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Fitch Ratings expect another interest rate cut before end-2023

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‘Downside risks to banks are easing’

 ‘Sri Lanka still remains dependent on official financing sources’

 ‘Normalising relationship with foreign creditors may result in a ratings upgrade’

by Sanath Nanayakkare

The Central Bank of Sri Lanka (CBSL) which cut the standing deposit facility rate by a cumulative 350bp since January 2023 is expected to go for another rate cut before end-2023, Fitch Ratings said in a report released on 28 Sep. 2023.

“The downside risks to banks are easing. The exclusion of banks’ holdings of treasury securities from the DDO has alleviated some of the pressure on their capital positions from weakening loan quality and rupee depreciation as well as any immediate funding and liquidity stresses. We believe any incremental risk to the banks’ capital from foreign currency debt restructuring is likely to be manageable given their limited exposure to the defaulted sovereign bonds (3.6% of their combined total assets at end-1H23) and high provision coverage.

The Fitch report mainly dealt on the upgrading of Sri Lanka’s LongTerm Local-Currency Issuer Default Rating (IDR) to ‘CCC-‘ from ‘RD’ (Restricted Default).

” The upgrade of Sri Lanka’s Long-Term Local-Currency IDR to ‘CCC-‘ reflects the completion of the local-currency portion of Sri Lanka’s domestic debt optimisation (DDO) plan, launched in July 2023, following the exchange of the Central Bank of Sri Lanka’s (CBSL) treasury bills and provisional advance into new treasury bonds and bills on 21 September 2023″, Fitch said.

“We assume the debt restructuring will lower Sri Lanka’s gross financing needs over the medium term, in line with the targets under the IMF’s Extended Fund Facility, and support an improvement in the country’s debt metrics over time. Local-currency restructuring could accelerate progress towards the restructuring of external debt,” they said.

The following are some extracts from the report: “General government debt and the interest costs faced by the government will remain high, despite the debt restructuring. Sri Lanka’s gross general government debt-to-GDP ratio is set to fall only gradually to just above 100% of GDP by 2028, from 128% of GDP in 2022, according to IMF programme forecasts published in March 2023, which incorporated a local- and foreign-currency debt restructuring scenario. The IMF scenario forecast the government interest-to- revenue ratio will decline to 42% by 2028, from over 70% in 2022.”

“The authorities expect the completion of the local-currency debt exchange to lower Sri Lanka’s gross government financing needs (GFN)/GDP by about 1.5pp over 2027-2032, according to documents published in July. External debt restructuring, which authorities expect to reduce GFN by an additional 2.6pp, remains critical to achieving the target of reducing GFN below 13% by 2027-2032, from 34% in 2022.”

“We believe IMF programme implementation, in particular fiscal measures, will be central to achieving debt sustainability. The risks remain significant, in our view, as a record of weak revenue generation presents challenges to achieving a faster reduction in the budget deficit and the general government debt-to-GDP ratio.”

“Authorities have taken several tax measures since May 2022 to improve revenue collection, including raising the corporate income tax rate to 30% from 24%, increasing the VAT rate to 15% from 8%, and raising fuel excise taxes. This resulted in revenue collection rising 43% yoy in 1H23. Additional measures in the pipeline include removing product-specific VAT exemptions before 2024 and introducing a property tax before 2025.”

“Sri Lanka’s foreign-exchange (FX) reserves have been improving, with gross FX reserves rising to USD3.6 billion in August 2023, from USD1.9 billion at end-2022, partly the result of IMF disbursements and suspension of external debt servicing. However, without access to international capital markets, the sovereign remains dependent on official financing sources.”

We expect a gradual pick-up in exports in 2024-2025 after a contraction in 2023. Overseas worker remittance inflows are also rising. We therefore expect the current account deficit to stabilise at 1.6% of GDP over 2024-2025.”

“The sovereign remains in default on foreign currency obligations and has initiated a debt restructuring with official and private external creditors. The Ministry of Finance’s statement on 12 April 2022 said it had suspended normal debt servicing of several categories of external debt, including bonds issued in international capital markets, foreign currency-denominated loans and credit facilities with commercial banks and institutional lenders.”

“Completion of the foreign-currency commercial debt restructuring that Fitch judges to have normalised the relationship with private-sector creditors may result in an upgrade.”



