Business

Reform or perish, it’s not too late

Published

4 years ago

2021/09/19

Sahan Weerasooriya

Sri Lankan economy in historic crisis

By K.D.D.B Vimanga and Naqiya Shiraz

The Sri Lankan economy faces a historical crisis. The root causes are the twin deficits. First, the persistent fiscal deficit – the gap between government expenditure and income. Second, the external current account deficit – the gap between total exports and imports. The problems have been festering for too long. Without urgent reforms, the crisis could easily morph into a full-blown debt crisis.

Sovereign debt workouts are extremely painful for citizens. A mangled debt restructuring can perpetuate the sense of crisis for years or even decades. A return to normal economic activity may be delayed, credit market access frozen, trade finance unavailable.

With the global pandemic, these are unusual and difficult times. The next five years are going to be crucial for the country. The problems can no longer be avoided and should be faced squarely. The journey ahead is going to be painful but the longer these are delayed the worse the problem becomes and the magnitude of the damage compounds.

State of the Economy

The new government inherited a fragile economy, battered by the Easter attacks of 2019, the constitutional crisis of October 2018 and the worst drought in 40 years in 2017. With the pandemic in 2020 Sri Lanka’s economy shrank by 3.6% with all sectors of the economy contracting.

Yet, the pandemic is not the sole cause – it only accelerated the decline of Sri Lanka’s economy that was weak to begin with. The country has long been plagued by structural weaknesses, with growth rates in the last few years even below the average growth rate during the war. Mismanaged government expenditure coupled with a long term decline in revenue have characterised Sri Lanka’s fiscal policy. As of 2020 total tax as a percentage of GDP fell to just 8%, while recurrent expenditure increased.

Borrowing to finance the persistent budget deficits is proving to be unsustainable. Total government debt rose to 101% of GDP in 2020 and has grown since. Sovereign downgrades have shut the country from international debt markets. The foreign reserves declined from US$ 7.6 bn in 2019 to US$ 5.7bn at the end of 2020 and to US$ 2.8 bn by July 2021. This level of reserves is equivalent to less than two months of imports. With future debt obligations also in need of financing, the situation is dire.

The import restrictions placed to combat this foreign exchange crisis have failed to achieve their purpose and are doing more harm than good. imports rose 30% in the first half of 2021 compared to 2020 despite stringent restrictions.

The problem lies not in the trade policy but in loose fiscal and monetary policy that has increased demand pressures within the economy, drawing in imports and leading to the balance of payments crisis and consequently the depreciation of the currency.

Measures by the Central Bank to address this by exchange rate controls and moral suasion have caused a shortage of foreign currency leading to a logjam in imports.

Fundamental and long-running macroeconomic problems were intensified by the pandemic.Import restrictions, price and exchange controls do not address the real causes.

Treating symptoms instead of the underlying causes is a recipe for disaster.

The continuation of such policies will lead to the deterioration of the economy, elevate scarcities, disadvantage the poor who are more vulnerable and in the long run lead to even higher prices and lower output due to lack of investment.

Sri Lanka’s GDP growth over the last decade has been alternating between short periods of high growth and prolonged periods of low growth. This is a result of the state-led, inward looking policies of the last decade.

A comprehensive reform agenda must be built around five fundamental pillars:

i) fiscal consolidation – The need to manage government spending within available resources and to reduce debt are paramount. Revenue mobilization must improve but the control of expenditure cannot be ignored. Budgetary institutions must be strengthened and there must be reviews not only of the scale of spending but also the scope of Government.

ii) Much of government expenditure is rigid – the bulk comprises salaries, pensions and interest so reducing these is a long term process. Reforming State Enterprises, especially in the energy sector and Sri Lankan Airlines is less difficult and could yield substantial savings. Continued operation of inefficient and loss-making SOE’s is untenable under such tight fiscal conditions. Financing SOE’s from state bank borrowings and transfers from government reduces the funds available for vital and underfunded sectors such as healthcare and education. Excessive SOE debt also weakens the financial sector and increases the contingent liabilities of the state. Therefore SOE reforms commencing with improving governance, transparency, establishing cost reflective pricing and privatisation are necessary. This can take a significant weight off the public finances and by fostering competition contribute to improvements in overall economic productivity.

iii) Tighten monetary policy and maintain exchange rate flexibility. Immediate structural reforms include, Inflation targeting, ensuring the independence of the central bank by way of legislation and enabling the functioning of a flexible exchange rate regime. Further significant attention has to be placed on the financial sector stability with a cohesive financial sector consolidation plan, with special emphasis on restructuring of SOE debt.

iv) Supporting trade and investment. Sri Lanka cannot achieve economic growth without international trade which means linking to global production sharing networks. Special focus has to be given to reducing Sri Lanka’s high rates of protection which creates a domestic market bias in the economy along with measures to improve trade facilitation and attract new export oriented FDI.

