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Ill-timed and unacceptable rating action by Moody’s renews concerns of subjectivity – CBSL



A recent rating action by Moody’s Investors Service (Moody’s) on the Sri Lankan economy reflects, among other things, “serious governance weaknesses of such agencies, where they systematically overlook positive developments and expectations in emerging economies, but attribute much greater weight to downside risks. The ill-timed and unacceptable rating action by Moody’s renews concerns of subjectivity, the CBSL said in a statement.

Extracts of the statement:

The Government of Sri Lanka (GOSL) wishes to express strong displeasure on the recent assessment by Moody’s Investors Service (Moody’s) that led to the rating action, after being placed under review for downgrade three months ago in a similar fashion. Once again, Moody’s irrational rating action with regard to Sri Lanka comes a few days before a key event, namely the announcement of the Government Budget for 2022, and this apparent hastiness and the view expressed during discussions with Moody’s analysts that the nature of the Budget is irrelevant to the financing plans of the Government clearly demonstrates the lack of understanding of such analysts.

It also reflects serious governance weaknesses of such agencies, where they systematically overlook the positive developments and expectations in emerging market economies, but attribute much greater weight to downside risks. Moody’s assessment has also failed to take into account the latest developments in strengthening the country’s external position through an array of measures, some of which have already yielded intended outcomes, as announced by the Central Bank of Sri Lanka (CBSL) on 26 October 2021. Moreover, the assessment exposes the rating agency’s ignorance on the well-established political stability within a democratic setup, when it claims about “governance weaknesses” and “challenging domestic political environment”, and its obvious insensitivity to the challenges faced by a country that is recovering from adverse external events without bringing pain to investors who have stood by Sri Lanka during various difficulties that the country has undergone in the past.

In addition to the six-month strategy articulated in the Road Map presented by the CBSL on 01 October 2021, Moody’s assessment has failed to recognise the medium to long term funding arrangements that are being finalised with various bilateral sources, which are due to be materialised in the near term. They include, among others, credit lines of several billions of USD from India and the Middle Eastern counterparts to procure petroleum; an arrangement for a large forex loan from a Middle Eastern nation as a bilateral long-term loan, and the proposals received for the syndicated loan arrangement that are being evaluated at present. In addition, a substantial amount of funds is expected from the already lined-up prioritised project loan related inflows to the Government. The recent discussions on bilateral currency SWAP arrangements with several central banks are also expected to provide the country with additional support in the near term.

Without considering such cashflows, any assessment on the repayment capacity of the Government carries prejudice. Rating action based on such biased assessment is unfair and detrimental to the country’s prospects, as Sri Lanka is emerging strongly from the adverse effects of the COVID-19 pandemic. Needless to say, such action by an international rating agency calls into question the validity of its advice to the investor community. Nevertheless, it is clear that international investors have continued to put faith in Sri Lanka’s plans for recovery, as repeatedly reflected in their preference to hold Sri Lanka’s International Sovereign Bonds (ISBs) to maturity, despite claims by Moody’s about a heightened risk of default by Sri Lanka.

The GOSL is in the process of preparing its Budget for the forthcoming year to be presented on 12 November 2021 with economic activities returning to near normalcy, and the country is already experiencing strong signs of revival of tourism and other activities that generate non-debt creating foreign currency inflows, including the monetisation of under-utilised non-strategic assets. This untimely rating decision taken prior to the Budget shows that Moody’s has not taken all the relevant information to form its assessment of the country’s performance and the expected path, into account. Even a layman would recognise that the Budget is an important statement for a country as it sets the tone for policy initiatives and structural reforms which could help alleviate the external challenges and improve fiscal settings in the near to medium term. Legitimacy of financing, in the form of an Appropriation Act, includes all foreign financing with a clear direction of the fiscal path. Therefore, it is surprising that Moody’s fails to provide due consideration to the forthcoming Budget, disregarding the vital information that would be released with the announcement of the Budget, in arriving at its rating action.

Such action by Moody’s is not new to Sri Lanka since Sri Lanka has experienced similar rating action by Moody’s several times in the past as well. For instance, Moody’s placed Sri Lanka on review for downgrade on 17 April 2020 right at the onset of the COVID-19 pandemic and just after the Government signed a Foreign Currency Term Financing Facility (FTFF) with China Development Bank (CDB), hindering the implementation of the arrangement and delaying fund receipts. The downgrade was effected on 28 September 2020, just ahead of the ISB maturity in October 2020. Further, Moody’s placed Sri Lanka under review for downgrade on 19 July 2021 whilst the CBSL was finalising a currency SWAP with the Bangladesh Bank and was about to repay a maturing ISB. Such questionable action generates credibility considerations as to whether Moody’s actions are driven by economic considerations only.

