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Fitch Rating downgrade was due to govt failure to implement correct financial policies, says UNP

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The UNP says that the Fitch Rating agency’s downgrading Sri Lanka to a rank of CC indicated an increased probability of a default event in coming months in light of the country’s worsening external liquidity position and drop in foreign-exchange reserves.

Addressing a press conference held at the party headquarters Sirikotha, UNP Chairman and former minister Wajira Abeywardena said that it could not accept the excuse given by the government that the downgrading was a consequence of the COVID-19 pandemic.

“During the same period, except for a few countries such as Sri Lanka, all other countries around the world have strengthened their dollar reserves. Therefore, it is not an excuse that could be accepted as the real cause for this problem. It is nothing but a failure to implement correct financial policies,” he said.

The UNP Chairman said that Fitch has downgraded Sri Lanka to ‘CC’ from ‘CCC’. They did so, stating that there was an increased probability of default as liquidity injections made to sterilize interventions and enforce a 6.0 percent policy rate continue to drain reserves and create forex shortages. This downgrade signals a probability of a default event in coming months in light of Sri Lanka’s worsening external liquidity position underscored by a drop in foreign-exchange reserves set against high external debt payments and limited financing inflows. “We are confronted with the danger of the collapse of the economy. We see the signs of economic collapse. These signs prevent investors coming to this country,” Abeywardena said.

He said that Fitch maintains issuer default ratings from AAA to D. The AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. Ratings AA stands for very high credit quality denoting expectations of very low default risk. They indicate a very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. The ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings. The BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. The ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists that supports the servicing of financial commitments. The ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment. The ratings of CCC where Sri Lanka had been until last week denote substantial credit risk with very low margin for safety. Default is a real possibility at that stage. The CC is the current rating status of Sri Lanka with very high levels of credit risk and default of some kind appears probable. Hereafter we have three more ratings. The next worst could be ‘C’ ratings showing a near default. It is the stage where a default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired. Then comes RD ratings which indicate an issuer that in Fitch’s opinion has experienced an uncured payment default or distressed debt exchange on a bond, loan or other material financial obligation, but has not entered into bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedure, and has not otherwise ceased operating. At the bottom there is D ratings indicating an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure or that has otherwise ceased business.



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Business

Seven factors of concern at upcoming Monetary Policy Review

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by Sanath Nanayakkare

The Central Bank of Sri Lanka (CBSL) is scheduled to announce its latest monetary policy review on 20th January 2022, with all eyes on dwindling foreign reserves and foreign currency exchange in the country.

In this context, First Capital Research has named 7 factors of concern that could be taken into account at the upcoming monetary policy review. They are as follows.

* Foreign Reserves USD 3.1 billion – Dec 2021

* Inflation CCPI 12.1% – Dec 2021

* GDP Growth -1.5% – 3Q2021

* Private Credit LKR 60.5 billion – Nov 2021

* 03M T-Bill rate 8.38% as at 12.01.22

Liquidity and CBSL Holdings LKR -364.0 billion and LKR 1.42 trillion

Balance of Trade (BOT) and Balance of Payment (BOP) USD -6.5 billion and USD -3.3 billion for Jan-Oct 21

First Capital Research’s Policy Rate Forecast – Jan 2022-Apr 2022 notes that they believe the CBSL may highly consider tightening the monetary policy rates in this policy review but given the concerns over economic growth, there is a probability of 40% for CBSL to maintain its policy stance at current levels.

“With high frequent indicators improving in line with expectations, we have eliminated any probability of a rate cut. We expect a continued increase in probability for a rate hike in order to prevent overheating of the economy amidst the given fiscal and monetary stimulus,” they said.

As per First Capital’s view, CBSL either can choose to hike policy rates by 50bps or 100bps or hold policy rates steady, while a rate cut is off the table due to the high debt repayment and the high domestic borrowing requirement.

First Capital believes that there is a 60% probability for a rate hike due to the remedial actions required in achieving external stability.

However, there is also a 40% probability to maintain the policy rates at its current level in order to further improve the high frequency indicators.30%, they noted.

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Sri Lanka’s dash brand enters international markets

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Multichemi International Ltd, which manufactures and distributes a wide range of products under dash, one of Sri Lanka’s leading detergent and household care brands, has begun exporting its products to several international markets in Asia and Oceania, with plans also to enter Africa. The dash brand includes a wide range of products in car care, household care, home fragrances and laundry care sectors. Multichemi International Ltd, which has been awarded ISO 9001:2015 certification, is a Sri Lankan pioneer in environment-friendly cleaning products, having launched the country’s first biodegradable, safe cleaning products over 28 years ago.

Amila Wijesinghe, General Manager of the Company said,”Having conquered the domestic market, we are now ready to capture the international market. We are confident that our products which are of high quality will receive a good demand overseas as well. The feedback we have received so far from our overseas customers is extremely encouraging. We are dedicated to taking our products to the international market, to bring in foreign currency to the country and help uplift the economy”,

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Janaka Abeysinghe appointed SLT CEO

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Sri Lanka Telecom PLC has announced the appointment of Janaka Abeysinghe as its Chief Executive Officer (CEO) with effect from February 1, 2022.

The incumbent CEO Kiththi Perera will be overseas on leave for a period of two years to pursue higher studies, according to a stock market filing by the company.

Abeysinghe joined SLT in 1991. In his present role, he leads the enterprise and wholesale business of SLT that provides integrated voice and data solutions to enterprises, government institutions, domestic telco operators and global wholesale carriers.

In his career at SLT spanning 29 years, he has held a number of senior positions, including general manager Enterprise and International Sales and has extensive experience in the areas of Enterprise Digital Services, Enterprise Communications Solutions, Data Communications, Business Development, Domestic and International Switching Operations and Global Wholesale Voice & Data Business.

He holds a Master’s Degree in Electrical and Computer Engineering from the University of Kansas, USA and a BSc degree in Electronics and Telecommunications Engineering with a First Class Honours from the University of Moratuwa.

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