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Flagship Colombo terminal held back by equipment tender failures

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The Colombo East Container Terminal (CECT), Sri Lanka’s flagship port project under the Sri Lanka Ports Authority (SLPA), remains unable to reach full operational capacity, more than four years after construction began, industry insiders say. Despite near-complete infrastructure and a strategic vision to bolster Sri Lanka’s position as a regional maritime hub, the terminal is paralyzed by a single missing component: straddle carriers, essential machines for moving containers between ships and yard storage.

“The terminal is essentially ready. Quay cranes, yard cranes, automation systems, and supporting infrastructure are all in place. Only straddle carriers are missing, and without them, full-scale operations are impossible,” Tharanga Jayasinghe, President of the Port Finance Divisional Independent Employee Association, told journalists.

Addressing a press conference held in Colombo Jayasinghe said that the delay is not due to employee performance. “SLPA staff have delivered outstanding results at the Jaya Container Terminal and partial operations at CECT. The responsibility to bring CECT fully on track now lies squarely with SLPA management and the authorized decision-makers overseeing this strategic national investment.”

Since 2021, the procurement of straddle carriers has gone through five tender attempts, each canceled or revised, resulting in significant lost time. Early tenders focused on leasing the machines, then on diesel-powered carriers, before SLPA made a strategic shift to hybrid straddle carriers, in line with CECT’s green terminal vision and international shipping standards.

Despite this shift, delays have persisted due to what employees describe as “questionable technical decisions and favoritism toward predetermined bidders.” The third tender round, which allowed both diesel and hybrid options, drew particular criticism. A compliant hybrid bid offering superior lifecycle efficiency was overlooked in favor of a diesel-only supplier, prompting legal action. While the case was pending, SLPA revoked the award and canceled the fourth tender, further prolonging the project.

CECT, a nearly USD 1 billion investment entirely financed by SLPA, represents one of the largest infrastructure projects ever undertaken by a Sri Lankan company. Funded during the economic recession that began in 2021, it is considered a source of national pride. Yet, Jayasinghe warned that this pride is overshadowed by concerns over repeated procedural missteps and apparent favoritism.

The current, fifth tender has raised new alarm. Qualification criteria appear to have been significantly diluted, allowing a previously favored company—reportedly with limited experience—to re-enter the process. For approximately USD 50 million worth of 30 hybrid straddle carriers, bidder experience requirements have been reduced to manufacturing just 15 units over five years, a stark contrast to the standard benchmark of 500 units for equipment of this scale.

According to Jayasinghe, these relaxed criteria risk awarding the contract to an under-experienced supplier, potentially undermining CECT’s operational credibility and discouraging shipping lines from engaging with the terminal. Observers note that one internationally recognized supplier withdrew from the process, citing lack of transparency and perceived bias.

Industry insiders warn that delays at CECT are not merely operational concerns—they also create openings for competing regional ports to capture Sri Lanka’s container traffic. “The demand is ready, but the terminal’s readiness is being held back by indecision and procedural mismanagement,” Jayasinghe said.

SLPA employees, he added, have long safeguarded national port assets from corrupt practices. Their vigilance secured the East Container Terminal (ECT) in 2021, and today they are raising alarms over the CECT tender process. Commercially, SLPA continues to perform well, including a recent Rs. 5 billion transfer to the Government Consolidated Fund. Shipping lines remain eager to engage with CECT, underscoring that the challenge is not demand but readiness.

The unanswered questions are stark: why has a strategic national procurement repeatedly failed, who is promoting inexperienced suppliers, and who will be held accountable? Until these issues are addressed, CECT remains not merely delayed, but denied—its potential, strategic importance, and the trust of the nation hanging in the balance, Jayasinghe added.

by Chaminda Silva ✍️

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SOLA Festival Returns: Building a Long-Term Model for Conscious Festival Culture

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SOLA Festival returns to Sri Lanka’s south coast as an evolving cultural movement, continuing its mission to redefine festivals through community collaboration, sustainability, and conscious design. The festival will take place on the 30th and 31st of January at The Doctor’s House, Madiha.

Developed in close partnership with the local community in Madiha, near The Doctor’s House, where the festival has established its home, the SOLA Festival was conceived as a response to the increasingly extractive nature of tourism, which too often takes more from local communities than it gives back. The festival is guided by the core values of Respect, Inclusion, Sustainability, Creativity, and Collaboration, bringing people together through music, workshops, immersive experiences, and community-led initiatives.