Attempts to build local champions supported by high levels of protection have

(a) diverted resources away from competitive businesses,

(b) created a hostile environment for foreign investment,

(d) dragged down growth

v) Structural reforms to increase productivity and attract FDI – Productivity levels in Sri Lanka have not matched pace with the rest of the growing economies. The reforms mentioned above are extensively discussed in Advocata’s latest publication “Framework for Economic Recovery”.

Sri Lanka stumbled into the coronavirus crisis in bad shape,with weak finances; high debt and widening fiscal deficits. It no longer has the luxury to delay painful reforms. Failure to do so will not only jeopardize the economy; it could even spawn social and humanitarian crises.

Naqiya Shiraz is the Research Analyst at the Advocata Institute and can be contacted at naqiya@advocata.org.K.D.D.B. Vimanga is a Policy Analyst at the Advocata Institute. He can be contacted at kdvimanga@advocata.org.

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Business

Janashakthi Life records over LKR 5 billion in profits for second consecutive year

Published

19 hours ago

2025/03/29

Thilina Walpola

Janashakthi Life, one of the fastest growing Life insurers in Sri Lanka has recorded a massive LKR 5.7 Billion Profit Before Tax for the period under review. This is the second consecutive year the company has surpassed the LKR 5 billion mark in PBT.

Reflecting on the company’s achievements, Ravi Liyanage, Director / CEO of Janashakthi Insurance PLC, said, “Our strong financial performance in 2024 is a testament to our strategic focus, operational excellence, and steadfast commitment to serving our policyholders. Despite market uncertainties, we have continued to grow, delivering exceptional value to our policyholders and all the stakeholders. Our exponential growth trajectory was double the size of the industry growth to reach 44% in revenue growth surpassing over LKR 6.6 Billion premium income whilst not compromising the value creation to our investors and shareholders recording over LKR 5.7 Billion PBT.

“Looking ahead, the company is well-poised to maintain its momentum as the fastest-growing insurance provider in 2025. The company has already deployed well focused strategies for market and distribution expansion in keeping with product / market as a matrix for growth. Some of the innovative products are being developed for emerging segments of the life insurance market in 2025. Further, plans are already in place to deliver best-in-class service through focused customer lifecycle management. The company is also executing robust digitalization initiatives to strengthen its position as a pioneer in digital innovation. Janashakthi Life’s total assets amount to LKR 38 billion at the close of 2024, reflecting robust growth. This underscores the financial strength and stability of the company, ensuring long-term security and sustainability for its stakeholders. Further, A key financial indicator, the Capital Adequacy Ratio of over 277%, highlights the company’s prudent financial management and reinforces confidence among all stakeholders”, added Liyanage.

Annika Senanayake, Chairperson of Janashakthi Insurance PLC, commented on the performance, “At Janashakthi Life, our resolute focus is on creating sustainable value for all stakeholders. Our performance in 2024 reflects not only our financial strength but also our deep commitment to supporting our policyholders when it matters most. The significant increase in claims paid denotes our dedication to being a reliable partner in our customers’ lives, providing them with financial security and peace of mind. As we look to the future, we are committed to invest in our human resource, technology, and product innovation to continue delivering customer-centric solutions, strengthening our market position, and driving long-term growth in Sri Lanka’s life insurance sector”.

“In 2024, we provided over LKR 4.2 billion in benefits to our policyholders through claims and maturities. The company’s prudent financial management and planning paved the way during this period to stay strong and tall irrespective of economic challenges”, Senanayake added.

The year under review saw many outstanding achievements in the company’s operations, including the highest growth in lives protected, new business premium growth of over 63%, which reflects the success of our business acquisition efforts. Additionally, we received numerous industry recognitions, such as Asia’s Best Insurance Company for Innovations at the Fifth Asia’s Best and Emerging Insurance Company Awards, the International Finance Awards, the Business Pinnacle Awards, the Business Tabloid Awards, the Global Banking Finance Awards 2024, the SLITAD People Development Awards, and the TAGS Awards, all of which highlight our commitment to employee development and industry leadership, to name just a few.

Founded in 1994 as a Life Insurance company, Janashakthi Insurance PLC (Janashakthi Life) made its mark in the industry as an innovator and household name over a span of over 30 years. Janashakthi Life has a strong presence across the island, with an expanding network of over 75 branches and a dedicated call centre that covers every corner of Sri Lanka. In line with its purpose of ‘Uplifting Lives and Empowering Dreams’, Janashakthi Life remains committed to becoming a leader in the Life Insurance industry by delivering a service beyond Insurance to its customers and stakeholders. Janashakthi Insurance PLC is a member of the JXG (Janashakthi Group), Sri Lanka’s emerging financial conglomerate that operates in the Insurance, Finance, and Investment sectors.

