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Verite shows how Lanka can achieve sustainable debt dynamics

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Verité Research, a private think tank that provides strategic analysis for Asia, hosted the online discussion Steering out of the Debt Crisis: Recipe for Budget 2022 on Oct 14. The event was anchored around addressing Sri Lanka’s debt and USD liquidity crisis, and featured presentations by Executive Director, Nishan de Mel, Research Director, Deshal de Mel, and Analyst Anushan Kapilan. An expert panel included Dr. Shantayanan Devaranjan (Georgetown University), Dr. Nandalal Weerasinghe (former Senior Deputy Governor – CBSL) and Dr. Mick Moore (Institute of Development Studies – UK).

A press release issued by the think tank said: Verité Research presented analysis pertaining to debt management and fiscal measures, including specific proposals to increase government revenue and improve the allocation of expenditure.

The Verité Research analysis showed that Sri Lanka can achieve sustainable debt dynamics by meeting two conditions with regard to its domestic debt, and two further conditions with regard to its foreign debt. The presentation explained that, despite some challenges, achieving these conditions was feasible for Sri Lanka – provided policy-makers choose to do so.

The main challenges arise from poorly formulated fiscal/budget measures, coupled with the pandemic-induced setbacks which have resulted in successive downgrades of Sri Lanka’s credit ratings. As a result, Sri Lanka has been locked out of global capital markets, and rapidly depleted its foreign reserves, as it has continued to pay back foreign bondholders, at the expense of negative feedback on the local economy.

The Verité Research analysis showed that the worst is yet to come. Sri Lanka’s foreign reserve would be completely depleted by the end of 2022 if no surprise inflows materialise, and even if they did, the crisis would simply re-emerge in 2023. This means that even if Sri Lanka can claim to be technically solvent, it does not have the liquidity to sustainably pay back its foreign debt until the country credit rating is improved by at least two notches.

The current path of repaying debt offers a high return to bondholders at the expense of huge pain to domestic businesses and consumers, and makes the credit rating outlook even more precarious. The solution is to share the pain with bondholders by pre-emptively restructuring the debt. This can improve the foreign reserve position more quickly, and thereby improve the country’s credit rating more quickly as well. This alternative path is less painful to the local economy, offers a faster recovery, with a higher probability of success. It is a better path for the Sri Lankan economy than repaying foreign bondholders in full, even if it were able to do so.

A clear distinction needs to be made between a forced restructuring which would occur if a country were to default in a disorderly way without negotiating with creditors, and an orderly pre-emptive restructuring of debt following negotiations with creditors. The sooner Sri Lanka moves to an orderly pre-emptive debt restructure, the easier it would be to do so, and the more favourable it would be for the Sri Lankan economy. Delaying the decision is damaging and can result in outcomes that are highly disruptive.

Currently the primary deficit is at 7.4% of GDP. At the current GDP growth rate of a little under 4% (predicted by Verité Research), it is necessary to reduce the primary deficit to around 2% of GDP or less to help stabilise the debt.

The Verité Research analysis showed that in the base case scenario with no policy changes, the debt to GDP Ratio would increase to 123.08% by 2025, however with prudent fiscal measures it can be kept down to 108.8% by 2025.

The fiscal measures proposed included the reduction of the personal income threshold to LKR 1 Mn per Annum; the reintroduction of PAYE with a threshold of LKR 1.5Mn; reintroduction of WHT on interest income; increasing the VAT rate to 10% in 2022 and to 12% in 2023; reducing the VAT free thresholds from LKR 300 Mn to LKR 150 Mn in 2022; simplifying the corporate tax regime to a three-tier regime; and increasing the total taxes on cigarettes and alcohol in line with increases in inflation and GDP according to a tobacco taxation formula introduced in the 2019 budget.



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Where is Gnanasara Thera?Police pass buck to court

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Gnanasara Thera

by Norman Palihawadane

Bodu Bala Sena (BBS) General Secretary Ven. Galagoda Aththe Gnanasara Thera’s whereabouts have remained unknown since the Supreme Court, on Monday, annulled a presidential pardon granted to him in 2019.

Prison officers visited the Thera’s temple in Nawala, Rajagiriya, to take steps to return him to prison to serve the unexpired portion of his six-year sentence. However, monks at the temple had reportedly informed the officials that they were unaware of his whereabouts.

Police spokesman ASP F.U. Wootler said a separate court order was required for the police to trace the Thera, or assist in taking him into prison custody. No such order had been issued so far, he claimed.