The GOSL and the CBSL are closely engaging with all stakeholders, including the international investor community. Such engagements have helped clear any doubts of investors on the Government’s willingness and the ability to honour all upcoming debt service obligations, as it has done throughout history. The Sri Lankan economy has demonstrated strong signs of broad-based recovery, with a real GDP growth of 8.0 per cent in the first half of 2021. The vaccination drive is progressing at full strength, covering over 60 per cent of the population with both doses and almost 100 per cent of the population over 30 years, thus providing confidence of a strong rebound in economic activity in 2022. With the revival in tourism and the fruition of efforts to strengthen foreign exchange earnings through merchandise exports, exports of services, worker remittances, as well as domestic and foreign investments, the medium term growth path is likely to be robust. Improving performance of merchandise and trade in services in a fairly short period of time has shown the economy’s ability to reach its potential despite misplaced fears raised by Moody’s. It is deeply disappointing that Moody’s seems to be attempting to derail this potential of the country by downgrading Sri Lanka’s rating based on a static methodology, which is irrational, particularly at the time of a global pandemic. The Government’s commitment towards fiscal consolidation through expenditure rationalisation would complement the gradual rise in government revenue with normalising activity, thereby narrowing the fiscal deficit, that has not been recognised.

Moody’s. The pro-growth reforms implemented by the Government has laid the foundation for a domestic production led export-oriented economy over the medium term, despite some adjustment costs in the transition. Ignoring such ability and commitment of the Government has led to ill-informed conclusions by Moody’s.

Against this backdrop, the Government wishes to re-assure all stakeholders, including the international investor community, that Sri Lanka remains committed to honouring all forthcoming obligations in the period ahead. The Sri Lankan authorities welcome direct engagement with investors and invite investors for regular one-on-one discussions without being distracted by such unfounded announcements by external agencies.


‘Revenue collecting PCs had only Rs. 40 billion for public service in 2021’



Pasanda Yapa Abeywardena

By Sanath Nanayakkare

There wouldn’t be a better time for major political parties to discuss and arrive at a consensus for abolishing the revenue-collecting provincial council system which hasn’t done anything more than just distributing government-sponsored welfare goods to the people, Pasanda Yapa Abeywardena, chief organiser of Lankalokaya and former provincial councilor said at a press conference in Colombo on January 19.

Pasanda who enjoys familial relationships with political higher-ups in the country while being the current chairman of Sathosa said that the President of Sri Lanka can travel across the island by helicopter in just one and a half hours which is only the size of Virginia in the United States, but has so many layers of governance including executive presidency, parliament, provincial councils, district secretariats, local government institutions etc.

“It is a known fact that provincial councils are mere training centres for the offspring of senior politicians and there is a demand in the country for cost-effective small government. In such a context, all political parties should have a dialogue in the next six months to abolish provincial councils, and strengthen the local government bodies through district development councils administered by the central government. Such a mechanism would reduce administrative layers while expanding the effective understanding of policies made by the government. Then the decisions made by the cabinet of ministers will easily flow to the ground level and the implementation process will be more dynamic. The President also has expressed similar views in this regard, he said.

“In the year 2021, revenue of provincial councils amounted to Rs. 331 billion while total expenditure was Rs. 316 billion, out of which Rs. 279 billion was spent on the payroll without having to bear the costs of provincial councilors. All in all, the provincial councils had only about Rs. 40 billion to spend on public services,” he said.

“In fact, I know from experience that nothing meaningful could be achieved through provincial councils other than merely being an institution of the central government that distributes chairs, mammoties etc., given by the government where provincial councilors claim to be the benefactors.”

“Provincial councils came to its end of term in April 2019 and five years have lapsed since the defunct of the system. Nevertheless, there is no public outcry to restore the system. PC system has never contributed to making any laws of the country or has never initiated a good programme on its own. So, we urge the political parties to engage in a meaningful discussion in the next six months before the country goes to presidential and parliamentary elections.”

He pointed out that the abolition of the PC system would help reduce the tax burden on the people, and that decision has to be taken well before PC elections are held.

Pasanda added that neither the people in the North of Sri Lanka or the government of India are interested in provincial councils anymore though the system was introduced by then government as a means of power decentralisation in Sri Lanka.”

“India is keen to have an equitable solution to the ethnic issue in Sri Lanka. However, I have reliable information that India doesn’t see provincial councils in the North and East would be an enabler in that quest. So, the abolition of provincial councils won’t trigger any geopolitical tensions with India,” he said.

