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SRI LANKA NEWS – APRIL 2022


SRI LANKA NEWS
(APRIL 2022)
Compiled by Victor Melder

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President Gotabaya Rajapaksa has issued the Extraordinary Gazette declaring a public emergency in Sri Lanka with effect from April 01, 2022. The Gazette has been issued considering the prevailing situation in the country and in the interests of public security, the protection of public order and the maintenance of supplies and services essential to the life of the community. President Gotabaya has issued the Gazette under the powers vested in him by Section 2 of the Public Security Ordinance (Chapter 40), as amended by Act. No. 8 of 1959. Law No. 6 of 1978 and Act, No.28 of 1988. (Daily Mirror Online, 1.4.2022)

Sri Lanka will need about $3 billion in external assistance over the next six months to help restore supplies of essential items including fuel and medicine, Finance Minister Ali Sabry told Reuters yesterday. “It’s a Herculean task,” said Mr. Sabry in his first interview since taking office this week, referring to finding $3 billion in bridge financing as the country readies for negotiations with the International Monetary Fund (IMF) this month. The country will look to restructure international sovereign bonds and seek a moratorium on payments, and is confident it can negotiate with bondholders over a $1 billion payment due in July. “The entire effort is not to go for a hard default,” Mr. Sabry said. “We understand the consequences of a hard default.” J.P. Morgan analysts estimated this week that Sri Lanka’s gross debt servicing would amount to $7 billion this year, with a current account deficit of around $3 billion. The country has $12.6 billion in outstanding international sovereign bonds, central bank data showed, and foreign reserves of $1.9 billion at the end of March. “The first priority is to see that we get back to the normal supply channel in terms of fuel, gas, drugs… and thereby electricity so that the people’s uprising can be addressed,” Mr. Sabry said. Mr. Sabry said he will lead a delegation of Sri Lankan officials to Washington to start talks with the IMF on April 18 and that financial and legal advisers would be selected within 21 days to help the Government restructure its international debt. Sri Lankan authorities will also reach out to rating agencies, Mr. Sabry said, as the country looks to regain access to international financial markets after being locked out due to multiple ratings downgrades since 2020. He said the government would raise taxes and fuel prices within six months and seek to reform loss-making state-owned enterprises. These measures were among key recommendations in an IMF review of Sri Lanka’s economy released in early March. “These are very unpopular measures, but these are things we need to do for the country to come out of this,” the Finance Minister said. He said Sri Lanka will seek another $500 million credit line from India for fuel, which would suffice for about five weeks. The government would also look for support from the Asian Development Bank, the World Bank and bilateral partners including China, the United States, Britain and countries in the Middle East. “We know where we are, and the only thing is to fight back,” Mr. Sabry said.  “We have no choice.”  Discussions are ongoing with China on a $1.5 billion credit line, a syndicated loan of up to $1 billion and a request from Sri Lanka’s president in January to restructure some debt. Beijing and New Delhi have long jostled for influence over the island off India’s southern tip, with the country pulling closer to China under the powerful Rajapaksa family. But in recent weeks, as the economic crisis deepened, Sri Lanka has leaned heavily on assistance from India. “We are a neutral country,” said Sabry. “We are a friend of all.” (Sunday Times, 10.4.2022)

 Sri Lanka’s headline inflation could peak at 28 percent in the next couple of months from the 18.7 percent in March,  as the full effects of the rupee float and the festive demand amid higher global commodities prices could set off a lengthy stretch of hotter prices.  According to Dr. Nandalal Weerasinghe, who took over as Central Bank Governor last week, the headline inflation could climb to 25 percent and then up to 28 percent before any easing happens.  “Things would get worse before it gets better,” he said in response to a question from a reporter last Friday. 
The 28 percent headline inflation is the highest since June 2008 when the headline inflation measured by the Colombo Consumer Price Index read as 28.2 percent. Thereafter, the prices started easing before settling at single digit levels about 13 years starting from February 2009 to November 2021, when the inflation was recorded at 9.9 percent.  In March 2022, Sri Lanka recorded its highest headline inflation of 18.7 percent since November 2008.  “The inflation in the next three months has already taken place. It’s already too late for anyone to prevent inflation reaching 20 percent, 25 percent and 28 percent in the next three months,” Dr. Weerasinghe cautioned.  (Daily Mirror, 11.4.2022)

