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Verite shows how Lanka can achieve sustainable debt dynamics

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Verité Research, a private think tank that provides strategic analysis for Asia, hosted the online discussion Steering out of the Debt Crisis: Recipe for Budget 2022 on Oct 14. The event was anchored around addressing Sri Lanka’s debt and USD liquidity crisis, and featured presentations by Executive Director, Nishan de Mel, Research Director, Deshal de Mel, and Analyst Anushan Kapilan. An expert panel included Dr. Shantayanan Devaranjan (Georgetown University), Dr. Nandalal Weerasinghe (former Senior Deputy Governor – CBSL) and Dr. Mick Moore (Institute of Development Studies – UK).

A press release issued by the think tank said: Verité Research presented analysis pertaining to debt management and fiscal measures, including specific proposals to increase government revenue and improve the allocation of expenditure.

The Verité Research analysis showed that Sri Lanka can achieve sustainable debt dynamics by meeting two conditions with regard to its domestic debt, and two further conditions with regard to its foreign debt. The presentation explained that, despite some challenges, achieving these conditions was feasible for Sri Lanka – provided policy-makers choose to do so.

The main challenges arise from poorly formulated fiscal/budget measures, coupled with the pandemic-induced setbacks which have resulted in successive downgrades of Sri Lanka’s credit ratings. As a result, Sri Lanka has been locked out of global capital markets, and rapidly depleted its foreign reserves, as it has continued to pay back foreign bondholders, at the expense of negative feedback on the local economy.

The Verité Research analysis showed that the worst is yet to come. Sri Lanka’s foreign reserve would be completely depleted by the end of 2022 if no surprise inflows materialise, and even if they did, the crisis would simply re-emerge in 2023. This means that even if Sri Lanka can claim to be technically solvent, it does not have the liquidity to sustainably pay back its foreign debt until the country credit rating is improved by at least two notches.

The current path of repaying debt offers a high return to bondholders at the expense of huge pain to domestic businesses and consumers, and makes the credit rating outlook even more precarious. The solution is to share the pain with bondholders by pre-emptively restructuring the debt. This can improve the foreign reserve position more quickly, and thereby improve the country’s credit rating more quickly as well. This alternative path is less painful to the local economy, offers a faster recovery, with a higher probability of success. It is a better path for the Sri Lankan economy than repaying foreign bondholders in full, even if it were able to do so.

A clear distinction needs to be made between a forced restructuring which would occur if a country were to default in a disorderly way without negotiating with creditors, and an orderly pre-emptive restructuring of debt following negotiations with creditors. The sooner Sri Lanka moves to an orderly pre-emptive debt restructure, the easier it would be to do so, and the more favourable it would be for the Sri Lankan economy. Delaying the decision is damaging and can result in outcomes that are highly disruptive.

Currently the primary deficit is at 7.4% of GDP. At the current GDP growth rate of a little under 4% (predicted by Verité Research), it is necessary to reduce the primary deficit to around 2% of GDP or less to help stabilise the debt.

The Verité Research analysis showed that in the base case scenario with no policy changes, the debt to GDP Ratio would increase to 123.08% by 2025, however with prudent fiscal measures it can be kept down to 108.8% by 2025.

The fiscal measures proposed included the reduction of the personal income threshold to LKR 1 Mn per Annum; the reintroduction of PAYE with a threshold of LKR 1.5Mn; reintroduction of WHT on interest income; increasing the VAT rate to 10% in 2022 and to 12% in 2023; reducing the VAT free thresholds from LKR 300 Mn to LKR 150 Mn in 2022; simplifying the corporate tax regime to a three-tier regime; and increasing the total taxes on cigarettes and alcohol in line with increases in inflation and GDP according to a tobacco taxation formula introduced in the 2019 budget.



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UK funds projects here to prevent conflicts that threaten its interests

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GoSL not among recipients

‘The CSSF is a cross government fund which supports and delivers activity to prevent instability and conflicts that threaten UK interests’

– UK Govt. website

The British High Commission yesterday (25) announced funding for projects worth £3.7m in 2022/23 here to thwart instability and conflicts that threaten British interests.

The announcement came after the conclusion of the visit of British Foreign Minister, Lord Tariq Ahmad, who is also Minister of State for South Asia, the UN, and the Commonwealth and the Prime Minister’s Special Representative on Preventing Sexual Violence in Conflict. The British official visited Jaffna and Trincomalee.

The British HC quoted Lord Ahmad as having said: “Building lasting and inclusive peace in Sri Lanka, based on reconciliation, justice and protecting human rights is key to a stable Sri Lanka, which can attract foreign investment and achieve its economic potential. We are pleased to announce continued support to Sri Lanka through the Conflict, Stability, and Security Fund (CSSF) to address legacies of conflict, promote human rights and build cohesion across all

communities through programme funding of up to £3.7m in 2022/23.”

In response to The Island query whether the Sri Lankan government would be among the recipients of CSSF funding, BHC spokesperson said: “The funding is for programmes and projects implemented with support from BHC. All CSSF programming in Sri Lanka, will be delivered through a combination of civil society, private sector, and international development partners.”

