Author: TELO Admin

Sri Lanka is among countries ready to join the second phase of China’s Belt & Road Initiative (BRI), with a free trade agreement (FTA) between the two countries to be also expedited, according to a discussion between President Ranil Wickremesinghe and a top Chinese official.

Wickremesinghe told visiting special envoy of the Chinese President, state councillor Shen Yiqin, that the BRI is expected to make a more substantial economic contribution, according to a statement from the president’s office said Monday November 20 afternoon.

China is also prioritising the extension of a China-Myanmar Economic Corridor to the island nation, according to Yiqin.

This was during a courtesy call paid by President Xi Jinping’s envoy to President Wickremesinghe Monday morning in Colombo. Both parties also agreed to expedite the implementation of the China-Sri Lanka Free Trade Agreement, the statement said.

The primary focus of the meeting was to enhance tourism and trade relations between the two countries, according to the statement.

“The President expressed gratitude for China’s support to Sri Lanka, notably acknowledging their assistance in the country’s debt restructuring programme. He extended sincere thanks to the Chinese President and the government for their invaluable support in this regard,” the statement said.

Wickremesinghe also expressed Sri Lanka’s desire to augment cooperation between the two countries in the fields of tourism, sports and agriculture . Both the Hambantota Port and Colombo Port City are currently prepared for investment opportunities, he said.

“The President also noted that countries such as Sri Lanka, participants in the Belt & Road initiative, are prepared to embark on the second phase of the initiative, which is expected to make a more substantial economic contribution.

“The President outlined the measures taken by Sri Lanka to access the Regional Comprehensive Economic Partnership (RCEP), and further affirmed Sri Lanka’s commitment to preserving the Indian Ocean as a free zone for navigation and ensuring it remains a peaceful region, free from global geopolitical rivalries.”

The visiting Chinese official has said her government is prioritising the extension of the China-Myanmar Economic Corridor to Sri Lanka.

Yikn reaffirmed China’s enduring support to Sri Lanka and emphasised her commitment to strengthening the relations between the two countries, the president’s office said.

The Election Commission has estimated a Rs. 31 billion expenditure for three national elections due next year, said its commissioner general Saman Sri Ratnayake.

Included in the budget for 2024, the cost is for presidential, parliamentary and local government polls.

The 2023 budget already included a Rs. 10 billion estimate for the LG polls.

With the presidential election due within two and one month of completion of term of the incumbent, the election can take place in September or October, said Ratnayake.

National elections could take place anytime next year, since the president has powers to dissolve parliament after completing half his term, he said.

Elections will take place as per the present electoral register which has more than 168.55 million registered voters.

Rising gold-backed lending among Sri Lanka’s finance and leasing companies (FLC) sector is exposing financiers to higher collateral price risk and making them more susceptible to any adverse movements in gold prices, says Fitch Ratings.

Sri Lankan FLCs have grown gold-backed loans rapidly in the past several years amid shrinking demand for their core vehicle-financing business. Gold-backed loan balances more than quadrupled between the financial year ending March 2019 (FYE19) and FYE23, raising its share in the sector’s gross loans to 18%, from 4% at end-FY19.

“We believe several factors have fuelled this trend, including rising demand for shorter-term financing from borrowers, relatively high product yields, and the liquid nature of gold collaterals that allows lenders to recover defaulted facilities through regular auctions. FLCs cut back their exposure to gold-backed lending in 1QFY24, but we view this as temporary, as it stemmed partly from a drop in local gold prices in 1QFY24 following the global price decline, exacerbated by Sri Lankan rupee appreciation during the period.”

Excess concentration in gold-backed loans could leave some FLCs prone to large tail risks of devaluations, especially if collateral haircuts are insufficient to protect them from any sudden and precipitous price fall, the rating agency said.

This was evident in 2012 and 2013 when sharp declines in gold prices drove an increase in non-performing loans (NPLs) and credit costs at many Sri Lankan banks and non-bank financial institutions. Extended loan tenors would leave lenders more exposed to sustained price corrections.

Rising competition among the FLCs has led to an uptick in average loan-to-value (LTV) ratios. They range between 70% and 80% currently but could deteriorate quickly if gold prices fall or borrowers start to default, adding to accrued interest. Gold-backed lending is not subject to any regulatory LTV cap in Sri Lanka, unlike in markets such as India.

The current regulatory capital framework also entices FLCs to build larger gold loan portfolios more quickly than they otherwise would have. It may also cause lenders to underestimate their risk levels and reserve insufficient capital to absorb potential shocks. For instance, gold loans with LTV ratios of up to 70% do not incur any risk weight, and only incremental exposure over the 70% threshold is 100% risk-weighted.

This contrasts with India, for example, where gold loans incur the standard 100% risk weight. The drop in local prices in 1QFY24 led to an increase in the risk-weighted share of gold loans to 13%, from 8% in FY23, but we expect this to have mostly reversed in subsequent months as gold prices recovered.

Sri Lankan FLCs do not factor in borrowers’ repayment capacity when underwriting a gold-backed loan, focusing solely on collateral value, like in other markets. Collateral risk mitigation therefore becomes more crucial to protect against losses. However, valuation of gold collaterals is at lenders’ discretion and subject to their own calculation methodologies. The purity of accepted collateral can also vary. This contrasts with markets such as India, where regulators stipulate methods for collateral valuation.