Sri Lanka will need about US $3 billion in external assistance in the next six months to help restore supplies of essential items including fuel and medicine, Finance Minister Ali Sabry told Reuters. “It’s a Herculean task,” Finance Minister Ali Sabry said in his first interview since taking office this week, referring to finding $3 billion in bridge financing as the country readies for negotiations with the International Monetary Fund (IMF) this month. The country will look to restructure international sovereign bonds and seek a moratorium on payments, and is confident it can negotiate with bondholders over a $1 billion payment due in July. J.P. Morgan analysts estimated this week that Sri Lanka’s gross debt servicing would amount to $7 billion this year, with a current account deficit of around $3 billion. The country has $12.55 billion in outstanding international sovereign bonds, central bank data showed, and foreign reserves of $1.93 billion at the end of March. “The first priority is to see that we get back to the normal supply channel in terms of fuel, gas, drugs and thereby electricity so that the people’s uprising can be addressed,” Sabry said. Anti-government protests have raged across the island for days, with at least one turning violent in the commercial capital of Colombo, in a threat to the country’s lucrative tourism industry. “We respect your right to protest, but no violence, because it is counterproductive,” Sabry said. “Our tourism, which was beautifully coming back in February with 140,000 tourists coming in, has been severely affected ever since the demonstrations.” (Daily Island, 11.4.2022)

On Friday, the new central bank governor raised interest rates by an unprecedented 700 basis points in a bid to tame rocketing inflation and stabilise the economy. The government would also look for support from the Asian Development Bank, the World Bank and bilateral partners including China, the United States, Britain and countries in the Middle East. “We know where we are, and the only thing is to fight back,” Sabry said. Discussions are ongoing with China on a $1.5 billion credit line, a syndicated loan of up to $1 billion and a request from Sri Lanka’s President in January to restructure some debt. “Hopefully we will be able to get some relief which would help until larger infusions come in,” Sabry told Reuters. (Daily Island, 11.4.2022)

A group of protestors at the Galle Face area now re-named as the ‘Gota Go Gama’ have written to Prime Minister Mahinda Rajapaksa, declining his invitation for a meeting, but have put forward two demands saying the President must resign and all Rajapaksa members must leave the government. Prime Minister Rajapaksa earlier in the day said he was ready to hold discussions with the protesting youth at Galle Face Green. A spokesman from the Prime Minister’s office confirmed that if the protesting youth are ready to meet him, the Prime Minister is ready to meet and discuss the ongoing crisis situation. However, in a letter sent to Rajapaksa, a group of protestors said they were not ready to meet him unless President Gotabaya Rajapaksa resigns and all Rajapaksa members leave the government.  In the second demand, the protestors specifically ask for the Prime Minister and all other Rajapaksa members, namely Chamal Rajapaksa, Basil Rajapaksa, Namal Rajapaksa, Shashindra Rajapaksa and Nipuna Ranawaka to step down from all government posts immediately and also leave Parliament. The letter which was released on social media platforms by some activists said they will continue the “GotaGoGama” protest until their main two demands are met. (Daily Mirror Online, 13.4.2022)

The World Bank has granted approval to release an immediate grant of US$ 10 million to purchase emergency drugs, Finance Minister Ali Sabri said. He told a television programme last night that the approval was granted following a discussion with the World Bank officials. The Minister also said the World Bank would grant another US$ 500 million within two weeks to purchase emergency drugs and other essentials including gas. (Daily Mirror Online, 12.4.2022)

Sri Lanka needs between $3 billion to $4 billion this year to pull itself out of an unprecedented economic crisis and plans to start talks with the International Monetary Fund for help, Finance Minister Ali Sabry said. The nation is looking at making a “decent case” before the IMF to help preserve the economy, he said in an interview to Bloomberg Television’s Yvonne Man and David Ingles. Sabry said talks are scheduled to begin in Washington on 18 April and he expects emergency relief funds a week later, if things go well. (Ceylon Today, 14.4.2022)

India is willing to commit up to another $2 billion in financial assistance to Sri Lanka while also supporting the island nation with food and fuel, five sources told Reuters, as New Delhi tries to regain ground lost to China in recent years. Sri Lanka, hit by its worst economic crisis since independence in 1948 and on the brink of its first debt default, has been asking friendly nations including India and China for credit lines, food and energy. The Asian giants have already committed billions of dollars in financial support. “We are definitely looking to help them out and are willing to offer more swap lines and loans,” said an Indian source aware of various discussions with Sri Lanka. A senior government source in New Delhi said Sri Lanka’s warning on Tuesday of defaulting on debt payments was a worry, but that “we can still give them up to $2 billion in swaps and support”. (Ceylon Today, 14.4.2022)

