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It’s high time Sri Lanka brought SOE privatisation to the policy table: Advocata

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Sri Lanka is already in one of the worst economic crises in its history. Experts warn that deep economic reforms are essential.

Reforming SOE’s can curb further losses, which add to the fiscal deficit.

The Cumulative losses of the 55 SOEs from 2006-2020 was a staggering 1.2 trillion.

Disposing of State Owned Enterprises which are a burden on the public finances, is the crucial need of the hour.

Immediate privatisation of large State Owned Enterprises, will build international investor confidence.

“Some big government enterprises are not responsive to our needs. And because they’re not responsive, you will go home today and you will have a blackout of one hour, because they are load shedding during peak hours ,” says Prof. Rohan Samarajiva, a veteran policy expert and an advisor of the Advocata Institute.

He made these comments at Advocata’s recent press briefing, organised to highlight the urgency of carrying out reforms to State Owned Enterprises (SOE).

“The basic issue is that we, in this country, are suffering from a twin deficit. We need to get started on addressing the core problem”, further stressed professor Rohan Samarajiva.

According to Prof. Samarajiva privatising a globally visible, yet loss making SOEs such as SriLankan Airlines is the best solution to create confidence among investors that Sri Lanka is serious about reforms.

Sri Lanka’s SOEs are a serious burden on public finances. With the economic crisis reaching a tipping point, it is becoming increasingly impossible to keep these loss making enterprises afloat. The continuation to do so, at the expense of the taxpayer can have serious consequences to the economic trajectory of the nation.

Advocata Institute’s research team has identified that the cumulative losses of the 55 SOEs from 2006-2020 is a staggering 1.2 trillion. The combined loss per day of the Ceylon Petroleum Corporation, The Ceylon Electricity Board , Sri Lanka Airlines, Sathosa and the National Water Supply and Drainage Board is about LKR 384,479,189, according to data for the year 2019. This is at the backdrop, where the country is wading through a serious debt crisis with questions surrounding our ability to meet forthcoming debt obligations.

The briefing brought together a panel of industry experts who raised alarm bells on why Sri Lanka cannot afford to be complacent about State Owned Enterprise reforms anymore.

Prof. Rohan Samarajiva, further explained the seriousness of this issue along with how privatisation can achieve positive outcomes for the country.

“In 1997, Sri Lanka Telecom was making losses and providing bad services. Today, after privatisation, it is providing us with good services and employment and double of what they were earning. It is also providing the government with a dividend which generated billions to the government”. He highlighted that the country has no other alternative to prevent the hemorrhaging losses of State Owned Enterprises apart from privatisation.

“Privatisation is not a one size fits all model, it is different in different countries and sectors – as seen in the telecommunication industry in Sri Lanka – with a good regulator, we can have competition, leading to greater efficiency and making technology accessible to the common public” commented Ms. Anarkali Moonesinghe, Advisor to the Advocata Institute.

She further elaborated that possible avenues for privatisation that can be considered include listing of State Owned Enterprises in the stock exchange. According to Ms. Moonesinghe, “our stock market could use large capital companies that are owned by the government today. It not only gives people ownership but also broadens ownership by giving the average person an opportunity to become a direct stakeholder to these enterprises. This can be a better option than attaching the person through taxpayer money or having your EPF/ETF being taken into these enterprises”, thereby describing the merits of listing.

Dr. Sarath Rajaptirana, Advocata’s Academic Chair, said that the present crisis makes two choices available to us, which is “reform or perish ”. He highlighted the urgency of implementing structural reforms. He further commented that the key issue with State Owned Enterprises lies in productivity.

” For over 30 years, Sri Lanka’s total factor productivity was less than 1%,.This is in severe contrast to countries such as South Korea and Vietnam, where a jump in productivity is experienced today which we were never able to maintain . If you want permanent change in the GDP rate, you need to have productivity increase” said Dr. Rajaptirana.



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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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