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HNB Assurance Group surpasses 20% growth mark for the third consecutive year



HNB Assurance Group recorded yet another year of exceptional performance, marking the third consecutive year of achieving a growth rate exceeding 20% in terms of GWP (Gross Written Premium). The year 2023 witnessed the Group achieving remarkable financial milestones and an array of local and international awards, solidifying its position as a frontrunner in the insurance industry.

HNB Assurance Group recorded a substantial GWP of LKR 18.7 Bn, showcasing a remarkable growth of 20% compared to the previous year. Reflecting on this achievement, Ms. Rose Cooray, Chairperson of HNBA and HNBGI, expressed her delight, stating, “To me personally, the remarkable growth trajectory of the HNB Assurance Group stands as a testament to our commitment to delivering value to our stakeholders. Both teams at HNBA and HNBGI performed an outstanding job, leaving no stone unturned, meticulously analyzing every challenge, and capitalizing on every opportunity. This approach to business was imperative, particularly in the aftermath of COVID-19 and the subsequent economic and social upheaval, where we as a nation encountered numerous challenges in diverse forms. In addition to our consistent growth of GWP, over the past three years, we as a group have so much to celebrate. Our Group assets grew by LKR 10 Bn during the year, well exceeding a remarkable total of LKR 51.2 Bn. Further, investment income for the Group surged to LKR 7.2 Bn, representing an outstanding growth of 49% from LKR 4.8 Bn in the preceding year. In terms of the Group’s profits, we recorded a commendable LKR 1.76 Bn in PAT.”

Honoring claims plays a vital role in maintaining the trust for any insurance company, “I am proud to note that the HNB Assurance Group honored claims of LKR 6.6 Bn, showcasing a growth of 19% compared to the previous year, aptly demonstrating our position as a reliable partner during our policyholder’s time of need.” explained Ms. Cooray.

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Sri Lanka College of Endocrinologists partners with Morison to address the rising challenge of diabetes



The team members from the Sri Lanka College of Endocrinologists and Morison Ltd, present at the MoU signing

The Sri Lanka College of Endocrinologists (SLCE), the leading authority at the forefront of diabetes management and education in Sri Lanka, has announced a collaborative partnership with Morison Ltd, a pioneer in the Sri Lankan pharmaceutical manufacturing industry, to launch a certificate training program for primary healthcare professionals on diabetes management.

Sri Lanka faces a growing epidemic in diabetes, with an estimated prevalence of one in five Sri Lankans living with diabetes. Primary healthcare doctors are often the first point of contact for patients with diabetes, hence equipping them with specialized knowledge and skills is crucial for early diagnosis, effective management, and preventing complications. The Memorandum of Understanding (MoU) signed between SLCE and Morison on 13th February 2024, reflects a shared commitment to bridge this gap in diabetes expertise and establish primary care as the first line of defence.

The course content developed and delivered by the SLCE, features an evidence-based curriculum, combining theoretical knowledge with practical applications, ensuring participants receive up-to-date knowledge that adheres to the latest Clinical Practice Guidelines and international standards. The program aims to empower primary healthcare professionals to deliver comprehensive diabetes care in their daily practice, including therapeutics, lifestyle counselling, and complication prevention, ultimately leading to improved patient outcomes and reduced burden on the healthcare system. The course, spanning four months, is now open for registrations for the first intake, and the collaboration aims to conduct two such programs per annum.

Dedicated to advancing endocrinology and diabetes care in Sri Lanka, the SLCE spearheads numerous initiatives to educate healthcare professionals on best practices in diabetes management. Dr. Niranjala Meegoda Widanege, President of the Sri Lanka College of Endocrinologists stated, “Equipping our primary healthcare doctors with specialized diabetes knowledge and skills is essential to tackle the growing epidemic effectively. This training program marks a significant step forward in ensuring accessible and quality diabetes care for all Sri Lankans.”

Dinesh Athapaththu, Managing Director, Morison Ltd commenting on the partnership added, “We are pleased to collaborate with the SLCE to bring this meaningful initiative to life. With a patient-centric approach across our value chain, we believe our latest efforts with the SLCE reflects our commitment to deliver a refreshing difference at a time it is most needed by the nation.”

Staying true to their purpose of “Making Premium Healthcare Affordable”, Morison strives to play a major role in the fight against diabetes by bringing the latest therapies closer to the nation with an offering that stands distinctively different with the best of quality and price.

Morison is a truly Sri Lankan pharmaceutical manufacturing company, with a rich legacy of over 60 years of industrial expertise. Their new state-of-the-art manufacturing facility in Homagama, is the largest investment to date in the local pharma manufacturing industry. Being the country’s largest pharma manufacturing facility for general tablets and liquids, it is also the first such facility in Sri Lanka to comply to European Union Good Manufacturing Practices (EU GMP) specifications.

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