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IMF or no IMF, Sri Lanka needs Economic Analysis and Plan going forward: Verité Research

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BY SANATH NANAYAKKARE

Whatever Sri Lanka decides about dealing with its debt and paying its way through the world, the country needs to formulate a very good economic analysis and a publicly-backed plan that will establishc credibility of the world in its economy going forward, Dr. Nishan De Mel, Executive Director of Verité Research said recently.

He made this remark at a virtual forum conducted by Advocata Institute on ‘How to Resolve Sri Lanka’s Debt Crisis Without Seeking Assistance from the International monetary Fund (IMF)’.

Further speaking he said:

“Such an analysis needs to be thorough and well-structured with the focus on the real economic activity and the financial conditions in the economy. That would be the first step to build credibility of the world about the Sri Lankan economy. It is actually credibility that we lack rather than foreign reserves. If we can build that credibility about us in the countries that we deal with, we may not need assistance from the IMF to resolve our liquidity issue. When such a favourable environment is created and other countries repose their trust in Sri Lanka’s economy, its sovereign credit ratings would see an upgrade and Sri Lanka would be able to raise funds at the international capital market at reasonable interest rates, The skill we need for this is to present an analysis and a plan and then demonstrate our commitment to stick to it. Our concern is whether the government has such a plan and if it does have one, why it is not publicized”.

“I am not recommending that Sri Lanka should or shouldn’t go to IMF. The central question is not that. The central question is whether we can present and adopt an analytical approach to building credibility in the relevant parties about our economy. On the other hand, in the event we decide to go to the IMF at some point, we will still have to have an analysis and a plan.”

Responding to a question on whether Sri Lanka could boost its reserves by building global confidence in that manner, he replied,” When we have a very good policy document, we will need to demonstrate that we are serious about implementing it. Not only IMF, no country would support us without a well-crafted policy document and a frank commitment to actually implement it”

“We started raising funds from the international capital market via international sovereign bonds (ISBs) in 2007-2008. Those loans boosted our reserves. Then we started repayments from 2012. Before that we had not taken that type of loans from the international capital market. As those sovereign bonds increased, our reserves also increased. Before that we had taken concessional loans from foreign countries and lending institutions at low interest rates.”

“Thus we took loans from the international capital market and repaid them maintaining our foreign reserves at stable levels. Such a situation remained in the past 3-5 years. However, that equilibrium unsettled when Sri Lanka substantially reduced its taxes in the fourth quarter of 2019. Due to this substantial change, government taxes fell by about 25%. With Covid the decline was even deeper. Even without Covid, there was the 25% decline in taxes. Our global lenders were stunned by this development as it would further increase the budget deficit making our loan repayments unsustainable. I think that they had some anxiety about it”.

“This tax subsidy was given without an analysis as to whether it would help increase the country’s GDP, government’s income or how it would affect debt dynamics etc. We think that there should have been a rationale for it, but we didn’t see any such thing from the government. At that time, Sri Lanka was on an IMF programme and they probably thought that their facility’s last tranche could not be completed as the economy would not be managed sustainably. Thus the IMF got out of the picture. Then the rating agencies downgraded Sri Lanka according to their analyses. This had an impact on us. In 2019 December, the third downgrade of Sri Lanka took place. Earlier also we had been downgraded in two instances. But the latest rating made it impossible for us to raise funds in the international capital market. This situation complicated the debt- dynamics balance which had been maintained earlier. What has happened now is; we service our loans from the reserves and we can’t refill it like before. This is how this issue actually cropped up in the first place although it is said that it happened due to Covid. Actually Covid exacerbated it as there has been no Tourism receipts. But we have been able to offset that with import restrictions that have been in place. If we didn’t have to service our foreign loans from the reserves, there would not be a crisis at this point. The fact that funds can’t be added to the reserves can be shown as the cause for the current debt crisis.”

“When there is a substantial tax policy change, can we just make an oral statement and justify it? Don’t we need an analysis as to which tax should be reduced and which one shouldn’t, in order to sustainably manage our economy? Here the reality is; when there is no analysis, there is no credibility.”

“The collapse of confidence is the main reason for our economic problem and the decline in reserves. Government says that it won’t borrow from the international capital market and that there is no need to do so. This is heard as a decision made by the government. But it is not a decision. It is a Hobson’s choice. Even if we really want to borrow, we can’t borrow at reasonable interest rates. That’s the issue.”

“Confidence could collapse not only in the absence of an economic analysis. We have gone back on our pledges made to international bodies a number of times. Sad to say that this has become a tradition. So, if we had managed the economy well in the past year, we would have been able to raise loans without help from the IMF. Now we should manage our economy well, before our reserves hit near zero levels or zero.”

