Category: News

The United States District Court for the Southern District of New York has granted a motion to extend the stay of litigation between Hamilton Reserve Bank (HRB) and the Democratic Socialist Republic of Sri Lanka for the fourth time, pushing the suspension of proceedings to 15 January, 2025. This decision, issued by District Judge Denise Cote, underscores the complex interplay of legal, economic, and diplomatic factors shaping the resolution of Sri Lanka’s sovereign debt crisis.

Sri Lanka’s economic turmoil, precipitating by a sovereign default in May 2022, led to a protracted restructuring process to address its unsustainable debt obligations. The crisis, described as one of the worst in the nation’s history, prompted Sri Lanka to seek an Extended Fund Facility (EFF) from the International Monetary Fund (IMF) amounting to $ 2.9 billion, approved in March 2023. The facility’s terms mandated significant reforms and negotiations with sovereign and private creditors.

Progress in restructuring was marked by key milestones in 2024: a memorandum of understanding with the Official Creditor Committee (OCC) in June, a debt restructuring agreement with the Export-Import Bank of China, and an agreement in principle with an ad hoc bondholder group of private commercial creditors in September. In November, Sri Lanka formally launched a debt exchange process, culminating on 12 December. Reports suggest that over 95% of bondholders, excluding HRB, participated in the exchange, marking a significant step toward economic stabilisation.

Hamilton Reserve Bank, the plaintiff in the case, holds over $ 240 million in principal amount of Sri Lanka’s sovereign bonds due in July 2022. Unlike most creditors, HRB has refrained from engaging in restructuring discussions, insisting on its legal claims for principal and accrued interest. Initially filed in June 2022, the case has seen successive extensions of stays to facilitate Sri Lanka’s negotiations with creditors. The latest motion to extend, filed on 26 November, 2024, sought a 45-day stay until 15 January, 2025. In her ruling, Judge Cote emphasised that the stay aligns with ongoing efforts to finalise the restructuring process, which is integral to Sri Lanka’s recovery plan under the IMF-supported program.

HRB’s submission on 11 December acknowledged Sri Lanka’s significant progress in restructuring but maintained that the litigation’s resolution remains unaffected by the broader process. Despite consenting to a brief extension until 12 December, HRB opposed further delays, arguing that the restructuring’s completion has minimal bearing on its specific claims.

Granting the motion nunc pro tunc, Judge Cote underscored the following considerations: progress toward restructuring, the restructuring’s near-finalisation marked by high participation in the debt exchange, supports continued judicial deference to facilitate resolution without disruption. Prejudice to the plaintiff, the judge noted HRB’s acknowledgment that the restructuring does not materially affect its claims. Any potential judgment in HRB’s favour would include pre-judgment interest, mitigating any delay-related prejudice. In a broader economic and diplomatic context, the court acknowledged the delicate balance between creditor claims and Sri Lanka’s efforts to restore economic stability. A premature resumption of litigation could jeopardise ongoing recovery efforts and deter other creditors from constructive engagement.

Until 15 January, 2025, the extension ensures Sri Lanka’s uninterrupted focus on concluding its restructuring program. By granting this stay, the court has effectively allowed the government additional time to implement the outcomes of the debt exchange and settle outstanding procedural matters. For HRB, the ruling underscores the challenges of litigating sovereign debt cases amid global economic crises. While HRB’s claims remain valid, the broader restructuring dynamics suggest that courts may prioritise systemic stability over individual creditor interests in such scenarios.

According to analysts, Sri Lanka will provide a status report by 6 January, 2025, outlining the restructuring’s completion. The settlement of the debt exchange, anticipated before or on 15 January, will mark a critical juncture in Sri Lanka’s recovery trajectory. Domestically, the successful resolution of the crisis is vital for stabilising public finances, creating fiscal space for growth, and restoring confidence among international stakeholders. However, allegations of inefficiency and corruption continue to cast shadows over the Government’s ability to deliver sustainable reforms.