Business

Drop in HNB share price retards stock market trading; turnover dips

Published

19 hours ago

2025/03/29

Thilina Walpola

CSE trading was of a negative orientation and a low turnover level was recorded yesterday. A drop in the price of HNB shares contributed to this development in considerable measure.

HNB’s initial share price was Rs 314.75 but subsequently it dropped to Rs 305. HNB thus contributed 24 negative points to both indices.

The All Share Price Index went down by 67 points, while the S and P SL20 declined by 19.4 points. Turnover stood at Rs 1.66 billion with six crossings.

Those crossings were reported in Lankem Ceylon where 1 million shares crossed to the tune of Rs 85 million; its shares traded at Rs 85, Commercial Bank 500,000 shares crossed to the tune of Rs 74 million; its shares sold at Rs 148, Richard Peiris 2.6 million shares crossed for Rs 68.9 million; its shares traded at Rs 26, Agarapathana Plantations 4 million shares crossed to the tune of Rs 52.4 million; its shares traded at Rs 13.10, Hemas Holdings 200,000 shares crossed for Rs 24 million; its shares traded at Rs 120 and JKH 1 million shares crossed to the tune of Rs 20.3 million; its shares traded at Rs 20.3.

In the retail market top six companies that mainly contributed to the turnover were; Sampath Bank Rs 183 million (1.5 million shares traded), JKH Rs 172 million (8.5 million shares traded), Commercial Bank Rs 138 million (931,000 shares traded), HNB Rs 122 million (403,000 shares traded), TJ Lanka Rs 57.4 million (1.1 million shares traded) and Commercial Credit Rs 33.3 million (593,000 shares traded). During the day 52.9 million share volumes changed hands in 11112 transactions.

It is said that the banking sector counter was the main contributor to the turnover followed by the manufacturing sector, especially JKH. The plantations sector counters were also a bit active especially with Agarapathana Plantations featuring.

The rupee was quoted at Rs 296.30/40 to the US dollar in the spot market, stronger from 296.35/45 on the previous day, dealers said, while bond yields were up steeply.

A bond maturing on 15.09.2027 was quoted at 9.55/65 percent, up from 9.47/50 percent. A bond maturing on 15.03.2028 was quoted at 9.97/10.05 percent. A bond maturing on 15.12.2028 was quoted at 10.20/30 percent. A bond maturing on 15.09.2029 was quoted at 10.35/45 percent, up from 10.30/35 percent. A bond maturing on 15.12.2032 was quoted at 10.75/85 percent, down from 10.75/90 percent.

The Central Bank was quoting a rate of Rs 292.0669 for buying and Rs 300.5806 for selling for US dollar telegraphic transfers; a rate of Rs 313.3986 for buying and Rs 326.1557 for selling for Euro; Rs 376.5107 buying and Rs 390.7131 selling for the British pound and Rs 1.9269 buying and Rs 2.0037 selling for the Japanese yen.

By Hiran H.Senewiratne

Business

British Council Sri Lanka marks Commonwealth Day by hosting latest cohort of returning Commonwealth and Chevening Scholars from Sri Lanka

Published

19 hours ago

2025/03/29

Thilina Walpola

Returning Commonwealth and Chevening Scholars of Sri Lanka with their alumni during the event held on Commonwealth Day 2025

The British Council in Sri Lanka hosted its annual networking event to welcome home the latest batch of Sri Lanka’s Commonwealth and Chevening Scholars returning from the UK on completion of their studies.

This year’s event, organized together with the British High Commission Colombo, was also the 65th anniversary of the Commonwealth Scholarships, and took place on Commonwealth Day—the first-ever “Welcome Home” event that celebrated both Commonwealth and Chevening Scholars. The scholarships enable outstanding emerging leaders from all over the world to pursue advance studies in the UK.

HE Andrew Patrick, British High Commissioner, Orlando Edwards, Country Director of British Council Sri Lanka, and Philip Everest, Policy Lead from the Foreign, Commonwealth & Development (FCDO) Commonwealth & Marshall Scholarship Unit, together with Commonwealth and Chevening Scholarship alumni attended.

Commonwealth Day was celebrated across 56 Commonwealth member countries on 10March under this year’s theme ‘Together We Thrive’, demonstrating how working together can build a future defined by opportunity and resilience. During his Commonwealth Day Message, His Majesty The King, Head of the Commonwealth stated, “The Commonwealth’s ability to bring together people from all over the world has stood the test of time and remains as ever-important today.