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CB Governor outlines importance of DDR to protect banks and save overall economy

Published

3 years ago

2023/07/1

Sri Lankan state can’t allow even a small bank to collapse because that will trigger a bank run with a devastating impact on the economy. Governor of the Central Bank of Sri Lanka CBSL) Dr. Nandalal Weerasinghe said, on Thursday night, taking part in a televised discussion.

Dr. Weerasinghe said that Domestic Debt Restructuring (DDR) would have a negative impact on the balance sheet of the Central Bank of Sri Lanka (CBSL) but by doing this the CBSL had ensured that depositors and pension funds were not adversely affected.

The CBSL Governor said that the stability of the banking sector was of utmost importance to the Central Bank during DDR and that was the reason why it insisted on a five-day banking holiday.

“As everyone knows, Treasury bills and Treasury bonds will be affected by restructuring. Pension funds, banks and private individuals have bought most of these bonds and bills. Treasury bills and treasury bonds are traded every day. Shares of banks are traded on the stock exchange every day. When there is uncertainty about bank assets and Treasury bills and Treasury bonds, this allows some people to manipulate the system. We had to stop that until DDR was done. We need approval by Cabinet, parliamentary committees and Parliament. Both the stock market and bond market must not be operational during this time of uncertainty,” he said.

Dr. Weerasinghe said that by giving banks five days, the government had given space for clarity and transparency, which would allow markets to function optimally. He added that until Parliament approved the DDR, there was also uncertainty and that was why Parliament was meeting during holidays for the first time in Sri Lankan history.

He noted that there were 57 million accounts in Sri Lankan banks and that the total deposits were worth over 15 trillion rupees.

“There was speculation about interest rates, haircuts, etc. The banks have invested in bills and bonds. About 36 trillion rupees have been invested in treasury bills and bonds. We have taken off treasury bills and bonds owned by banks from DDR. There is a good reason for that. Banks pay about 50 percent of their income as tax. Banks could not recover loans of about one trillion during the economic crisis. Moratoriums given during COVID also affected the banks. There was no reason to burden them more. We can’t allow even a small bank to collapse because that will trigger a bank run and that will have a devastating impact on the economy,” he said.

Dr. Weerasinghe said that superannuation funds including the Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF) were subject to a 14% tax rate, which was lower than the tax rate imposed on banks.

The DDR proposes the recalling of all existing Treasury bonds from those funds and issuing new bonds in return and those who chose to participate in the Treasury bond exchange had the option of paying a 30% tax instead of the standard 14 percent tax, the CBSL chief said.

“Superannuation funds pay the government 14 percent a year as tax whereas banks pay 50 percent, personal income tax is 36 percent and corporate tax is 28 percent. We need superannuation funds to make a contribution by increasing the duration of bonds and bills and by a reduction in the interest rates they receive. The EPF holders will not be penalised in any way and the interest rates they receive will remain at about 9 percent, which is the rate they had received in the past years on average,” he said.

The CBSL Governor said that due to high inflation, the real value of deposits had reduced. That was why controlling inflation was important and a main responsibility of the Central Bank, he said. Dr. Weerasinghe said the CBSL actions had helped reduce inflation to about 20 percent and inflation would be reduced to about 10 percent during the next two months.

“If we had not stepped in and stemmed the tide of inflation, the value of almost everything would have been wiped out. This is why we increased interest rates. We have also reduced money printing. Money printing means the CBSL increasing the amount of cash circulating in the economy. This is what we did in 2020-early 2022. This is why inflation rose to 70 percent and CBSL holds close to 2.6 billion treasury bills. We have maintained this by stopping unnecessary money printing. We reduced the expansion of credit, that’s why inflation has dropped,” he said.

The CBSL had purchased Treasury bills worth almost 2.6 trillion from the government, and the CBSL was allowing the government to pay back the money in 15 years instead of one year. The government has to pay the CBSL an additional one trillion given as advances. That, too, would be subjected to the above-mentioned concession, Dr. Weerasinghe said. “This will have a serious impact on the balance sheet of the CBSL. But we are in a better position to manage this because we are a special institution.

“The Treasury bills CBSL has taken is the biggest contributor to the DDR. We take this burden so that the deposits of the people are not affected. We are protecting the banking sector. Furthermore, we have rebuilt the trust in the banking sector.”

