Connect with us

News

Fitch Downgrades Sri Lanka’s Long-Term Local-Currency IDR to ‘CC’

Published

on

FitchRatings has downgraded Sri Lanka’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘CC’, from ‘CCC’, and has affirmed the Long-Term Foreign-Currency IDR at ‘RD’ (Restricted Default). Fitch typically does not assign Outlooks to ratings of ‘CCC+’ or below.

Fitch has also removed the Long-Term Local-Currency IDR from Under Criteria Observation, on which it was placed on 14 July 2022, following the publication of the updated Sovereign Rating Criteria.A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

Challenging Domestic Financing Outlook:Sri Lanka continues to service its local-currency debt, but the downgrade of the Long-Term Local-Currency IDR reflects our view that a local-currency debt default is probable, in view of an untenably high domestic interest payment/revenue ratio, high interest costs, tight domestic financing conditions and rising local-currency debt/GDP in the context of high domestic fiscal financing requirements, which authorities forecast at about 8% of GDP in 2022.

According to authorities, domestic interest payments in 8M22 were LKR718.8 billion, taking the domestic interest/revenue ratio to an estimated 56% in 8M22; the highest among sovereigns rated ‘CCC+’ and below. Reliance on central bank financing has increased, as domestic options are limited. Domestic debt rose to about 53% of government debt by end-July 2022, according to official provisional data. Treasury bill issuance has been increasing. We expect a local debt restructuring would aim to maintain financial system stability, for example, by extending maturities or lowering coupon payments, rather than a reduction in face value. Sri Lanka continues to service its local-currency debt.

External Debt Restructuring:The sovereign remains in default on foreign-currency obligations and has initiated a debt restructuring arrangement with official and private external creditors.The Ministry of Finance issued a statement on 12 April 2022 that it had suspended normal debt servicing of several categories of external debt, including bonds issued in international capital markets, foreign currency-denominated loan agreements and credit facilities with commercial banks and institutional lenders.

Fitch downgraded the Long-Term Foreign-Currency IDR to ‘RD’ following the expiry of the 30-day grace period on coupon payments that were due on 18 April 2022. A staff level agreement with the IMF was reached on 1 September for USD2.9 billion, for 48 months, under the Extended Fund Facility. The facility will not be approved until Sri Lanka has implemented agreed actions, financing assurances have been received from official creditors and good-faith efforts have been made to reach agreement with private creditors. The timing of completion of the external debt restructuring remains uncertain.

Banking Sector Faces Tight Liquidity:Sri Lankan banks’ access to foreign-currency funding is constrained by the sovereign default. Any local-currency debt restructuring would elevate funding and liquidity stress, given the predominance of local-currency funding, at 74% of the total, and large holdings of local currency-denominated government securities. A restructuring could necessitate recapitalisation by the government, though further regulatory forbearance measures could keep banks compliant with regulatory minimums on a reported basis, however, underlying capital positions could stay weak.

Budget Aims for Fiscal Consolidation:In the 2023 budget authorities aim to lower the deficit to 9.8% of GDP in 2022 and 7.9% of GDP in 2023, factoring in high revenue growth and a pickup in spending. It also aims to raise government revenue to 15% of GDP by 2025 and reduce public sector debt to no more than 100% of GDP over the medium term, in line with the IMF’s target of a primary surplus of 2.3% of GDP by 2025. We expect a contraction in GDP in 2023 and so are less optimistic on the government’s fiscal consolidation path. We expect general government debt/GDP to reach around 109% by end-2022.

Political Risks Weigh on Fiscal Outlook:Political instability could threaten reform implementation. The government’s parliamentary position appears strong, but the government lacks public support. This increases the risk of further destabilising protests if economic conditions do not improve or reforms generate public opposition. President Wickremesinghe was prime minister in the previous administration under President Rajapaksa, who was brought down by protests. Parliament and the government also remain dominated by politicians who are affiliated with the Rajapaksa family.