“The Central Bank had a medium term debt management strategy for 10 years, and they had published a written document about it three years ago. But now it has been changed and a new strategy is not in place as yet. In the absence of one, you can’t build confidence by making oral statements. People need to have an awareness not only on inflows but also on outflows.”

“Reserves won’t hit zero this year. In 2021, reserves may reach zero sooner or at a later stage. Even if we manage to protract it. it will spill over into the next year and the next year. It will only aggravate. It won’t be resolved. The speed of going towards zero reserves could be faster or slower, but it won’t deviate from where it’s heading. International parties analyse Sri Lanka and they have not changed their analyses. But the government has often changed its policy. For example, the foreign exchange policy was changed many times. This shows that the economy is not moving as the government expects it to. Verité Research has done an economic analysis on Sri Lanka considering its economic activities, GDP, inflows, debt obligations etc. Our predictions have remained valid but the government is not taking them into account. That’s the problem.”

“The government has presented its expectations, not a plan. The difference between a gamble and a plan is analysis. Expectations are not considered as an analysis”.

“If reserves come to zero at one point, we will have to tell our creditors that we will pay only the interest and pay the principal later. We need to sort things out before we face a disorderly default. Such a situation will affect the economy even more. Our banks, our private sector won’t be able to deal with their parties in the international arena. So we need to negotiate well before such an eventuality happens and resolve the crisis in an orderly manner.”

When asked, in such a scenario could Sri Lanka negotiate with the creditors on its own, he said,” We may need help from the IMF to talk to the creditors being these are bond sales involving hundreds of people. The IMF has a service for this sort of structural help – not reserves help – in order to negotiate with creditors and arrive at an agreement. In the event of making an orderly default, help of the IMF would be needed,” Dr. Nishan De Mel said.



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DFCC Bank’s Ranwarama pawning facility lends a helping hand to those with urgent cash requirements

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DFCC Bank has increased the advances of its “DFCC Ranwarama” Pawning Facility as a solution for families to meet their urgent cash requirements as many families are experiencing financial difficulties due to the COVID-19 outbreak that has had a significant impact on the Sri Lankan economy.

Through this scheme, all Sri Lankan citizens over 18 years of age with the contractual capacity to declare themselves as owners of the articles can now pawn gold or gold jewellery. DFCC Bank accepts jewellery made of 18 Karat -24 Karat gold, with the articles being assayed using the latest available equipment. Items of 24 Karate will hold an advanced value of LKR 82,000/-, while 22 Karat pieces will hold an advanced value of LKR 68,000/- at an interest rate of 0.75% per month. Those who engage in these transactions are provided a maximum of 12 months to settle the pawning advances at their convenience.

DFCC Bank’s Ranwarama Pawning Facility offers many other special features including the highest advance amount at competitive rates of interest, confidentiality and guaranteed security for the articles, flexible payment plans with redemption options when required and redemption without prior notification. All of these facilities are available with no hidden charges, offering customers the best service available in the market.

You may visit a DFCC Bank branch closest to you to transact or visit the Bank’s website at www.dfcc.lk for further information. Customers can also contact DFCC Bank’s 24-hour contact center on +94(11)2350000 for further inquiries.

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HSBC Sri Lanka recognised as the Best Consumer Digital Bank by Global Finance

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HSBC has been recognised as the Best Consumer Digital Bank in Sri Lanka for 2021 by Global Finance at the World’s Best Consumer Digital Banks Awards in Asia-Pacific. While this is the bank’s fourth award win for this year, this also marks the 13th time that HSBC Sri Lanka has been named the Best Consumer Digital Bank, since 2006.

HSBC Sri Lanka is also the only market in Asia Pacific to win the prestigious award this year.

According to Global Finance, the global health crisis accelerated the need for digital and contact-free solutions by banks in helping create safe and efficient banking services for customers. HSBC Sri Lanka was quick to react in supporting customers in providing seamless digital bank offerings in an increasingly demanding environment, while ensuring customers have a secure banking service with a full spectrum of client-centric banking services.

Through its wealth of digital capabilities and offerings, HSBC allowed customers to adopt a mobile-first approach, and provide them with faster, easier and more secure banking services 24/7. The bank introduced a virtual on boarding capability for account opening, loans and credit cards supported by Adobe Live Sign, eKYC and virtual PINs to provide a seamless on boarding experience for customers. HSBC also offers credit card activation through SMS and an e2e virtual registration process for online banking, offering a virtual banking experience.

In Sri Lanka more than 90% of its personal customers now use digital channels including mobile banking, e-wallets, real-time cash deposit machines and other digital services.