Treasury Secretary Mahinda Siriwardana said that Sri Lanka’s economic situation had improved, but there was still a long way to go for the country. In mid-2022, state income wasn’t even enough to cover the basic payments the government had to make, i. e. salaries, pensions, welfare, etc., Siriwardana said, adding that thus the Central Bank had been compelled to issue a lot of Treasury bills to find the money needed by the government.

“We could not borrow from foreign sources. The amount of bills has risen to about 2.6 trillion. We can’t go on doing this. Our budgetary and tax proposals last year were to increase income and reduce expenses,” he said,

Siriwardana said the government had to pay significant amounts of funds to pay interest and debt. Sri Lanka only stopped making some external debt repayments in April 2022, but the government kept on paying loans the country had taken from multilateral organisations, like ADB.

“Not only that, but we need to pay for Treasury bonds and bills. Interest and debt repayments apply continuous pressure on us. DDR aims to reduce these pressures by extending the maturity period, reducing interest rates, and convincing people to take a haircut. Our gross financing need compared to GDP is about 34 percent. Once DDR is done, this is reduced to about 13 percent. This is a 20 percent drop, and we have to pay less interest and debt. We can use the savings for other things. We will receive 700 million dollars from the World Bank and with all these things will improve. We can spend more on health, education and welfare. To achieve this, we need DDR and external debt restructuring,” he said.

R.H.S. Samaratunga, Senior Advisor to the President, also addressing the nation, said that there had been many issues with the Sri Lankan economy for a long time, and things became extremely bad in the past few years due to a combination of wrong economic policies of the Gotabaya Rajapaksa administration as well as developments that took place internationally. By early 2022, the economy had spiralled out of control.

“The economy shrunk, and we had to default in April 2022. There were no feasible alternatives to defaulting, and the government went to the IMF. Sri Lanka held discussions with our creditors for seven months to obtain credit assurances from them. IMF funding only came after we obtained credit assurances from our creditors. Sri Lanka’s total debt stock is over 83 billion US dollars. Out of this, domestic debt is about 42 billion. This debt has to be restructured so that the county can move on,” he said. (RK)

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Heat Index at Caution Level in the Western, Sabaragamuwa and North-western provinces and Monaragala district.

Published

55 mins ago

2026/03/10

Priyan

Warm Weather Advisory issued by the Natural Hazards Early Warning Centre of the Department of Meteorology at 3.30 p.m. on 09 March 2026, valid for 10 March 2026.

The public are warned that the Heat index, the temperature felt on the human body is likely to increase up to ‘Caution level’ at some places in Western, Sabaragamuwa and North-western provinces and in Monaragala district.

The Heat Index Forecast is calculated by using relative humidity and maximum temperature and this is the condition that is felt on your body.

This is not the forecast of maximum temperature. It is generated by the Department of Meteorology for the next day period and prepared by using global numerical weather prediction model data.

Effect of the heat index on the human body is mentioned in the above table and it is prepared on the advice of the Ministry of Health and Indigenous Medical Services.

ACTION REQUIRED
Job sites: Stay hydrated and takes breaks in the shade as often as possible.
Indoors: Check up on the elderly and the sick.
Vehicles: Never leave children unattended.
Outdoors: Limit strenuous outdoor activities, find shade and stay hydrated.
Dress: Wear lightweight and white or light-colored clothing.

Note:
In addition, please refer to advisories issued by the Disaster Preparedness & Response Division, Ministry of Health in this regard as well. For further clarifications please contact 011-7446491.

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Prof. Dunusinghe warns Lanka at serious risk due to ME war

Published

3 hours ago

2026/03/10

Sahan Weerasooriya

Prof. Priyanga Dunusinghe

Prof. Priyanga Dunusinghe has warned that Sri Lanka could face a catastrophic situation due to a rapid and sharp drop in revenue caused by the escalating Gulf war.

Appearing on Derana ‘Big Focus’ yesterday, the Professor in Economics in the Department of Economics, and Head – Department of Information Technology, University of Colombo, Dunusinghe said that that drop in remittances from the Middle East, as well as exports, should be examined against the backdrop of runaway oil prices.

Dunusinghe said so responding to interviewer Pasan de Silva who sought expert opinion on the crisis. Referring to continuing Iranian retaliatory attacks on Gulf countries hosting US military bases, the academic pointed out that approximately one million Sri Lankans were employed in the region.

Global oil prices rose to over $100 per barrel on 08 March, for the first time since the Russia-Ukraine war erupted in February 2022. By noon prices were around USD 115 per barrel.

