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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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Iranian ships stranded, Lanka fears US sanctions
‘Companies may face US sanctions’: Lanka to put ‘national interest’ first as 19 Iranian vessels seek help
(ToI) Sri Lanka said on Friday it would “prioritise our national interests” before providing assistance to the crews of 19 Iranian ships anchored in international waters near the island nation.The crews are facing shortages of food, water and fuel. A foreign ministry spokesperson cited the risk of US sanctions against Sri Lankan companies supplying the vessels as a key concern.
The United States and Iran have been at war since February 28, when the US and Israel launched joint strikes against the Islamic Republic.
“Sri Lanka will put its national interest first before considering any help, and the companies that supply ships are aware of possible secondary sanctions from the United States,” spokesperson Thushara Rodrigo told reporters, ruling out any immediate assistance to the vessels.
Rodrigo clarified, however, that Sri Lanka had received no communication from the United States warning of repercussions if it decided to assist the vessels.According to Rodrigo, the ships are stationed 24 nautical miles off Sri Lanka’s coast.The Iranian Embassy said it had no information on the matter.
In March, a US torpedo attack sank the Iranian naval vessel IRIS Dena in Sri Lankan waters, killing 87 sailors.
The ship was returning to Iran after participating in a naval exercise at India’s invitation. A second Iranian vessel was brought to a Sri Lankan port after its crew reported technical problems.
Wounded sailors were treated at Sri Lankan hospitals, while those rescued from the second vessel were safely repatriated to Iran.
Sri Lanka is still recovering from an economic crisis, with both the United States and Iran serving as important trading partners. Washington played a key role in securing an International Monetary Fund bailout and supporting Sri Lanka’s agricultural sector to help avert a food crisis.
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Sri Lanka CERT warns of overseas university admission scams
Sri Lanka CERT has warned the public of fraudulent social media advertisements offering admission to foreign universities after receiving complaints from parents and students who have lost hundreds of thousands of rupees to scammers.
The fraudsters reportedly pose as representatives of reputed foreign universities, promising admission, student visas, work permits and even eventual citizenship in return for registration fees and initial tuition payments.
They use convincing videos, photographs and documents circulated via email and WhatsApp to gain the confidence of unsuspecting victims before asking them to transfer money to foreign bank accounts. The scammers then disappear after receiving the payments, Sri Lanka CERT said.
The agency has urged prospective students and their parents to verify the authenticity of university representatives, documents and bank account details before making payments, and to seek overseas education opportunities only through legitimate and recognised channels.
News
Navi Pillay’s Lankan affairs in focus as she wins 2026 Nobel Peace Prize
Former UN High Commissioner for Human Rights and International Court of Justice judge Navanethem “Navi” Pillay has won the 2026 Nobel Peace Prize for her contribution to international law and efforts to promote peace, the Norwegian Nobel Committee announced in Oslo on Friday.
Announcing the award, committee chairman Jørgen Watne Frydnes said Pillay had “significantly enlarged the scope and impact of international law” and helped advance “a more comprehensive global legal order” with exceptional courage. He also praised her long career, which began as a lawyer confronting deep-rooted discrimination in South Africa, and described her as a person with a “firm moral compass”.
Pillay, 85, served as the UN High Commissioner for Human Rights from 2008 to 2014. Her tenure brought her into sharp focus in Sri Lanka, particularly over her assessment of the country’s human rights situation in the aftermath of the decades-long civil war.
During an official fact-finding visit to Sri Lanka from August 25 to 31, 2013, Pillay travelled to areas including Jaffna, Kilinochchi and Trincomalee, where she met civil war survivors, families of the disappeared and local communities.
Following the visit, she warned that Sri Lanka was moving towards authoritarianism and highlighted what she described as a persistent climate of fear.
She also reported intimidation and harassment of people who had sought to meet her during the mission.
Pillay urged the UN Human Rights Council to establish an international inquiry mechanism to investigate alleged war crimes and crimes against humanity committed by both government forces and the LTTE during the final stages of the 26-year civil war.
Her observations and recommendations became a significant part of international scrutiny of Sri Lanka’s post-war human rights record.
The Norwegian Nobel Committee received 287 nominations for this year’s Peace Prize, slightly more than a quarter of them being organisations. The committee traditionally considers efforts to promote peace, international fraternity and institutions that contribute to lasting stability.
Last year, Venezuelan opposition leader Maria Corina Machado won the prize for her campaign for a democratic transition in Venezuela. She was praised as a woman who kept the flame of democracy burning amid growing darkness.
The 2026 award marks the 125th anniversary of the Nobel Peace Prize, first presented in 1901. Over its history, the prize has recognised prominent figures and organisations involved in advancing peace, human rights and international cooperation.
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