The Government is hoping to raise US$8 billion from the lease or sale of valuable public assets to bolster rapidly dwindling foreign reserves, the report of a newly-appointed economic advisory committee has revealed. Among the main items in the list were the long term leases of Katunayake International Airport for $2 billion, Mattala Airport for $300 million and Ratmalana Airport for $400 million.  Arrangements have been made to hand over the Colombo North Port Development Project for an investment of $600 million while Colombo Port City lands will be leased out at a total of $4 billion. Accordingly, Further shares of Sri Lanka Telecom will be sold at a price of $500 million and Sri Lanka Insurance Corporation shares for $300 million. Divestment of non-strategic state-owned assets has been suggested as a part of the government’s multi-pronged plan in the short-term to improve their operational and financial efficiency while increasing the country’s reserves position. (Sunday Times, 17.4.2022)

The Colombo Fort Police today filed a facts report pertaining to the public protest which has been continuing in the Galle Face green area. This report (A/21838/22) has been filed under the signature of Fort Police Station OIC reserving their duty to file a fresh B report if the protest turned violence. In its report, the Fort Police said the protest has caused severe traffic congestion near the Galle Face green area and caused disturbance to pedestrians. Police also reported to the court that the use of unauthorized loudspeakers has caused noise pollution in the area. (Daily Mirror Online, 18.4.2022)

President Gotabaya Rajapaksa appointed 24 State Ministers last evening. The newly appointed state ministers are as follows:  1. Professor G.L. Peiris – State Minister of Defense 2. Rohana Dissanayake – State Minister of Provincial Councils and Local Government 3. Arundhika Fernando – State Minister of Plantations 4. Lohan Ratwatte – State Minister of Urban Development 5. Tharaka Balasuriya – State Minister of External Affairs 6. Indika Anurudhdha – State Minister of Housing 7. Sanath Nishantha – State Minister of Water Supply 8. Siripala Gamlath – State Minister of Mahaweli 9. Anuradha Jayaratne – State Minister of Irrigation 10. Sisira Jayakody – State Minister of Indigenous Medicine 11. Prasanna Ranaweera – State Minister of Industries 12. D.V. Chanaka – State Minister of Tourism and Fisheries 13. D.B. Herath – State Minister of Livestock 14. Kader Masthan – State Minister of Rural Economic Crop Cultivation and Promotion 15. Ashoka Priyantha – State Minister of Trade 16. A. Aravind Kumar – State Minister of Estate Housing and Community Infrastructure 17. Geetha Kumarasinghe – State Minister of Culture and Performing Arts 18. Gunapala Ratnasekera – State Minister of Cooperative Services, Business Development and Consumer Protection 19. Kapila Nuwan Athukorala – State Minister of Development of Minor Crops Plantation 20. Dr. Gayashan Navananda – State Minister of Health 21. Surendra Raghavan – State Minister of Education Services and Reforms 22. Diana Gamage – State Minister of Transport 23. Dr. Seetha Arambepola –State Minister of Education and Technology 24. Vijitha Berugoda   – State Minister of Ports and Shipping State Ministers Piyal Nishantha and Piyankara Jayarathne continue to hold their portfolios (Ceylon Today, 19.4.2022)

Tea exports in the first quarter have plunged by $ 52 million in March in comparison to a year ago, Asia Siyaka Commodities PLC said yesterday. It said exports in January to March amounted to $ 286.7 million recording a loss of $ 52 million compared with $ 338 million in the corresponding period of last year. “This loss of income is mainly from the 9% drop of quantity YoY 2021. The approximate FOB value per kilogram also declined to $ 4.50 this year compared with $ 4.84 the year before; reflecting higher costs, weakening curries of key markets, COVID related disruption and other factors,” Asia Siyaka said. Analysing Customs data, Siyaka Research said a total of 23.1 million kg was shipped in March, 10% lower than the previous year’s monthly quantity of 25.8 million kg. March potential has always been in excess of 25 million kg with the only exception being 2020 when the initial COVID lockdown disrupted work. The Q1 total for 2022 is now a very low 63.7 million kg down 9% on last year’s figure of 69.8 million kg and the lowest January – March in more than 20 years. Asia Siyaka said the primary reason for declining exports for Q1 2022 has been the steady decline of tea production from November 2021 until February 2022. Cumulative production for these four months of 2021/22 was 81.5 million kg, whilst in 2020/21 production was 18% more at 99.2 million kg. The absence of fertiliser and agro chemicals, rising costs and a national policy that disregard practical agriculture has left the industry lagging behind.  Loyal buyers of Ceylon tea are beginning to give up on us and are shifting to other origins. A classic case is Japan, one of the strongest buyers of High Grown Ceylon tea and a market crucial to the viability of this segment; has purchased only 872,232 Kgs during the period January – March 2022. In the two previous years exports in Q1 to this destination were 1.5 million kg and 1.4 million kg. Asia Siyaka said the tea industry is already struggling with aging tea bushes, slow replanting, climate change, much higher shipping costs and rising inflation in most of our markets. “Availability of fertilisers and agrochemicals at a usable cost and at the right time is crucial if Ceylon Tea is to recover lost markets. The first round of fertiliser must go in over the next 2-3 weeks,” it added. (Daily Financial Times, 21.4.2022)

