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

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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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CTU: Teacher shortage casts doubt on govt.’s education reforms

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Prime Minister

By Chaminda Silva

The government’s ambitious plans to overhaul Sri Lanka’s school education system and introduce new curricula could face serious implementation difficulties, with teacher unions warning that a longstanding and severe shortage of teachers remains unresolved.

The warning came as Prime Minister Dr. Harini Amarasuriya announced yesterday that new curricula would be introduced for Grades 2 and 6 next year, while also stating that the government planned to recruit around 30,000 new teachers across the education system by February.

However, the Ceylon Teachers’ Union (CTU) questioned whether the government would be able to provide the teachers required to implement the proposed reforms, claiming that the recruitment process itself had become mired in problems.

CTU General Secretary Joseph Stalin accused the government of making misleading claims about teacher recruitment and said the shortage that had affected schools for more than a year would continue into next year.

“There is currently a severe teacher shortage in the school system,” Stalin told a press conference in Colombo yesterday.

He said the government had previously acknowledged that there were about 46,000 teacher vacancies in the school system, but the figure was later revised to around 36,000.

“Those vacancies have remained unfilled for more than a year and a half. The school system has continued to operate with a severe teacher shortage throughout this period,” he said.

Stalin questioned how the government intended to introduce new curricula while thousands of existing teaching vacancies remained unfilled.

He said the Government had initially announced plans to recruit 23,000 teachers, despite the number of vacancies being significantly higher.

Although a gazette notification, relating to the recruitment had been issued, only around 17,000 applicants had been summoned for the initial round of interviews, he added.

Stalin said interviews were expected to begin in November and that appointments would, therefore, be made only from January onwards.

“If there are more than 36,000 teacher vacancies, the Government has decided to recruit only 23,000 teachers, and only around 17,000 have been called for interviews.

Who will take responsibility for the remaining vacancies?” he asked.

He said the problem was not merely one of numbers but also involved the Government’s recruitment procedure.

According to Stalin, shortcomings and ambiguities in the gazette notification issued for the recruitment examination had contributed to the present crisis.

“We primarily believe that the lack of proper procedures in the gazette notification issued for the recruitment examinations has contributed to this crisis. The ambiguities in the notification itself have led to the recruitment process becoming a major issue,” he said.

The shortage was also affecting the transfer system, Stalin mentioned.

A large number of teachers had been unable to obtain transfers because replacements were not available, with some teachers remaining at the same school for 12 or 13 years, he claimed.

As replacements had not been recruited, such teachers would have to remain at their present schools for another year, he said.

“This is a serious crisis. However, the situation is even more critical for students who are left without teachers,” Stalin said.

He also questioned the Government’s plans to close schools with fewer than 50 students.

“We suspect that this move is to take the teachers from these schools and redeploy them to other schools to fill vacancies there.”

The union’s concerns come at a time when the Government is pushing ahead with a major overhaul of the education system.

Addressing the Badulla District Women’s Conference yesterday, Prime Minister Amarasuriya said the Government would introduce new curricula for Grades 2 and 6 next year as part of its wider education reforms.

She said a new curriculum had already been introduced for Grade 1 this year, while new curricula for Grades 2 and 6 would be introduced over the next two years.

The Prime Minister said the Government was developing a new education system aimed at securing the future of all children, with the emphasis shifting away from producing students, focused solely on examinations.

The Government’s objective was to nurture a generation capable of facing future challenges successfully and confidently, she said.

The Prime Minister also announced that interviews for the recruitment of 17,000 teachers would commence on November 20.

She said approval had also been granted to recruit 2,000 academic staff members for the university system, with that recruitment process already under way.

The Government plans to recruit approximately 30,000 new teachers across the education system by February next year, she said.

A special programme would also be implemented to improve infrastructure facilities in schools, the Prime Minister added.

The contrasting positions highlight a potentially significant gap between the Government’s education reform timetable and the capacity of the existing school system to deliver it.

While the Government has set out a timetable for introducing new curricula and recruiting tens of thousands of teachers, the CTU argues that the existing shortage, delays in recruitment and unresolved transfer problems could leave schools struggling to provide adequate teaching staff when the reforms take effect.

With the Government planning to introduce another round of curriculum changes next year, the ability to fill vacancies in time could, therefore, become a crucial test of whether its broader education reform programme can be implemented as planned.

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Norochcholai to remain offline for several days after blackout

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The Norochcholai coal power plant will remain disconnected from the national grid for several days following Saturday’s countrywide power failure, as authorities continue to follow safety procedures after the incident.

The National System Operator (NSO) said the 810-megawatt plant had been shut down as a precaution after the sudden power outage on October 17 and would not be reconnected to the grid until the necessary safety measures were completed.

The temporary loss of 810 MW of generating capacity would be managed through careful electricity supply arrangements to minimise the impact on consumers over the coming days, the NSO said.

It said the prevailing rainy weather was expected to help sustain hydropower generation at high levels, while a projected decline in electricity demand would further ease pressure on the system.

The countrywide blackout occurred at around 11.43 a.m. on October 17 after a generating unit disconnected from the national grid, creating an imbalance that caused the entire power system to collapse within less than 30 seconds.

Restoration efforts began shortly afterwards. By 12.11 p.m., major hydropower generating units had been brought back online and the power system was restarted simultaneously in four separate sections.

The restoration process was complicated by small-scale power generation facilities that were not under the direct control of the system control centre. However, electricity supplies were progressively restored through the activation of distribution feeders from 12.37 p.m.

By around 3 p.m., power had been restored to essential services, including major hospitals, water treatment plants and the airport.

Grid substations across the country had been reconnected by around 5 p.m., restoring electricity to the majority of consumers, the NSO said.

The operator stressed that the sudden disconnection of a generating unit as a safety measure was a normal occurrence at power plants. However, such a disconnection resulting in a complete collapse of the national power system was not considered normal.

An internal investigation has, therefore, been launched to establish the sequence of events that led to the islandwide outage and determine its underlying causes, the NSO said.

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President links businessman held with arms to politicians

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By Norman Palihawadane

President Anura Kumara Dissanayake yesterday said a businessman, arrested with a caches of firearms, ammunition and hand grenades, had links to a politician, as authorities continued investigations into the seizure.

Addressing a public gathering in Badulla, the President said the suspect was among those being investigated in connection with operations targeting organised crime and that authorities were aware of his political connections.

He also referred to a video footage allegedly showing the suspect firing at people in the Weliweriya area, describing it as an example of the dangerous activities associated with individuals possessing illegal firearms.

The 38-year-old businessman, who is reportedly the owner of a cinema, and a relative of a politician, was arrested following a search conducted by officers of the Colombo District Crime Division at the cinema on Hanwella Road, in the Kirindiwela Police Division, on October 17.

Police said the search had been carried out based on information received by investigators.

The weapons and ammunition seized included two foreign-made pistols, a revolver, a foreign-made repeater firearm and a foreign-made 12-bore firearm.

Police also recovered hundreds of rounds of ammunition, including 398 rounds of 12-bore ammunition, 278 rounds of 9mm ammunition, 49 rounds of .32-calibre ammunition and 3,083 rounds of .22-calibre ammunition, along with two live hand grenades.

The suspect, a resident of the Millathe area, is being questioned as investigations continue.

The Police Media Division said police would seek a detention order to facilitate further questioning of the suspect and advance the investigation.

The Colombo District Crime Division is conducting further investigations into the cache of weapons and the suspect’s alleged activities and connections.

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