Nadeesha Senaratne, Country Head of Wealth & Personal Banking said, “We are truly honoured to be named the Best Consumer Digital Bank in Sri Lanka for 2021 by Global Finance in recognition of our digital capabilities, and delivering important everyday services and features that customers need and expect. As a leading international bank, we are putting the power of our bank in every customer’s pocket, with easier and more secure digital banking. We want to take the hassle out of everyday banking, and enable customers to easily manage their money online, from opening a new account in a few clicks, to making real time payments and accessing credit.”

Senaratne added: “We’re also blending the power of technology with the expertise of our people and empowering our frontline teams with the latest data and insights tools, to be better-equipped to check customer satisfaction in the moment, to understand, and respond to their evolving needs and give customers excellent service.”

Winners were selected by a world-class panel of judges and entries were judged based on the strength of strategy for attracting and servicing digital customers, success in getting clients to use digital offerings, growth of digital customers, breadth of product offerings and evidence of tangible benefits gained from digital initiatives.

Earlier this year, HSBC Sri Lanka was also named International Bank of the Year by Asiamoney and Finance Asia respectively, and International Retail Bank of the Year by Asian Banking & Finance.

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BoardPAC appointed Strategic Partner of Commonwealth’s Business Network – CWEIC

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BoardPAC, the Sri Lanka-based multinational Board meeting automation solutions company, has been appointed a Strategic Partner of the Commonwealth Enterprise and Investment Council (CWEIC), the organisation officially mandated by the Commonwealth Heads of Government to promote trade and investment between the 54 Commonwealth member countries.

This prestigious appointment will see CWEIC relying on BoardPAC’s award-winning solutions to conduct board and committee meetings with members and maintain relationships across the Commonwealth network at a time when the global pandemic’s complete disruption of business activity has resulted in a surge in the demand for efficient board meeting automation.

The Company said the partnership will also effectively promote the BoardPAC platform to new users and facilitate its expansion into new territories and focus markets. BoardPAC already has a global user base in excess of 50,000 and a presence in more than 40 countries.

Noting that BoardPAC’s latest partnership serves as yet another testament to the quality of its solutions, BoardPAC Co-Founder/CEO, Lakmini Wijesundera stated: “Our growth plan includes expanding our worldwide network, and our strategic alliance with CWEIC will strongly help us extend our presence into Commonwealth territories. The strategic cooperation between CWEIC and BoardPAC is especially relevant in light of the worldwide pandemic, and the emerging need for secure remote working and filling the void in virtual board meetings.”

CWEIC Chairman, Rt. Hon. Lord Jonathan Marland said: “We are looking forward to work closely with BoardPAC. The alliance will not only help CWEIC to conduct virtual board meetings securely and safely, but also align ourselves with all governance, risk and compliance as well as environmental, social, and governance frameworks.” Echoing this sentiment, CWEIC Deputy Chair, Sir Hugo Swire stated: “We are excited to partner with BoardPAC and extend modern digital governance and compliance solutions to organisations operating in the Commonwealth.”

Disclosing that BoardPAC’s excellent track record inspired confidence within the CWEIC to implement its solution on a global scale, CWEIC Chief Executive, Samantha Cohen CVO added: “We’re delighted that BoardPAC, one of the most renowned virtual board meeting automation providers in the world, joined our network of Strategic Partners. BoardPAC will add significant value to our board and committee meetings, allowing the CWEIC to conduct meetings with its members throughout the Commonwealth more effectively. The partnership also demonstrates the opportunities within the Commonwealth, and the confidence businesses have towards the Commonwealth and CWEIC.”

A commercial, not-for-profit membership organisation, the Commonwealth Enterprise and Investment Council’s network includes around 100 business and government Strategic Partners (members) including Standard Chartered, Zenith Bank, Trade & Investment Queensland and the Government of the Maldives from 30 countries and territories. Every two years, CWEIC hosts the Commonwealth Business Forum in association with the host country of The Commonwealth Heads of Government Meeting (CHOGM).

BoardPAC is an award winning, multinational, paperless board meeting automation solutions provider, recognised for driving simple, secure, sustainable and experiential communications for Board and Executive members. Leading corporates such as Petronas, Deloitte, EY, Mercedes Benz, Prudential, Hong Leong Group, Stock Exchange of Malaysia, Central Bank of Sri Lanka, Bombay Stock Exchange, Bank Negara, Maybank, Power Grid Corporation of India, Colombo Stock Exchange, and Sri Lankan Airlines are just some of BoardPAC’s success stories, and the Company said the partnership with the CWEIC will pave the way to several more high-profile additions to this list.

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