Colombo: Sri Lanka’s nationwide inflation in March 2022 determined under the National Consumer Price Index (NCPI) jumped to 21.5 percent from 17.5 percent recorded in February 2022 on a year-on-year basis, the Department of Census and Statistics reported Thursday. The NCPI for all items for the month of March 2022 increased to 172.7 from 167.8 in the previous month. With respect to March 2021, the reported inflation for the month of March 2022 was mainly due to the higher price levels prevailed in both food and non-food groups. Accordingly, the Year-on-Year inflation of the food group increased to 29.5 percent in March 2022 from 24.7 percent in February 2022 and the Year-on-Year inflation of the non-food group increased to 14.5 percent in March 2022 from 11.0 percent in previous month. Contributions to the inflation rate of March 2022 from food group and non-food group are 13.79 percent and 7.71 percent respectively. The moving average inflation for the month of March 2022 is 10.6 percent. The corresponding rate for the month of February 2022 was 9.3 percent. (Colombo Page, 22.4.2022)

The government has stepped up money printing at a time of civil unrest demanding essential commodities, fuel and cooking gas at a reasonable price amidst economic crisis triggered by dollar scarcity, massive external debt and balance of payment issues, with the Central Bank (CB) printing a sum of Rs. 20.28 billion on April 18 and 19. It printed Rs 1.22 billion on April 18 and Rs.19.06 billion on April 19, the day a protestor was shot dead and 24 others injured when police opened fire to disperse angry crowds in Rambukkana who demanded fuel for reduced prices following a massive hike in petrol and diesel on the previous night. Several protests have been witnessed this week in Kandy, Galle, Gampola, Mathugama, Baddegama, Avissawella, Kegalle, Hingurakgoda, and Madampe and buses were unable to proceed on their journeys on the Chilaw-Colombo main road as protestors thronged the road. The CB has printed Rs.1.79 trillion during the period of January 2020 to April 19, 2022, official data showed. CB Governor Dr. Nandalal Weerasighe told a recent media briefing that the bank will curtail money printing while refusing to divulge details of money printed in 2021 and 2022 stating that anyone can find it from the CB web site. However a sum of Rs 19.06 billion was printed two weeks after his assumption of office, and while he was away attending IMF meetings in Washington. The CB had printed a massive sum of Rs. 130 billion in October 2021 alone. According to the available data, from December 2019 to October 2021, the CB has printed Rs. 2.8 trillion.Sri Lanka’s inflation increased to 18.8 per cent in March 2022 from 15.1 per cent in February as the Central Bank printed money to keep interest rates low and the depreciation of currency rupee float, Census and Statistics Department data shows. Colombo University Professor in Economics Sirimal Abeyratne told the Business Times that there was a limit for the money printing especially during a recession, as aggregate demand, consumer demand, business demand and international trade gets disruptive. He noted that Sri Lanka is facing commodity shortage and inflationary pressure, so it is opportune to contain the money printing otherwise “we will end up aggravating our inflationary pressure”. “Sri Lanka will have to increase investments and exports taking prudent policy decisions at this critical moment but resorting to money printing will definitely affect the economy,” he warned. (Sunday Times, 24.4.2022)