High Inflation: Inflation is high, although it has declined from its September peak of 69.8% as measured by the Colombo Consumer Price Index. We expect headline inflation to fall further in 2023 on easing domestic supply conditions, lower food prices and the impact of policy rate hikes. Risks remain, from a potential commodity-price shock, particularly owing to the war in Ukraine. Financing from the Central Bank has been a key funding source for the government, but a new Central Bank Act, may limit such financing in the future. We believe rate hikes have peaked, after a policy rate hike of 950bp in 2022.

Economy Contracting:Sri Lanka’s economy contracted by a sharp 4.8% yoy in 1H22 and we expect a full-year GDP contraction of 6.0%. There is still uncertainty about the pace of the country’s economic outlook in 2023, partly because the timing of the external debt restructuring is unknown. We forecast growth to contract by 2.2% in 2023 then to pick up in 2024 under our baseline.



Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

News

National Communication Programme for Child Health Promotion (SBCC) has been launched. – PM

Published

on

By

Prime Minister Dr. Harini Amarasuriya stated that the Government has commenced necessary measures to maintain preschool education under a framework, align preschool education with a unified curriculum, conduct teacher training in a systematic manner, and ensure quality standards.

The Prime Minister made these remarks on Saturday (10) at the Temple Trees, participating in the launch of the National Communication Programme for Child Health Promotion, aimed at promoting social and behavioural change (SBCC) among early childhood children. The programme is jointly organized by the Health Promotion Bureau, the Ministry of Women and Child Affairs, the Ministry of Education, Higher Education and Vocational Education, UNICEF, and the Clean Sri Lanka Programme.

Addressing at the event, Prime Minister Dr. Harini Amarasuriya stated:

“Early Childhood Development (ECD) has a major impact on a country’s human development and future progress. It is a widely accepted fact that a child’s future depends largely on early childhood development. Many aspects essential for a child’s growth occur within the first five years of life. The experiences, care, and love a child receives during this period are decisive.

The social integration, relationships, and environmental influences experienced in early childhood form the foundation for shaping an individual as an adult. Early childhood development influences life to an extent that it becomes difficult to change when it grows into adulthood.

The responses of adults to children’s actions, the way they interact with them, and the care they provide are extremely important. Therefore, early childhood development should never be viewed as the sole responsibility of parents. It is a collective responsibility of all citizens.

No child can be raised into a good citizen by parents alone. In all our lives, beyond our parents, there have been many who influenced us, showed us love, and provided care. It is due to the collective support of all these individuals that we have reached where we are today. The government views child care as a social responsibility. Supporting a child, providing care, ensuring protection, education, and health facilities are social responsibilities. In this regard, the intervention of the Clean Sri Lanka Programme to communicate these values to the public is important.

The role of the preschool teachers plays a special and vital role for children. The love, care, attentive listening, and responses children receive during this stage are decisive for their development. Teachers carry out a crucial intervention in the lives of children. An education policy on early childhood development has been formulated, with UNICEF providing technical assistance. Steps are being taken to operate preschool education under a single framework, align it with a unified curriculum, systematically conduct teacher training, and ensure quality standards.

Recognising early childhood development as a specialised area within education, the Prime Minister affirmed that the relevant interventions will be made accordingly.

Addressing the event, Minister of Women and Child Affairs, Ms. Saroja Paulraj stated that the Ministry has identified the standardisation and development of early childhood development as a primary goal for the year 2026. She noted that children who leave the warmth of their mother’s embrace and father’s shoulder and come to preschool teachers expecting the same love and care from their teachers. Conveying that warmth through words and expressions is a responsibility entrusted to teachers. The love and safe environment children receive shape their ability to love the environment and respect others.

Minister of Health and Mass Media,  Nalinda Jayatissa, also addressed the gathering, stating that the goal of the government is to build a beautiful future generation capable of leading the country, free from the various hardships and challenges faced today.

He emphasised that creating a healthy population is a challenge, particularly in preventing non-communicable diseases. Children aged three to five today will become a generation aged 18 to 20 by 2040. Continuous and comprehensive programmes such as this are essential to protect that generation from non-communicable diseases. In some instances, interventions are required even during the preconception and prenatal stages.

