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Verite shows how Lanka can achieve sustainable debt dynamics

Published

5 years ago

2021/10/18

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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Advisory for High Waves for the sea areas extending from Colombo to Pottuvil via Galle, Matara and Hambantota

Published

36 mins ago

2026/08/26

Priyan

Advisory for High Waves
Issued by the Natural Hazards Early Warning Centre Issued at 03.30 p.m. on 26 August 2026 Valid for the period until 03.30 p.m. 27 August 2026

An advisory for high waves has been issued for the sea areas extending from Colombo to Pottuvil via Galle, Matara and Hambantota and naval and fishing communities engaged in activities in the aforementioned sea areas, as well as coastal communities living in the aforementioned nearshore areas, are advised to remain vigilant in this regard

The swell waves (about 2.0 m – 3.0 m) height (This is not for land area) may increase in the sea areas off the coast extending from Colombo to Pottuvil via Galle, Matara and Hambantota. There is a possibility that near shore sea areas off the coast extending from Beruwala to Matara via Galle, may experience surges due to swell waves.

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We must create social awareness to ensure the physical and mental well-being of children with disabilities – PM

Published

2 hours ago

2026/08/26

Priyan

Prime Minister Dr. Harini Amarasuriya stated that, given their particular vulnerability children with disabilities require protection, and stressed the need to foster social awareness to protect them from negative social influences while promoting their physical and mental well-being. She emphasized the need to implement awareness programmes for parents, teachers and other members of society towards this end.

The Prime Minister made these remarks on Tuesday [August 25] while visiting and observing the National Institute of Special and Inclusive Education – Shishyodaya, located in Veniwelkola.

The purpose of the Prime Minister’s visit was to observe the institutional structure and gain an understanding of the areas that require further development.

The Prime Minister emphasized that a systematic mechanism should be established to transform the institution, which was established in 2019 outside the basic standards and plans for Inclusive Education, into an institution that provides quality education to children and fulfills the targeted objectives of inclusive education. She also proposed appointing a special committee to make the necessary recommendations in this regard.

The Prime Minister further stated that steps would be taken in coordination with the Ministry of Health to address the shortage of therapists and medical professionals required to provide clinical services to students at the institution. She also stressed that the maintenance of equipment and buildings should be carried out properly using the financial allocations provided for such purposes.

The Prime Minister further noted that finding sustainable solutions to the issues faced by the institution is essential, while immediate interventions should be made to address issues that can be resolved without delay. The welfare of the teachers serving at the institution was also discussed during the visit.

Member of Parliament Anura Panagoda, Chairman of the Homagama Pradeshiya Sabha Kasun Rathnayake, Secretary to the Ministry of Education, Higher Education and Vocational Education Nalaka Kaluwewa, ministry officials, parents and students were present.

[Prime Minister’s Media Division]

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Govt. determined to press ahead with 22A: Justice Minister

Published

12 hours ago

2026/08/26

Sahan Weerasooriya

Nanayakkara

By Shamindra Ferdinando

Justice and National Integration Minister Harshana Nanayakkara said yesterday that the government would proceed with both the 22nd Amendment to the Constitution, and the Judicature (Amendment) Bill, because the government could not achieve its goal by increasing the retirement ages of a section of the judges.

The Attorney-at-Law declared that the government would go ahead with both Bills, whatever the obstacles. The Minister was responding to The Island query whether the government would go ahead with the Judicature (Amendment) Bill that hadn’t been so far challenged in the Supreme Court, pending the decision on the controversial 22nd Amendment facing tough legal challenge.

Nanayakkara emphasised the importance of the enactment of both Bills. The 22nd Amendment seeks to increase the retirement ages of Supreme Court judges to 67 from 65 and Court of Appeal judges from 63 to 65. The Judicature (Amendment) Bill seeks to increase the retirement ages of the High Court judges to 63 from 61, and that of the District court judges and and Magistrates to 62.

Minister Nanayakkara said that the enactment of both Bills simultaneously would make a significant contribution to improve the overall situation, particularly dealing with a backlog of 1.1 million cases.

Joint Opposition and the Bar Association of Sri Lanka (BASL), too, acknowledged that petitions against the Judicature (Amendment) Bill were yet to be filed.