If a consensus couldn’t be reached soon, the consequences for Sri Lanka would be devastating, Dunusinghe said, suggesting that the government should seriously consider, what he called, a relatively small but immediate fuel hike to cushion the impact of future fuel price hikes.

Dunusinghe explained that in addition to the drop in remittances from the Middle East, Sri Lanka could lose employment opportunities in the war devastated region. Responding to the interviewer, the Prof said that if the situation further deteriorated the government would have to face the daunting challenge of evacuating Sri Lankans from the Middle East.

Referring to the devastating impact of Cyclone Ditwah, Dunusinghe pointed out that in terms of the agreement with the IMF, finalised in 2023, the debt repayment would have to be recommenced in 2028. The new Middle East war has placed the country in an extremely difficult situation, Dunusinghe said, while emphasising the responsibility on the part of the government to address the issues at hand immediately.

The rapidly changing oil markets indicated that regardless of optimism expressed by the US and Israel of swift victory, the ground realities were quite different, the academic said.

By Shamindra Ferdinando

News

Power sector restructuring completed; new state-owned entities established: Govt.

Published

3 hours ago

2026/03/10

Sahan Weerasooriya

The NPP governmnet has completed a major restructuring of its power sector, marking one of the most significant transformations in the country’s electricity industry in recent times, Minister of Power and Energy Engineer Kumara Jayakody says.

Addressing directors and senior officials of the newly established institutions in the power sector, while also connecting with employees of the new entities, via Zoom, the Minister said the restructuring programme had now been fully implemented with the objective of strengthening the sector, while ensuring continued state ownership.

Jayakody said the reforms represented a decisive step towards building a stronger and more resilient electricity sector, capable of meeting both present and future challenges facing the country.

“We have completed the restructuring programme that marks one of the biggest transformations in Sri Lanka’s power sector. Let us work together with dedication and commitment, within the newly established institutions, to realise the dream of ‘a prosperous country and a beautiful life,’” the Minister said.

The Minister stressed that the current government had reversed earlier attempts, by the previous administration, to break up the Ceylon Electricity Board (CEB) into 12 entities, as part of a privatisation drive.

Instead, he said, the government had established several new companies that would remain 100 percent state-owned, thereby safeguarding public ownership of the electricity sector, while introducing the structural reforms needed to modernise and strengthen the industry.

According to Jayakody, the restructuring initiative was carefully designed to ensure that the electricity sector would remain under state control while being equipped with the institutional capacity required to address emerging energy demands, technological changes and economic pressures.

He noted that one of the government’s key priorities, during the reform process, had been the protection of employee rights and privileges.

“As a government representing working people, we paid special attention to protecting the rights and benefits of employees. We assure you that the privileges and rights enjoyed by you as CEB employees will continue without even the slightest reduction when you join the new institutions,” the Minister said.

He added that the government had also taken steps to address long-standing grievances raised by employees and trade unions in the power sector.

Jayakody said many of the demands made by workers over the years had now been fulfilled, including some that had not yet been formally requested by unions or employee representatives.

“Many of the issues raised by workers in the past have now been resolved. In some instances, the government moved to address concerns even before they were formally requested by employees or trade unions,” he said.

The Minister also noted that throughout the restructuring process, the government had maintained a regular dialogue with trade unions representing workers in the electricity sector.

He said the authorities had held discussions with union representatives on several occasions and listened to their concerns before finalising key aspects of the restructuring programme.

Jayakody emphasised that the establishment of the new institutions represented a significant milestones in the development of Sri Lanka’s electricity sector.

“At this important moment, when a major step is being taken towards the development of the country’s power sector, I invite all of you to treat this as a national mission and make the fullest use of the opportunities available within these new institutions,” he said.

The Minister also expressed his appreciation to all those who had contributed to the successful completion of the restructuring programme.

He said the transformation of the electricity sector had required the cooperation and commitment of many stakeholders, including officials, employees and policymakers.

Energy sector analysts say the restructuring of the power sector is expected to play a critical role in improving efficiency, governance and long-term planning in electricity generation, transmission and distribution.

Sri Lanka’s electricity industry has faced several challenges in recent years, including rising fuel costs, supply disruptions and the need for increased investment in renewable energy and grid infrastructure.

Officials say the new institutional framework is expected to enhance operational efficiency while ensuring that the strategic assets of the electricity sector remain under state ownership.

The government maintains that the restructuring programme will ultimately strengthen the country’s energy security while supporting broader economic development.

By Ifham Nizam