He further highlighted that preschool and early childhood development centre teachers shoulder a tremendous responsibility in driving a major transformation in the country’s future.

The event was attended by the Governor of the Sabaragamuwa Province, Ms. Champa Janaki Rajarathne; the Governor of the Uva Province, Attorney-at-Law  Kapila Jayasekara; the Governor of the North Central Province,  Wasantha Jinadasa; the Governor of the North Western Province,  Thissa Kumarsiri Warnasuriya; the Deputy Minister of Women and Child Affairs, Dr. Namal Sudarshana; the Member of Parliament, Dr. Najith Indika; the Representative of the United Nations Children’s Fund (UNICEF) in Sri Lanka, Ms. Emma Brigham; the Secretary to the President, Dr. Nandika Sanath Kumanayake; the Senior Additional Secretary to the President (Finance and Economic Affairs), Mr. Russell Aponsu; the Additional Secretary to the President (Clean Sri Lanka), S. P. C. Sugishwara; Secretaries to Ministries; Provincial Chief Secretaries; the Commanders of the Tri-Forces; officials of subject-related ministries; provincial council officials; preschool teachers; preschool children; and parents.

(Prime Minister’s Media Division)

Continue Reading

News

Level I landslide early warnings issued to the Districts of Badulla, Kandy, Matale and Nuwara-Eliya extended

Published

on

By

The  Landslide Early Warning Centre of the National Building Research Organization (NBRO) has extended the landslide early warnings issued to the Districts of Badulla, Kandy,  Matale and Nuwara-Eliya till 1600hrs today (11).

Accordingly, the LEVEL I YELLOW early warnings issued to the Divisional Secetaries Divisions and surrounding areas of Lunugala, Meegahakiwula,Welimada, Kandaketiya, Hali_Ela, Badulla, Uva  Paranagama in the Badulla district,  Minipe and Ududumbara in the Kandy district, Wilgamuwa, Ukuwela, Ambanganga Korale, Rattota and Laggala_Pallegam in the Matale district, and Nildandahinna,  Walapane, Mathurata and Hanguranketha in the Nuwara-Eliya district will be in force until 1600hrs today (11)

 

Continue Reading

News

Experts: NPP education reforms unsuitable for SL

Published

on

Proposed education reforms have drawn sharp criticism from education professionals, teacher unions and student organisations, who warned on Thursday that the changes risk undermining child safety, widening inequality and imposing unaffordable costs on parents.

Addressing a press conference in Colombo, Dr Ayomi Irugalbandara of the Faculty of Education at the Open University of Sri Lanka said the proposed reforms appeared to be largely modelled on foreign education systems without adequate consideration of local realities.

She took particular issue with proposals to integrate social media use into the school curriculum, noting that several developed countries have moved in the opposite direction by preventing children under the age of 15 from accessing social media platforms.

“Most of these modules are not appropriate for this country,” Dr Irugalbandara said. “We warn parents that these reforms place children at risk.”

Concerns were also raised over digital content linked to the revised curriculum. Inter-University Students’ Federation Convener Madushan Chandrajith said the Grade Six Information and Communication Technology (ICT) module included QR codes that directed students to a controversial YouTube channel.

“Who will take responsibility for children accessing such content?” he asked, calling for clear accountability mechanisms for material linked through digital platforms used in schools.

Secretary of the Workers’ Struggle Centre, Duminda Nagamuwa, criticised the government’s approach to the reform process, comparing it to the fertiliser policy introduced under former President Gotabaya Rajapaksa. He alleged that the authorities were pushing ahead with education reforms despite opposition from academics, teachers and other stakeholders.

Nagamuwa also highlighted the economic burden on families, noting that Sri Lanka’s poverty rate had increased from 12.5 percent to 25 percent. He questioned how parents were expected to afford smartphones or tablet computers required for students to access QR code-linked educational content.

“The government is asking parents to bear costs they simply cannot afford,” he said.

Ceylon Teachers’ Union General Secretary Joseph Stalin said schools had already begun collecting money from parents in anticipation of the reforms, including funds to purchase smart boards.

Continue Reading

Trending