Meanwhile, sources close to Gnanasara Thera said he was expected to attend a book launch in Colombo tomorrow (17),

The development follows the Supreme Court declaring the 2019 presidential pardon granted to Gnanasara Thera, by then President Maithripala Sirisena, null and void.

A three-member Supreme Court bench held that the pardon had been granted arbitrarily and violated public trust and principles of natural justice.

Gnanasara Thera had been serving a six-year prison sentence for contempt of court when the then President Sirisena granted him the pardon, in May, 2019. He had served only about nine months of the sentence at the time.

With the pardon annulled, the original sentence remains in force and the Thera is now required to serve the balance of his six-year term.

The Supreme Court ruling has raised questions over the procedure to be followed to return him to prison, with police and prison authorities yet to take custody of him.

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Russian citizens in Lanka to vote in State Duma elections

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Chandana Ruwan Jayanetti, Director of the Advanced Technological Institute, Galle, presented a copy of his new book POEMS FROM GALLE, to Prime Minister Dr. Harini Amarasuriya in her office in Parliament last Friday (11). Dr. Hiniduma Sunil Senevi, Minister of Buddhasasana, Religious and Cultural Affairs, is also in the picture.

Russian citizens residing or temporarily visiting Sri Lanka will have the opportunity to cast their ballots in the elections to the State Duma of the Federal Assembly of the Russian Federation on September 20.

The Embassy of the Russian Federation in Sri Lanka said polling would be held at polling station No. 8338 at the Russian Embassy, 404, Bauddhaloka Mawatha, Colombo 07.

The polling station will be open from 8 a.m. to 8 p.m. on September 20, according to the Embassy.

Russian citizens aged 18 and above, including those permanently residing in Sri Lanka and those temporarily visiting the country, are eligible to vote, the Embassy said.

Voters are required to visit the polling station during its operating hours and produce documents certifying their Russian citizenship.

The Embassy said prior registration was not required to participate in the voting.

The election will be held to elect deputies to the ninth convocation of the State Duma, the lower house of Russia’s Federal Assembly.

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Euro 110,000 research drive to tackle plastic waste in food sector

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Grant agreement signed by Mahmoud Gaballah, Project Manager at Expertise France and Sr. Prof. Pasdunkorale Arachchige Jayantha, Vice-Chancellor of the University of Ruhuna

Plastic waste is a growing challenge for Sri Lanka’s food sector, yet important gaps remain in understanding where and how single-use plastics are used, how they move through food value chains, and where interventions could have the greatest impact.

Through the European Union-funded CIRCULAR project, new research will help address these gaps by generating evidence to inform policy, business practices and more sustainable choices. Three research grants, totalling €Euro 110,000, will support university-led studies by research teams from the Faculty of Agriculture at the University of Ruhuna, and the Faculty of Medicine and Faculty of Computing at the University of Kelaniya.

Together, the studies will examine the use, flow and impacts of single-use plastics (SUPs) across selected food and beverage value chains in the Colombo and Galle Districts. The research will also seek to identify practical opportunities to reduce plastic use, promote more sustainable alternatives and strengthen circular economy practices.

At present, available data on plastic waste in Sri Lanka, particularly single-use plastics, do not provide sufficient detail on the sectors, sources and types of plastics involved. This limits the ability of policymakers, businesses and other stakeholders to pinpoint where plastic use can be reduced most effectively and to assess which interventions could deliver the greatest impact. The new research will help provide a more detailed understanding of these patterns, supporting more targeted and evidence-based action.

The three research teams will use a combination of data collection, waste-flow mapping, environmental and public health assessments, and life-cycle approaches to examine these challenges from different perspectives. The findings are expected to help identify opportunities to reduce plastic use, improve resource efficiency and promote more sustainable packaging and waste management practices.

The research grants are part of the CIRCULAR project’s broader efforts to support Sri Lanka’s transition towards more sustainable production and consumption in the food sector. Alongside research and evidence generation, the project works to raise awareness, encourage behaviour change and support approaches that move away from the traditional “take, make and dispose” model towards a more circular economy.

Circular Economy in the Food Sector (CIRCULAR) project is a three-year initiative focused on reducing food loss and food waste (FLW) and Single-use plastic (SUP) waste in the Food Sector in Sri Lanka. Funded by the European Union, and partially co-funded by the German Federal Ministry for Economic Cooperation and Development (BMZ), the project is jointly implemented by Expertise France (EF), the Food and Agriculture Organisation (FAO) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.

By strengthening the evidence base on single-use plastics, the research is expected to provide a stronger foundation for practical action, helping decision-makers, businesses and other stakeholders better understand where change is needed and how more sustainable solutions can be put into practice.

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