According to the UK government website, the CSSF addressed complex national security challenges and promote international peace and stability. The National Security Council (NSC), which is chaired by the Prime Minister and attended by senior cabinet ministers, sets the CSSF’s strategic direction. It is guided by the priorities set out in the 2021 Integrated Review of Security, Defence, Development and Foreign Policy.

The BHC stated: “Lord Ahmad met senior members of the government, including President Gotabaya Rajapaska and Prime Minister Mahinda Rajapaksa. He discussed the importance of the UK Sri Lanka relationship and areas of mutual interest such as climate change and economic recovery from Covid-19. The Minister also signed a Memorandum of Understanding (MOU) with the Government of Sri Lanka on Healthcare Cooperation, which will improve knowledge sharing, best practice and expertise on healthcare, and develop an ethical and sustainable recruitment programme for the employment of Sri Lankan nurses and other healthcare professionals in the UK.

During his visit to the North and Eastern Provinces, the Minister met with local politicians and civil society. He discussed key Tamil and Muslim concerns, local governance and inclusive political engagement participation. He emphasised the UK’s support for open, tolerant and inclusive societies as well as freedom of religion or belief.

Throughout his visit to Sri Lanka, Lord Ahmad heard about the essential role civil society play in promoting respect for human rights and their views on how to make progress on reconciliation and accountability.”

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UGC Chief receives ‘The Order of the Rising Sun’ twice

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Senior Prof. Amaratunga poses for a photograph with Amb Sugiyama after receiving the title

By Shamindra Ferdinando

Senior Professor Sampath Amaratunga, Chairman of the University Grants Commission (UGC) has received the prestigious Japanese title ‘The Order of the Rising Sun’ twice.

The academic received the title the highest order conferred by the Government of Japan in the name of His Majesty the Emperor, on 14 Oct. 2021 from the then Japanese Ambassador in Colombo Akira Sugiyama at his official residence.

For the second time, the UGC Chief received the same title from President Gotabaya Rajapaksa at Dharmavijayaloka Vihara in Rukmale in Pannipitiya at an event organised on 22 January, 2022.

The Presidential Media Division said that President Rajapaksa after receiving the award

from W.K.H. Wegapitiya, Chairman of University of Sri Jayewardenepura Alumni Association and Japanese Ambassador Mizukoshi Hideaki presented it to Senior Professor Sampath Amaratunga.

Prof. Amaratunga poses for a photograph with President Rajapaksa

Prof. Sunil Ariyaratne delivered the keynote address on the occasion.

‘The Order of the Rising Sun’ is conferred by His Majesty on individuals who have made distinguished achievements in international relations, promotion of Japanese culture et al.

The Japanese embassy announced Senior Prof. Amaratunga and Manoj Fernando, Executive Vice President of the Sri Lanka Baseball/Softball Association (SLBSA) received the award.

The Chancellor of the University of Sri Jayewardenepura, Most Ven. Ittapana Dhammalankara Thera has presented a memento to Japanese Ambassador Mizukoshi Hideaki.

W.K.H. Wegapitiya and Prof. Sudantha Liyanage, Vice Chancellor of the University of Sri Jayewardenepura, presented a memento to the President. The members of Maha Sangha, MP S.B. Dissanayake, Chancellors and Vice Chancellors of the Universities, and alumni of the University of Sri Jayewardenepura were also present.

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Cardinal insists on taking Easter killings to int’l community

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Archbishop of Colombo Malcolm Cardinal Ranjith has said they are left with no alternative but to turn to the international community to seek justice for victims of the 2019 Easter Sunday bombings, according to a report published by the Union of Catholic Asian News yesterday (25).

“We tried our best to solve the issue within the country and do justice to our people but have failed,” he said during an online forum with an international audience on Jan. 24.

“The legal system under the Attorney General does not consider the recommendations of the presidential commission on the Easter attacks, therefore we have no option but to go international.”

Cardinal Ranjith had hinted in April 2021 of his intentions to not only approach the United Nations but also countries with global influence.

“We can influence those countries as the Church is an international organisation. We have connections all over the world,”he said.

A group of suicide bombers affiliated to local Islamist group National Thowheed Jamaath was suspected to be behind the bombings at three churches and three luxury hotels on Easter Sunday in 2019. The attacks killed 269 people, including 37 foreign nationals, and left around 500 injured.

Catholics in Sri Lanka have not been happy with the investigations and led by Cardinal Ranjith have vowed to fight for justice until the truth behind the attacks is revealed.

Cardinal Ranjith said he was not satisfied with the investigations underway since the recovery of a live hand grenade at All Saints’ Church in Borella on Jan. 11.

Muni, a church worker, has been arrested as a suspect by police but the local Church alleged he was being falsely implicated.

Cardinal Ranjith said that such a thing will not be allowed to happen. “We trust the judiciary to take steps to rectify the wrongdoing in the court,” he said.

The arrest of a retired doctor in connection with the same case had further raised suspicion, with Father Cyril Gamini questioning the police investigations.

“We understand that this is an attempt at fabricating a story. The whole country knows that this is a drama and we can see it is a very weak script,” he said.

Father Gamini was earlier questioned by the Criminal Investigation Department over his claims regarding the Easter Sunday attacks during an online forum last November.

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