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Moody’s downgrade ‘unwarranted, erroneous suggesting reckless reaction’

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Government wades into battle with facts, figures and projections

In an extraordinary hard-hitting rejoinder to Moody’s downgrade of their Sri Lanka rating from B2 to Caa1 with a stable outlook, the Ministry of Finance, State Ministry of Money, Capital Markets and Public Enterprise Reforms (headed by former Central Bank Governor Ajith Nivard Cabraal) and the Central Bank accused the well-known rating agency of an “unwarranted and erroneous” finding that suggests a “reckless reaction.”

It said that “instead of understanding the economic turnaround as well as awaiting the Budget that is due in November, the downgrade of SL at the beginning of the Economic Revival is inexplicable.”

“This hasty rating action seems similar to the previous premature and reckless downgrades by rating agencies in the immediate aftermath of the ending of the internal conflict in 2009 and during the political impasse at the end of 2018. In both instances, the rating actions were proven to be hasty and erroneous, and those actions only resulted in several investors suffering unnecessary loses and missing out on emerging opportunities.”

“Moody’s rating downgrade fails to recognize and do justice to the ground reality of the ongoing rapid economic recovery backed by vastly improved business confidence arising from the return of political stability and policy stability after a lapse of five years,” the presentation said.

It went on to stress that Sri Lanka, like many of its peers in the emerging market group, experienced initial capital outflows, exchange rate depreciation, showdown in activity and pressure on government finances in response to the effects of the Covid-19 pandemic.

“But, the swiftness with which decisions were taken followed by the landslide victory of the government, enabled Sri Lanka to move along a recovery path towards growth and stability,” it said.

Since May, merchandise exports had bounced back, and by July, had returned to pre-Covid monthly averages of USD one billion, the presentation supported by graphs and charts said.

It argued that SL recognized the probable external sector pressure early, and decisively curtailed non-essential imports in order to prioritize external debt service obligations. The cumulative trade deficit by end December is expected to be around only USD 5.8 billion, significantly down from USD eight billion the previous year.

“The savings on the import bill due to the curtailment of non-essential imports as well as significant reductions in the fuel import bill is expected to be over USD 2.0 billion,” the presentation said.

Discussing the vital tourism sector, it said that although inbound tourist movements are yet not possible given the global pandemic situation, other service exports, including IT services and shipping remain robust. It added that workers’ remittances have recorded a sharp increase in spite of the initial expectations of a slowdown and at current trends, “the cumulative decline in workers remittances is likely to be marginal, compared to previous expectations of a decline of 15%.”

On foreign direct investment, it admitted that FDI inflows had slowed, but the investment pipeline is strengthening. While FDI slowed in the first half of this year (from a peak of USD 2,000 billion in 2018), looking ahead prospects were promising particularly with expected inflows into the Port City project and for new manufacturing projects.

“The expected finalization of new legislation for the Port City within a month will result in the realization of investment by those who have already completed due diligence on such investment,” the presentation said. “Other expected investments include import alternative industries as well as investments by international financial institutions.”

“FDI inflows during 2020 are expected to be over USD 750 million, which is only about USD 400 million less that in 2019. At the start of the pandemic, FDIs were expected to be only around USD 300 million for the year 2020.”

The presentation further said that stock market indices have improved dramatically to pre-Covid levels and are likely to gain further momentum. Also, foreign inflows to the government securities market have already showed signs of resumption and according to initial responses, are likely to increase in the coming months, particularly in the wake of the attractive SWAP arrangements offered by the SL authorities.

With increased emphasis on domestic agriculture, agro-based industries and resource-based industries, domestic economic activities have turned around remarkably and recorded V-shaped recoveries. A bumper Yala crop was expected to follow the bumper Maha. Industrial production has rebounded, electricity generation is normalizing with greater reliance on hydropower generation and the construction sector has gradually gathered pace.