Moody’s Investors Service on Monday downgraded the Government of Sri Lanka’s long-term foreign currency issuer and senior unsecured debt ratings to Ca from Caa2. Ca, which denotes near bankruptcy is just one above C (the lowest rating which implies the country is bankrupt). The decision to downgrade the ratings is driven by the authorities’ announcement of debt servicing suspension on external public debt repayments, which will lead to a series of defaults with the first coupon payments for the government’s international bonds due Monday April 18. “Given the low level of foreign exchange reserves, compounded by the rise in balance of payment pressures with higher fuel and food prices and the slow recovery in tourism and foreign direct investment inflows, Moody’s assesses that private sector creditor losses stemming from the eventual debt restructuring is likely to be material and exceed the limited levels of loss consistent with the previous Caa2 rating,” the rating agency said in a media release. This assessment further reflects governance weaknesses in the ability of the country’s institutions to take measures that decisively address the very low adequacy of foreign exchange reserves and very weak debt affordability, thereby contributing to loss given default, at least in line with precedents by other defaulting sovereigns. (Sunday Times, 24.4.2022)

The poverty rate in Sri Lanka will witness further increase in 2022, as the country’s economic crisis worsens.  The World Bank (WB) in its Spring Update on the South Asian region said that the poverty rate in Sri Lanka would increase to 11.7 percent in 2022, compared to 10 percent in 2019.  The increase in poverty rates is expected amid import compression and investor uncertainty, due to high debt levels.  Due to the COVID-19 pandemic, the economy contracted by 3.6 percent in 2020, raising the US $ 3.20 poverty rate to an estimated 11.7 percent.  The US $ 3.20 poverty rate is estimated to have slightly declined to 10.9 percent in 2021, still above the pre-pandemic levels, the WB said.  The World Bank’s April 2022 update of Macro Poverty Outlook for Sri Lanka asserted that the heightened fiscal and external risks as well as the challenging political situation pose significant uncertainty to the economic outlook and the country faces an external financing gap in 2022 and beyond.  “Sri Lanka needs to address the structural sources of its vulnerabilities. This would require reducing fiscal deficits especially through strengthening domestic revenue mobilisation,” the World Bank said. While fiscal consolidation needs to be accompanied by tighter monetary policy to contain pressures on inflation, the global development lender said the island nation also needs to find feasible options to restore debt sustainability.  “The financial sector needs to be carefully monitored amid high exposure to the public sector and the impact of the recent currency depreciation on banks’ balance sheets,” it added. The necessary adjustments may adversely affect growth and impact poverty initially but will correct the significant imbalances, subsequently providing the foundation for stronger and sustainable growth and access to international financial markets.  The World Bank asserted that mitigating the impacts on the poor and vulnerable would remain critical. (Daily Mirror, 26.4.2022)

The World Bank has agreed to provide US$ 600 million in financial assistance to address the current economic crisis, President’s Media Division said. The World Bank Country Manager Chiyo Kanda, says US$ 400 million will be released shortly under the first phase, the PMD said in a statement. Chiyo Kanda made these remarks at a meeting between World Bank representatives and President Gotabaya Rajapaksa at the President’s House in Colombo, today (26). “This financial assistance will be provided to meet medicinal drugs and health needs, social security, agricultural, food security and gas needs. The World Bank representatives also stated that they will continue to provide assistance to Sri Lanka in overcoming the current economic crisis,” the statement added. (Daily Mirror Online, 26.4.2022)

Headline inflation, as measured by the year-on-year (YoY) change in the Colombo Consumer Price Index (CCPI, 2013=100)1 increased to 29.8% in April 2022 from 18.7% in March 2022.  Central Bank said this increase in YoY inflation was driven by the monthly increases of both Food and Non-Food categories. Subsequently, Food inflation (YoY) increased to 46.6% in April 2022 from 30.2% in March 2022, while Non-Food inflation (YoY) increased to 22.0% in April 2022 from 13.4% in March 2022. Monthly change of CCPI recorded at 9.25% in April 2022 due to price increases observed in items of both Non-Food and Food categories which were 4.95% and 4.31%, respectively. Accordingly, prices of items in the Non-Food category recorded increases mainly due to price increases observed in the transport (petrol and diesel), education (tuition fees), housing, water, electricity, gas, and other fuel (housing rent, maintenance/reconstruction) and restaurant and hotels sub-categories. Further, within the Food category, increases were observed in prices of milk powder, rice, bread, dhal, sugar and dried fish during the month The annual average inflation rose to 11.3% in April 2022 from 9.1% in March 2022. CBSL also said the core inflation (YoY), which reflects the underlying inflation in the economy increased to 22.0% in April 2022 from 13.0% in March 2022, while annual average core inflation increased to 8.1% in April 2022 from 6.5% in March 2022. (Daily Financial Times, 30.4.2022)

                                     

                                                                          





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