The NPL ratio from Sri Lankan FLCs’ gold-backed lending remains well below that of conventional lending products, due mostly to lenders’ ability to recover overdues through frequent gold auctions, and borrowers’ ability to roll over a facility upon maturity by only servicing interest. However, ratios have come under pressure amid the challenging operating environment and borrowers’ weakened repayment capacities. Among Sri Lankan FLCs rated by Fitch based on standalone strength, the 90+ day past-due ratio on gold loans jumped to 5.3% at end-1QFY24, from 1.9% at end-FY22. This is consistent with rising auction volumes, indicating growing defaults in the segment.

–Fitch–

The government must use a recent Supreme Court verdict on Sri Lanka’s economic crisis to recover “stolen assets” and redistribute them among the public, former president Chandrika Bandaranaike Kumaratunga said.

In a statement to the media on Sunday November 19, Kumaratunga said the Supreme Court’s verdict on who was responsible for “bankruting” Sri Lanka was a rare and special one.

“The only question I have is, there are many other people connected to it who have not been named. But this is a very rare ruling in this country, and it is a great one,” she said.

Noting that the apex court hasn’t sentenced the parties named in the verdict, Kumaratunga said the petitioners hadn’t sought a penalty for the accused.

“But citizens can go to court and seek punishment and compensation,” she said, adding that millions of Sri Lankans who have had to go hungry as a result of the economic crisis can use the opportunity to get redress.

The former president went further and said money allegedly stuffed in foreign bank accounts and offshore companies or invested in hotels and residences in Sri Lanka can also be found through police investigation, using the court’s verdict.

“The government can appropriate these assets, convert them to cash and absorb it to the Treasury or redistribute it among the people,” she said.

“This is nothing new. The World Bank has a stolen assets unit which has mechanisms in place for finding such things. We can obtain their assistance. In the Philippines assets were recovered and brought back to their country, to a great extent,” said Kumaratunga.

“This can be done. I urge the government to take action on this immediately,” she added.

Meanwhile, former president Mahinda Rajapaksa has said he does not accept the verdict holding him, two of his brothers and officials affiliated with their administration responsible for Sri Lanka’s financial crisis.

Several Sri Lanka Podujana Peramuna (SLPP) Members of Parliament are considering voting against the 2024 budget, despite being a part of the Government.

A number of SLPP members are said to unhappy with President Ranil Wickremesinghe, who they voted into office last year.

Senior and popular members of the SLPP who have not been given Cabinet portfolios, have told the party leadership that they want to vote against the budget to send a clear signal to the President that they are not happy, sources told Colombo Gazette.

A number of SLPP MPs have already spoken in public against the 2024 budget saying it is more of a pro-IMF or pro-UNP budget.

The SLPP has not formally decided how it will vote on the budget, but early signs are it is likely to be split.

President Ranil Wickremesinghe presented the 2024 budget to Parliament last week, focusing on ensuring the country does not go bankrupt again.

Presenting the budget in Parliament, the President, who is also the Minister of Finance, said that advancing a nation requires more than mere fairy tales.

He recalled that the prolonged reliance on election promises by political parties has historically led to the economic bankruptcy of the country.

The 2024 budget allocates funds to improve facilities for tourists, address housing issues in the country, including in the North, and improve domestic cricket.

The Second Reading debate of the Appropriation Bill (Budget) is being held for 7 days from November 14th to the 21st, excluding Sundays. Accordingly, the vote on the Second Reading of the budget for the financial year 2024 is scheduled to be held on Tuesday, November 21st at 6:00 p.m.

Furthermore, the Committee Stage debate will be held for 19 days from Wednesday, the 22nd of November to Wednesday, the 13th of December, excluding Sundays. Accordingly, the vote on the Third Reading of the budget for the financial year 2024 is scheduled to be held on Wednesday, December 13th at 6:00 p.m.

The Association for Relatives of Enforced Disappearances (AERD) in the Northern and Eastern Provinces have rejected the allocation of funds in the budget for the next financial year to be paid to those who went missing during the war from the North and East.

President Ranil Wickremesinghe, also holding the finance portfolio while presenting the budget for the next financial year announced the allocation of Rs. 1000 million to be paid as compensation to the families of those who were victims of enforced disappearances.

“We don’t want money, what we need is justice. We need our relatives to be handed over back,” Mariasuresh Easwary, President of the Mullaitivu district AERD told media persons at the local press club.

Speaking further, Easwary said the announcement by the President cum Finance Minister has confirmed their disappeared relatives are held in detention and that admission comes under international pressure.

“It makes one thing clear for us. Amidst international pressure they have confirmed that disappeared relatives are held in detention,” she observed.

Alleging further, she added the government has allocated the money since they are keeping the disappeared.

“We don’t want this budget allocation. We reject these allocations because it is fifteen years since the end of the war. Furthermore, have they forgotten to allocate funds for other districts, or have they forgotten about those who have disappeared,” Easwary said, questioning the intention of the government.

She also strongly criticized President Wickremesinghe and his government for trying to hoodwink the international community by allocating these funds due to their pressure.

“I strongly emphasize that the President of this country can hoodwink the international community. But he cannot fool the relatives of the disappeared,” fumed Mariasuresh Easwary.

The AERD President of Mullaitivu alleges that the funds allocated are for the expenses for themselves and those around them. “This money is not for us and we don’t want this money”.

She reiterated their primary and long-standing demand for an international inquiry into the issue of their relatives gone missing after being handed over or surrendered to the Sri Lankan security forces. “Perpetrators should be put on the dock of international courts and justice delivered to us”.

Calling upon the Tamil people to be on “high alert” when they are continuing their protest for over 2500 days and to be aware of the government’s ploy of “trying to put a full stop” to search for the disappeared.

At least 188 elders have died searching for their dear and near since the end of the brutal war which came to a bloody end in May 2009.