The exchange rate had appreciated sharply since mid-April and remains stable at appreciated levels, allowing the Central Bank to accumulate reserves through market purchases of foreign exchange. Foreign inflows following the Moody’s downgrade enabled the Central Bank to purchase USD 30 million from the forex market on Sept. 29.

The presentation further said that the Debt to GDP ration which increased in recent years is expected to improve in the medium term; that envisaged financing inflows for 2020 favours domestic markets and strategic foreign financing; and that foreign Treasury bills and bonds holdings are likely to attract a substantial volume of investments in coming months.

Other positives outlined includes that official reserves of CBSL had increased to USD 7.4 bn. by end August 2020; a policy environment facilitating high economic growth beyond the recovery stage while preserving macro-economic stability and a “deep and unwavering commitment to our investors.”



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Prelates launch legal battle against New Fortress

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by A. J. A. Abeynayake

Archbishop of Colombo Malcolm Cardinal Ranjith and Ven. Elle Gunawansa Thera yesterday filed a fundamental rights petition before the Supreme Court against the transfer of shares of the Yugadanavi LNG Power Plant in Kerawalapitiya to a US energy firm.

The petition seeks an order preventing the US firm New Fortress Inc. from obtaining the LNG supply contract.

Prime Minister Mahinda Rajapaksa, other members of the Cabinet, West Coast Power Limited, the owner of the 310 MW Yugadanavi Power Plant, the US-based company New Fortress Energy and the Attorney General are among the 54 respondents named in the FR petition.

The petition requests the court to issue an order to nullify the Cabinet decision on transferring state-owned shares of the Yugadanavi power plant to the US company.

The petition states that the decision taken by the Cabinet of Ministers to transfer 40% stake in the company owning the Yugadanavi Power Plant to the US firm in question was not justified. It also says the Cabinet failed to focus on issues such as the national economy and national security before taking the relevant decisions.

The petitioners have requested the Court to declare that their fundamental rights as well as the rights of the entire citizenry and their future generations guaranteed to them under Article 12(1) of the Constitution have been infringed and/or are continuing to be infringed and/or are in imminent danger of being infringed by the actions of the Respondents with regard to the Yugadanavi deal.

They have requested the Court to quash the decision of the Cabinet authorising the procurement of LNG from the 53rd respondent – the New Fortress Energy.

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Financial crisis so acute teachers’ demands cannot be met – SLPP Chairman

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300,000 entering schools for first time this year among those victimised

By Shamindra Ferdinando

SLPP Chairman and Foreign Minister Prof. G.L. Peiris yesterday (18) emphasised that the worsening financial crisis experienced by the country was so acute the government wasn’t in a position to grant the salary increase sought by school principals and teachers.

Prof. Peiris, who served as the Education Minister till August this year said that the public realised the government lacked the wherewithal to meet the striking teachers’ demands. The academic said so at the weekly SLPP media briefing at the party office in Battaramulla.

Responding to media queries, Prof. Peiris stressed that the government expected the striking teachers to facilitate re-opening of schools on a staggered basis beginning Oct 21 (Thursday). The Minister indicated that striking unions shouldn’t expect to settle the salary issue on their terms as the government lacked the means even if it wanted to do so.

Referring to the rapid deterioration of public finances in the wake of Covid-19 eruption in early 2020, Prof. Peiris said that Budget 2022 was presented amidst an extremely difficult time.

The top SLPP spokesperson reiterated the government’s commitment to grant strikers’ demand in two stages as announced by Prime Minister Mahinda Rajapaksa at a meeting with striking unions at Temple Trees. Premier Rajapaksa on Oct 12 told a delegation of striking unions that the government would pay one third of the increase through the Budget 2022 and the remaining two in the following year’s budget.

The Premier’s Office quoted him as having told the delegates that the sharp drop in government income deprived the administration of an opportunity to grant the increase. Striking unions want the government to settle the issues immediately in one go.

