of the relevant Nikaya or chapter.”
The process to amend prison regulations was initiated on 08 October following discussions between President Anura Kumara Dissanayake and the Maha Sangha. The President called the meeting amidst controversy over producing General Secretary of Bodu Bala Sena (BBS) Ven. Galagodaaththe Gnanasara in civilian attire in court.
A special five-member Committee was in the process of studying the current regulations and standing orders under the Prisons Ordinance, the PS said.
The Committee is chaired by Prince Senadheera, Secretary to the Ministry of Buddhasasana, Religious and Cultural Affairs. Its other members are Piyumanthi Peiris, Additional Secretary to the Ministry of Justice, Wasantha Ariyaratne, Additional Secretary to the Ministry of Public Administration, R. M. G. Senaratne, Commissioner-General of Buddhist Affairs, and A.C. Gajanayake, Commissioner-General of Prisons.
The first meeting of the special Committee was held at the Presidential Secretariat on the 9th, chaired by Prince Senadheera. Attorney-at-Law Harshana Nanayakkara, Minister of Justice and National Integration, provided the necessary policy guidance for the Committee’s work.
The proposals concerning Buddhist monks would be presented to the Maha Sangha by the middle of next week to obtain their views and recommendations before their implementation, PS stated.
News
CP alleges NPP has taken the blame for illegal US sanctions on Iranian vessels
The Communist Party of Sri Lanka (CPSL) has alleged that the ruling UNP, in a ridiculous bid to whitewash illegal US sanctions on Iranian oil carriers stranded off Sri Lanka, has taken on itself the blame for refusing to supply humanitarian aid to the trapped crews of the oil tankers.
The text of the statement issued by Dr. G. Weerasinghe,
General Secretary, CPSL: “The Communist Party of Sri Lanka condemns the attempts by the USA to prevent essential supplies of food and water to the 19-20 Iranian oil tankers stranded off the coast, which are running short of food, fuel, and fresh water. It urges the Government of Sri Lanka to face up to the criminal actions of the US Government and do its duty under international humanitarian law.
On 30 September 2026, the Wall Street Journal reported that US officials had threatened Sri Lanka with sanctions if it continued supplying the tankers. These tankers (stranded about 24 km off Sri Lanka, within the Exclusive Economic Zone) which already discharged their cargoes, are empty and unable to return to Iran owing to the illegal war being waged against that country by the USA and Israel.
In response to this report, on 4 October, Foreign Minister Vijitha Herath denied that Washington put pressure on the Government of Sri Lanka which, he claimed, always abides by international maritime law. However, he clarified that the Government would enforce US sanctions.
A US Embassy spokesman had earlier stated that Washington is working with allies to cut off “illicit Iranian revenue,” warning that supplying fuel, food, or provisions to sanctioned vessels could expose companies and individuals to US sanctions, including civil or criminal penalties.
Furthermore, from 9-11 September, the US Embassy in Colombo carried out a three-day maritime sanctions compliance workshop. Officers of the Sri Lanka Navy and Coastguard, as well as officials of the Ministry of Defence, Central Bank, Ports Authority and Merchant Shipping Secretariat, participated in this workshop. The officials were warned that any services (including fuel, food, or water) rendered to US-sanctioned vessels, such as the Iranian-linked tankers stranded off Sri Lanka’s coast, could expose companies and individuals to secondary sanctions, civil penalties, or criminal liability.
In fact, it is actions of the USA which are illicit. The US-imposed unilateral and secondary sanctions violate international law, sovereign equality, and the principle of non-intervention. Furthermore, the unprovoked US-Israeli aggression against Iran itself, which had shown no belligerent intent, is illegal in international law. Participation of government officers in the workshop itself is controversial.
According to unofficial reports, Sri Lanka’s national security establishment objected to the demands made by US officials and urged the government to lodge a protest with Washington, pointing out that under UNCLOS Article 98, SOLAS 1974, and the SAR Convention 1979, Sri Lanka is obligated to assist the crews.
However, the response of the National People’s Power (NPP) regime has been to attempt to whitewash the illegal actions of the USA and to take on itself the blame for refusing to supply humanitarian aid to the trapped crews of the oil tankers.
The pusillanimous behaviour of the NPP regime rips aside any pretence that it is in any way progressive or patriotic. Together with its major constituent, the Janatha Vimukthi Peramuna (JVP), it stands exposed as the handmaiden of US President Donald Trump’s reckless, warlike and imperialist foreign policy establishment. It begs the question whether the Government has signed secret war-related deals with the USA and thereby ditched Sri Lanka’s 70-year history of non-alignment.
The Communist Party of Sri Lanka, therefore, condemns these illegal attempts by the USA to prevent Sri Lanka from carrying out its humanitarian duty. It calls upon the Government of Sri Lanka to abide by international humanitarian law, work-out suitable strategies and to supply the stranded crews with essential supplies, including food and water. It also calls upon the Government to reveal any secret deals it has entered with the USA.”
News
Ex-Tiger witness claims Ekneligoda proposed to fire missile at MR’s plane
An ex-LTTE cadre Sumathipala Suresh Kumar, alias Thavendran ‘Murali’, has told a three-member bench of the Colombo High Court, hearing the disappearance of media personality Prageeth Ekneligoda, that during the war they discussed plans to assassinate President Mahinda Rajapaksa and a group of government people. The alleged meeting took place in Habarana.
The bench consisted of A.G.U.S. N. K. Seneviratne (Chairperson), Dr. Nalin Hewawasam and Lakmali Hewawasam.Kumar said so giving evidence as the fourth witness on behalf of first, second and sixth accused in this case.
Ekneligoda disappeared on the eve of 2010 January 26 presidential election.
Kumar told court that Ekneligoda proposed to fire a missile at an aircraft carrying President Rajapaksa and other top people. There had been another person, identified as Nadan, there.
Asked by the prosecution whether he served as a leader of LTTE intelligence at the time he met Ekneligoda, Kumar said that he was a prisoner at that time. The witness claimed that he had gone with the Army and it was his first visit to that place where the meeting took place.
When the prosecution proposed that what he said was not true, Kumar denied that.
The nine accused are Army officers and men, including Lieutenant Colonel Shammi Arjun Kumararatne. The others are R.M.P.K. Rajapaksa alias Nathan, W.V. Priyantha Dilanjan Upasena alias Suresh, Seneviratne Mudiyanselage Ravindra Rupasena alias Ranji, Yapa Mudiyanselage Chaminda Kumara Abeyratne, Seneviratne Mudiyanselage Kanishka Gunaratne, Aiyasami Balasubramaniyam, Dangaha Gamaralage Tharanga Prasad Gamage and T.E.R. Peiris.
The fourth witness surrendered to the Army in May 2009 and during investigations it transpired that he was used by Military Intelligence to contact Ekneligoda in a bid to ascertain his intention during the presidential polls campaign.
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