Business
Cabraal and Central Bank responds to debt default fears
Recent commentary on Sri Lanka’s credit outlook ignores the numerous policy initiatives of the Government of Sri Lanka, which have already started yielding results
The Government of Sri Lanka observes that the concerns expressed in the media in reference to recent reports on Sri Lanka’s ability to service its debt obligations by international banks are one sided, and do not take into consideration the numerous of policy measures that have been introduced to revive the economy and ensure macroeconomic stability. These innovative policy measures are not restricted to traditional debt-based solutions to service the current debt obligations. Measures to build resources through non-debt solutions, the preservation of foreign currency resources and the gradual phasing down of the relative share of foreign debt are already yielding desired results, with a high likelihood of harnessing further improvements during the remainder of the year and beyond.
Certain media reports published recently attempts to raise concerns about Sri Lanka’s ability to honour its debt service obligations, based on backward looking and linear assumptions, thus ignoring the expected outcome of the novel policy regime currently in place. While gross official reserves have moderated somewhat since end December 2020, such moderation is not expected to continue. When all relevant facts are considered, it becomes apparent that the fears raised in certain reports are, in fact, merely hypothetical. The Sri Lankan economy, which is over US dollars 80 billion, has major natural and regular sources of foreign exchange inflows, including merchandise and services exports, workers’ remittances, programme and project related inflows, equity investment, and other financial flows. Aided by the post-COVID revival of the economy, such foreign exchange inflows are projected at US dollars 32 billion in 2021, even without major forms of borrowings, such as floating International Sovereign Bonds (ISBs). These projected inflows are expected to increase by about US dollars 2-3 billion annually in the period ahead with the support of well targeted policies and strategies of the Government. At the same time, authorities will continue to take measures to build up official reserves with the help of measures already implemented and further measures as necessary in the period ahead. It is noteworthy that the Government has launched a major drive towards promoting real inflows of foreign exchange through actively facilitating various merchandise and services exports, in both traditional and non-traditional sectors. The import curtailment measures and the steady recovery in export earnings would continue to improve liquidity in the domestic foreign exchange market. Further, envisaged equity investment flows through the Colombo Port City and Industrial Zones and the reprioritisation of project financing would help reduce the share of foreign debt notably in the period ahead, thereby dispelling concerns about debt sustainability.
In this context, settling the maturing ISBs of US dollars 1.0-1.5 billion, per year, over the medium term, need not be viewed as a major source of concern, given the entire stock of outstanding ISBs account for only 16.7 per cent of Sri Lanka’s total government debt as of end February 2021. It is also stressed that lenders in the majority of 83.3 per cent of the debt stock have raised no concern whatsoever about Sri Lanka’s ability to honour debt obligations. The authorities remain committed to honoring all upcoming debt obligations, leaving zero probability of any form of default on any obligation, which would jeopardise the longstanding relations with stakeholders and the impeccable credit history of the country.
The engagement with the International Monetary Fund (IMF) continues at staff level and as a member state in technical exchanges of know-how. Exploration of liquidity facilitation arrangements with regional central banks is also continuing, with some discussions are at an advanced stage.
As indicated in the Budget 2021, the Government has adopted a novel approach in relation to foreign financing, while enhancing the effectiveness of already secured financing channels, aimed at reducing the share of foreign financing of the budget deficit over the medium term. Reflecting the impact of measures already put in place by the Government, the relative share of outstanding external debt has already declined notably. The Government aims to reduce its external debt over the medium term to around a third of the total debt, and already the share of external debt has declined to around 40 per cent by end 2020 from over 48 per cent at end 2019.
The measures introduced to manage non-essential imports helped ease trade deficit to USD 5,978 million in 2020 from USD 7,997 million in 2019. The trade deficit is further expected to shrink in 2021 to around USD 4 billion. Export facilitation is expected to continue through allowing intermediate goods imports unhindered and promoting domestic value chain improvements, which would result in export earnings of about USD 13 billion in 2021.
Additionally, despite the projections of downturn in workers’ remittances, Sri Lanka recorded an increase of over USD 400 million remittances in 2020 with an aggregate of USD 7.1 billion. The policy measures to further incentivise remittances flows were facilitated with the Budget 2021 announcement of an additional Rs. 2 for conversion of per USD remittance, and the banks were required to sell 10 per cent of such remittance conversion to the Central Bank. The Central Bank has already commenced such absorption of conversions into its foreign exchange reserve. Further arrangements to improve foreign currency liquidity have been introduced, including a mandatory conversion of ¼ of export proceeds.