Founded by a collective of designers and event makers from Copenhagen, SOLA aims to become one of the first fully waste-free and circular festivals in Asia and a global role model for sustainable events. Chief festival organisers, designers Susanna and Miranda, whose portfolio includes installations and designs for Copenhagen Fashion Week as well as projects with Collective Fashion Justice, explained that the idea for the festival was inspired by how incredibly warmly they were welcomed into the local community in Sri Lanka and their desire to give back and support that community “We started SOLA to show that festivals can bring joy, creativity, and music while also giving back to the communities and environments that host them,” says Susanna. “SOLA was conceptualized and created with a strong focus on working in harmony with nature and fostering meaningful community connections. Together with ouramazing partners, we want to prove that conscious, community-led events are not only possible, but inspiring, joyful, and sustainable.”

Following its inaugural edition in 2025, SOLA Festival has positioned itself as an annual event in Sri Lanka, growing thoughtfully each year with a long-term vision rather than as a one-off project. The 2025 edition welcomed 800 guests, featured international and local DJs, and hosted five activities and workshops, laying a strong foundation for the festival’s future direction.

This year, the festival is looking to nearly double the number of attendants, and will feature over a dozen DJs from more than five countries including internationally renowned Yung Singh, and local legend DJ Shiyam.

More than a music festival, SOLA is a multidimensional platform for art, learning, sustainability, and connection, and in keeping with this vision, the programme also includes traditional, community centric, creative activities including communal weaving sessions, natural dye workshops, drum circles, beaded fabric jewellery workshops, make-your-own merch sessions and more.

SOLA is being developed within the principles of a circular economy, and the organisers view SOLA as a project to be built and refined over many years, with each edition deepening its impact. As the festival grows, SOLA aims to involve more local and international collaborators, with the goal of becoming an international role model for sustainable events.

Sri Lanka’s long-standing values around craftsmanship, resourcefulness, and care for the earth are central to this vision. The team believes the country has the potential to become a global leader in sustainable tourism.

Community collaboration remains at the heart of the festival’s programming. For the upcoming dition, SOLA is working with a growing network of partners, including ApiHappi, Selyn Fairtrade, Sarana Sri Lanka and Sambol Foundation. The official banking partner for the event is Hatton Nation Bank.

The SOLA team, together with a local school and WeCare will conduct a beach clean-up ahead of the festival. Post the clean-up, the children will participate in a crafting session focusing on recycling and upcycling everyday waste, while learning about plastic and street dogs. Sambol Foundation will host a natural dye workshop before the festival and the fabrics will be used for festival installations. Selyn Fairtrade, House of Lonali and ApiHappi, will contribute fabric that local women will use to make reusable decorations for the event, ensuring the festival avoids purchasing all new materials in the future. Selyn has also taken on producing festival merchandise and running a fabric bead workshop. The festival will open with a traditional Sri Lankan fire ceremony, organised in collaboration with Sarana Sri Lanka. SOLA will also organize a fundraiser in collaboration with WeCare, an organisation dedicated to the wellbeing of local street dogs.

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HNB Assurance PLC Recognized Among Sri Lanka’s Best 20 Workplaces for Women 2025

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HNB Assurance PLC was recognized among Sri Lanka’s Best 20 Workplaces for Women 2025 by Great Place to Work Sri Lanka, for the Company’s long-standing commitment to fostering an empowering workplace for women.

Over the years, HNB Assurance has introduced several progressive initiatives to support women at different life and career stages, including flexible work arrangements, caregiver and maternity support, leadership development programs, and platforms such as in.she, which champions women’s growth both professionally and personally. These efforts have contributed to a workplace where women are not only represented but are actively enabled to succeed.

Commenting on the recognition, the Executive Director / Chief Executive Officer of HNB Assurance PLC, Lasitha Wimalaratne stated, “Being recognized among Sri Lanka’s Best 20 Workplaces for Women is a powerful affirmation of who we are as an organization. At HNB Assurance, inclusion is not an initiative, it is a mindset embedded into how we make decisions and how we care for our people. We firmly believe that when women are empowered, organizations become stronger. This recognition belongs to every woman contributes to our culture every day.”

Navin Rupasinghe, Head of Human Resources / DGM of HNB Assurance PLC stated “This recognition reflects years of intentional effort to build a workplace where women feel heard and inspired to reach their full potential. From flexible policies to leadership pathways and a deeply people-centric culture, we have focused on creating an environment where women can grow without compromise. We are proud of how far we have come and remain committed to continuously raising the bar. Lastly, I’d like to thank Great Place to Work for this recognition as it motivates us to keep evolving our people practices and building a workplace where women can grow.

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