Prof. Peiris appealed to those who have been on strike for 100 days to resume teaching. The student community really suffered due to the Covid 19 eruption and further delay in resuming studies would be catastrophic, Prof. Peiris said, underscoring the importance of restoring normalcy as about 300,000 would go to schools for the first time in their life.

Prof. Peiris said that schools that conduct classes from Grade 1 to 5 and those with less than 200 students would be re-opened on Oct 21. According to the minister, approximately 3,800 schools would be re-opened as scheduled.

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Lankan authorities must end violence and discrimination against Muslims, says AI

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Kyle Ward, AI’s Deputy Secretary General

The Lankan Muslim community has suffered consistent discrimination, harassment and violence, since 2013, culminating in the adoption of government policies explicitly targeting the minority group, said Amnesty International, in a new report published yesterday.

The report titled From Burning Houses to Burning Bodies: Anti-Muslim Harassment, Discrimination and Violence in Sri Lanka, traces the development of anti-Muslim sentiment in Sri Lanka since 2013 amid surging Sinhala-Buddhist nationalism. This discrimination has evolved from a rising series of mob attacks committed with impunity, into government policies explicitly discriminating against Muslims, including the forced cremation of Muslim Covid-19 victims and current proposals to ban both the niqab (face veil) and madrasas (religious schools).

“While anti-Muslim sentiment in Sri Lanka is nothing new, the situation has regressed sharply in recent years. Incidents of violence against Muslims, committed with the tacit approval of the authorities, have occurred with alarming frequency. This has been accompanied by the adoption by the current government of rhetoric and policies that have been openly hostile to Muslims,” said Kyle Ward, Amnesty International’s Deputy Secretary General.

“The Sri Lankan authorities must break this alarming trend and uphold their duty to protect Muslims from further attacks, hold perpetrators accountable and end the use of government policies to target, harass and discriminate against the Muslim community.”

Incidents of violence towards Muslims have risen in frequency and intensity since 2013, with a series of flashpoints in which attackers and those responsible for hate speech have enjoyed impunity for their actions.

This escalating hostility began with the anti-halal campaign of that year, when Sinhala Buddhist nationalist groups successfully lobbied to end the halal certification of food, which demarks food permissible for consumption by Muslims, in accordance with Islamic scripture and customs. The campaign gave rise to a number of attacks on mosques and Muslim businesses, with the lack of accountability for those responsible acting as a signal to others that acts of violence against Muslims could be committed with impunity.

The following year, anti-Muslim riots in the southern coastal town of Aluthgama began after a Sinhala Buddhist nationalist group held a rally in the town. Here too, perpetrators of violence enjoyed impunity and authorities failed to deliver justice to victims.

Despite a new government in 2015, which promised justice and accountability for ethnic and religious minorities, attacks against Muslims continued to occur. Shortly after the election, anti-Muslim mob violence flared in the southern coastal town of Ginthota in 2017, while similar violence was seen in 2018 in Digana and Ampara, towns in the central and eastern provinces respectively. Not only did the perpetrators escape accountability, victims and witnesses alleged the police and armed forces did not offer sufficient protection or act to prevent the violence.

Hostility towards Muslims increased markedly after more than 250 people were killed in coordinated suicide attacks committed by a local Islamist group and claimed by the Islamic State on Easter Sunday 2019.

Following these attacks, on 13 May 2019, Muslims in several towns in the North-Western Province of Sri Lanka came under attack during Ramadan, one of the holiest months in the Muslim calendar. Mosques across the country were also attacked and a spate of ‘hate speech’ posts and anti-Muslim vitriol was seen on social media. Emergency regulations rushed through by the authorities were also used to arbitrarily arrest hundreds of Muslims in the wake of the attacks.

Since taking office, the current government has continued to target and scapegoat the Muslim population to distract from political and economic issues.

This was evident in the mandatory cremation policy on the disposal of the bodies of Covid-19 victims, which was implemented despite cremation being expressly forbidden in Islam, and a lack of scientific evidence to substantiate the claims that burying victims would further the spread of the disease.

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