The Government is also in the process of channeling in official credit sources, with priority being envisaged for policy loans with a significantly high liquidity component. In addition, the commercial external financing component of the already lined-up term financing facility and other market financing components are envisaged in line with Budget 2021.
Sri Lanka Development Bonds (SLDBs) and loans of Overseas Banking Units (OBUs) also remain sources of foreign currency financing mainly from domestic foreign currency earning entities. The recently introduced measures to entice foreign investors to the government securities market and the real economy through an attractive foreign exchange swap arrangement are also likely to help enhance foreign currency inflows in the near term.
Real investment flows to the country remain a promising source based on the Colombo Port City related developments. The land reclamation work had been completed and the required legislation is being finalised. In December 2020, the Sri Lankan conglomerate, LOLC Group, signed an agreement with the Port City developers for a Mixed Development Project valued at USD 1 billion, which is set to break ground in mid-2021.
In this context, the Government reiterates its utmost commitment on meeting its external debt obligations, which will be facilitated not only through direct and indirect financing arrangements but also through highlighted policy measures and the current work plan to increase non-debt creating forex inflows.
The Government wishes to reiterate that even in the midst of various concerns raised by many parties on Sri Lanka’s debt service capability at the height of the COVID-19 pandemic, the Government was able to service its total external debt of around USD 4.3 billion in 2020.
The recent research reports indicate different figures of external debt obligations for 2021. The external debt obligations of the Government for 2021 amount to around USD 3.7 billion including the amortisation payments of USD 2.5 billion. Of this amount, thus far in 2021, the Government has settled over USD 500 million.
Sri Lanka will engage freely with all its investment and development partners and implement the envisaged measures to build up reserves through non-debt creating inflows while reviewing closely the international capital market developments.
Investors are invited to approach the Sri Lankan policy authorities at the highest levels who always remain open for constructive dialogue and will welcome any one-on-one engagement or roadshow discussions, without being dissuaded by premature one-sided opinion expressed without factoring the ground realities and the actual outcomes of policy measures introduced by the Government of Sri Lanka.
Business
Planters’ Association of Ceylon charts course for sustainable future at 170th AGM
The Planters’ Association of Ceylon (PA) held its 170th Annual General Meeting (AGM) on September 14, 2024, at The Galadari Hotel in Colombo. The event, graced by the presence of Chief Guest, Mohan Pandithage, Chairman and Chief Executive of the Hayleys Group, marked a pivotal moment for the nation’s plantation industry.
The AGM witnessed the formal handover of leadership from outgoing Chairman, Senaka Alawattegama, to Sunil Poholiyadde, who assumes the role for his second term. The transition comes at a critical juncture for the industry, facing significant challenges and opportunities.
In his final address, Alawattegama reflected on the substantial progress made during his tenure, notably the successful resolution of long-standing wage negotiations. He highlighted the introduction of a new wage structure that includes a daily minimum wage of Rs. 1,350 and a productivity-linked component of Rs. 50 per kilogram. This achievement, he noted, represents a significant victory for both workers and Regional Plantation Companies (RPCs), accomplished despite considerable challenges and pressures.
“As we move forward, decisions related to wages and policies must be made with the best interests of the entire industry—including workers—at heart,” Alawattegama stated. “We must ensure that our industry remains affordable and sustainable so that it can thrive for generations to come.”
Taking over the helm, Poholiyadde delivered an incisive speech outlining his vision for the future. He commended the industry’s collective resilience in successfully navigating the recent wage crisis, which had been considered a potential existential threat to the industry.
“On May 1st, 2024, a proposed wage increase to Rs. 1,700—a 70% hike—threatened to cripple our industry,” Poholiyadde remarked. “Recognizing the gravity of the situation, the PA took unprecedented steps, including legal action up to the Supreme Court. Our persistent efforts resulted in a more sustainable wage agreement, a testament to what we can achieve when we unite.”
Emphasizing the crucial role of innovation and technology in overcoming current challenges, Poholiyadde asserted, “We must embrace innovation to sustain our industry. Mechanization can provide relief, especially with our diminishing labor force.” He highlighted that since 1992, the industry has lost 50% of its workforce, adversely affecting production volumes. “We may not reach even 250 million kilograms of tea this year, although the industry had initially targeted over 300 million.”
Poholiyadde also underscored the necessity of adopting new technologies, mechanization, and automation in both field and factory operations to enhance productivity and remain competitive globally. “The technology exists globally; it’s a matter of us embracing and implementing it,” he said. (PA)
Business
SLITHM chief on a mission to bring back the glories of the Ceylon Hotel School era
By Harischandra Gunaratna
The chairman of the Sri Lanka Institute of Tourism and Hotel Management (SLITHM), Shirantha Peiris, in an interview with The Island Financial Review recently said that his dream was to take the school back to its ‘golden days’ when it functioned as Ceylon Hotel School.
