Category: Breaking News

Dissident SLPP MPs yesterday (20) asked the ruling party whether it would back what it called President Ranil Wickremesinghe’s deplorable revenue proposals when Parliament vote on the Second Reading of the Budget is held today (21).

The rebel group said that the move to privatise even the profit-making enterprises, such as Sri Lanka Insurance and SLT and the increase of Value Added Tax (VAT) from 15% to 18 with effect from January 01, 2024 would worsen the economic crisis, rebel spokesperson and former minister Prof. G.L. Peiris said.

Referring to parliamentarian Namal Rajapaksa’s criticism of the Budget presented by President Ranil Wickremesinghe in his capacity as the Finance Minister on Nov 13, the top rebel spokesperson urged key SLPPers not to skip the vote. The former External Affairs Minister said that the SLPP’s stand today would help the public to ascertain the situation on the ground.

At the onset of the briefing, the former top law academic said that the approval for the Budget would entirely depend on the SLPP, the largest single political party in the current Parliament.

The debate on the Second Reading of the Budget that commenced on Nov 14 would be concluded today and the vote on the Second Reading of the Budget held at 6 pm, Prof. Peiris said.

The Committee Stage debate, or the Third Reading debate on the Budget, is scheduled to begin tomorrow (23) and will continue until December 13. The vote on the Third Reading of the 2024 Budget is scheduled to be held on December 13 at 6 pm.

Prof. Peiris insisted that the SLPP couldn’t under any circumstances vote for Wickremesinghe’s Budget as the key proposals were contrary to its policies.

The SLPP voted for Wickremesinghe’s interim Budget for 2023 presented on Sept. 2, 2022, a day after IMF announced it would provide a loan of USD 2.9 bn to be released over a period of four years. Sri Lanka received the first tranche of the loan in Sept 2023. Since then the facility has been suspended.

Of 225 MPs, 115 voted for Wickremesinghe’s interim Budget and two MPs of the All Ceylon Tamil Congress (ACTC) voted against, whereas the main Opposition Samagi Jana Balawegaya (SJB) and other political parties, including the JVP, abstained.

Political sources said that though there had been differences between President Wickremesinghe and the SLPP over the non-appointment of more of its members to the Cabinet, the party would definitely back the Budget. Sources pointed out that both State Ministers of Finance were SLPPers, Shehan Semasinghe and Ranjith Siyambalapitiya and there was no question over those serving the Cabinet and the party voting for the Budget. The group included three member MEP parliamentary group consisting of Premier Dinesh Gunawardena, State Minister Sisira Jayakody and National List MP Yadamini Gunawardena.

Sources said that the government was confident of a comfortable victory though attempts were being made to cause turmoil.

SLPP lawmaker Anura Priyadarshana Yapa yesterday told The Island that the country is in such a desperate situation political parties have to sensibly ascertain the situation. “We’ll decide tomorrow of our stand,” the former minister said. Yapa’s group consists of MPs John Seneviratne, Dr. Sudarshini Fernandopulle and Priyankara Jayaratne.

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–

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.

Administrator of the United States Agency for International Development (USAID) Samantha Power and President Ranil Wickremesinghe have a discussion while in the Maldives for the inauguration of new Maldives President Dr. Mohamed Muizzu.

The Biden administration greatly values its partnership with Sri Lanka, Administrator of the United States Agency for International Development (USAID) Samantha Power told President Ranil Wickremesinghe.

She expressed these views at a meeting with the Sri Lankan President in the Maldives, Power said in a post on X (formerly known as Twitter).

Power said she had a good discussion with the President while in the Maldives for the inauguration of new Maldives President Dr. Mohamed Muizzu.

The USAID Administrator said that she heard about Sri Lanka’s economic recovery and stressed on the importance of political reforms.

President Ranil Wickremesinghe took part in a seemingly reconciliatory act by cutting the birthday cake of former Prime Minister Mahinda Rajapaksa. The former premier, who was ousted from his position last year, celebrated a modest birthday gathering with close family and friends.

This gesture took place amidst speculations that there is a rift between the President and the SLPP, the two major stakeholders of the current government.

The event took a bipartisan turn as President Wickremesinghe and UNP MP Vajira Abeywardena were observed among the guests, showcasing a moment of camaraderie. The low-key celebration hinted at a possible thaw in political tensions, emphasizing their unity beyond political power struggles.