‘The Ceylon Hotel School produced world class hoteliers, where some of them held top positions in hotels owned and operated by international chains in different parts of the world, he said.
Peiris assumed duties as the chairman of SLITHM in June 2022 and the institute has seen steady advancement during this short period, according to SLITHM sources.
When queried as to how the standards and the quality of such a prestigious institution had deteriorated, Pieris admitted that there was a drop in the quality of some of the students. He attributed the deterioration of standards to multiple reasons, which he has identified and rectified.
Some of the improvements effected by him relate to the student enrollment process. For example, students are now enrolled purely on merit, with external influence not being taken into consideration. The same practice is followed with regard to employee recruitment.
Pieris added: ‘When I left school in 1982, it was extremely difficult to join Ceylon Hotel School as there was a very clear and a transparent selection process. At present we adopt the same practice.
‘When I assumed duties, one of my first tasks was to look into the existing value chain of the organization and introduce efficiency.
‘The institution follows a strict enrolment process with multiple eliminating stages to ensure that the right candidate is selected.
‘We must ensure that only the right students who have a passion for hospitality are enrolled as this has a positive impact not only in meeting customer expectations, but often exceeding same when our students are in the industry. We have seen this many a time in the industry, where our students have maintained high standards in a consistent manner.
‘Deteriorating standards of English of some of the staff members and students in the school is an issue. It has to be addressed and recommendations are made to the senior management. English is mandatory when engaging in hospitality as well as when being employed.
‘The standards of students who pass out of the institution are high and they could secure employment in any top-class hotel in Sri Lanka with handsome remuneration packages. We need to ensure that every student meets these criteria and this cannot be done overnight. If you look around the leading hotels, most of the General Managers and senior management are former students of SLITHM (Ceylon Hotel School). We need to maintain these standards, be consistent and adopt the best practices at SLITHM. Our main objective is to train people for the local industry.
‘SLITHM had the very first Innovation Fair last week which was an excellent initiative by the Director General – SLITHM, where we were able to witness our students’ innovation and creativity, not restricting to the usual practices but also introducing AI driven technology. During the last two years we have introduced multiple events for students, including sports activities, which will be an annual event from now on.
‘We have nine schools, covering all provinces and at present seven schools run at full capacity and one of the constraints is that we need more space to run the institution. We have already communicated to the authorities requesting additional space to increase the number of students. We are working towards increasing the number of students at the Jaffna and Batticaloa schools as well.
‘It is imperative that we introduce and engage in global best practices and be current with the rapid changes that take place in hospitality and tourism. Restructuring and succession planning have commenced and are on-going.
‘We are also focused on the wellbeing of our employees and have introduced a “Pink Day”, which takes place in October as it is ‘Breast Cancer Awareness Month’. On this day we have health care experts creating awareness and all our female employees are invited to go through a screening process at no cost. We will be introducing employee engagement initiatives too to ensure that we have a work force that is engaged in being high performers.
‘SLITHM also has the “Samudra Training Hotel” (STH) located in the Colombo School. STH is currently going through a transformation process and will be a fully operational hotel before this winter. The Samudra Restaurant has been fully renovated and is already in operation. The other areas that will be operational soon are the pub, the terrace with a beautiful ocean view and all rooms refurbished with the support of the industry. We have already written to the industry and have received positive responses. The uniqueness of this operation will be that the hotel will be run by students. STH will be a place to talk about very soon.
‘Another area we are working towards is going paperless and introducing automation where applicable. In this day and age, we cannot be comfortable with old practices and need to embrace technology.
‘I must thank my staff for their contribution and continuous support in the transformation process as well as all stakeholders working closely with SLITHM.’
Business
SimCentric Technologies enhances information security standards with ISO 27001:2022 Certification
SimCentric Technologies, a leading provider of simulation software and solutions in the defense and security sectors, has achieved a significant milestone by upgrading to the ISO 27001:2022 Certification. This new certification marks a crucial step forward from the previous ISO 27001:2013 standard, reflecting SimCentric’s ongoing commitment to enhancing its information security practices in line with the latest global standards.
The transition from ISO 27001:2013 to ISO 27001:2022 introduces several key improvements that are vital for the evolving security landscape. These enhancements include the integration of threat intelligence, robust security measures for cloud services, improved ICT readiness for business continuity, enhanced configuration management, data leakage prevention, and secure coding practices. By adopting these new measures, SimCentric has strengthened its overall information security posture, ensuring it can better protect sensitive data and adapt to emerging threats in today’s digital environment.
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