From a global perspective, this case sets a significant precedent for handling sovereign debt disputes. The court’s deference to restructuring efforts highlights the growing recognition of the interconnectedness between legal judgments and broader economic imperatives. For policymakers, the outcome reinforces the importance of collaborative approaches to resolving debt crises, balancing creditor rights with the necessity of economic recovery.

The court’s decision to extend the stay reflects the complexities of resolving sovereign debt disputes in an interconnected global economy. As Sri Lanka navigates its path toward stability, the implications of this case will resonate across financial and legal domains, shaping the future of international debt restructuring frameworks. For HRB and other stakeholders, January 2025 will be decisive in determining the case’s trajectory and the broader lessons it imparts for managing sovereign defaults.

The Criminal Investigation Department (CID) has summoned Yoshitha Rajapaksa, the second son of former President Mahinda Rajapaksa, to record a statement regarding the ownership of a government-owned land in Kataragama.

This follows a statement recorded on December 27 from Major Neville Wanniarachchi, the former personal security officer of Mahinda Rajapaksa.

Accordingly, Yoshitha has been asked to appear before the CID on Friday, January 3, as part of the ongoing investigation into the matter.

In a mid-October 2024 meeting with the European Union (EU) Ambassador, Sri Lanka reaffirmed its commitment to strengthening trade relations with the EU, particularly highlighting the role of the GSP+ programme in boosting Sri Lankan exports. This discussion underscores the significance of the GSP+, which offers tariff preferences for Sri Lanka’s exports to the EU. The GSP+ offers reduced tariffs on exports, conditional upon the recipient countries implementing 27 international conventions. These conventions include standards on labour and human rights, environmental sustainability, and good governance. Sri Lanka’s major exports to the EU, such as wearing apparel, employ low and medium-skilled, and female workers, as well as estate and rural sector workers, directing benefits of GSP+ to vulnerable communities.

GSP+: A Lifeline for Sri Lanka’s Economy

In 2023, Sri Lanka exported goods worth USD 3.63 billion (Bn) to the EU and the United Kingdom (UK) representing 30% of total exports of Sri Lanka. The 1,301 products exported by Sri Lanka under the six-digit Harmonized System (HS) codes, concentrate on key sectors such as wearing apparel, rubber, seafood, and tea. Notably, the EU and the UK are major export destinations for wearing apparel accounting for over half (54.9%) of Sri Lanka’s total wearing apparel exports​.

GSP+ preference offers Sri Lanka zero tariffs on many goods, granting relative price competitiveness in the EU market. Without GSP+, tariffs would revert to the EU’s Most Favoured Nation (MFN) rates. The preference margin – the difference between MFN and GSP+ – is more than 10 percentage points for high-value export sectors like wearing apparel (Figure 1).

However, GSP+ benefits are not fully utilised. Complex rules of origin make compliance challenging and costly, particularly for the wearing apparel sector. For instance, in 2019, Sri Lanka exported USD 1.31 Bn of knitted or crocheted apparel to the EU and UK, with only about half the exports (52.3%) benefiting from GSP+. Similarly, 52.3% of non-knitted apparel exports, valued at USD 842.45 million (Mn), used GSP+, while rubber products had a 96.4% utilisation rate, contributing USD 340.95 Mn in exports.

Consequently, the effect of a potential tariff increase will differ across export sectors, depending on factors like export volume, utilisation rates, and the size of the tariff hike. The forthcoming publication “Who Stands to Lose? Examining the Fallout of GSP+ Preference Erosion in Sri Lanka”, shows that once all these factors are accounted for, reverting to MFN tariffs due to the loss of GSP+ could lead to a decline in exports of USD 1.23 Bn, or 36.7%, compared to 2019, after accounting for utilisation rates.

The wearing apparel sector is expected to experience the largest hit, with a projected loss of USD 996.38 Mn, representing a 44.63% drop in exports. Although the utilisation rate for GSP+ in the wearing apparel sector is relatively low at 52.3%, the large volume of exports and the 10-percentage point difference between MFN and GSP+ rates mean that the sector would suffer significant losses (Figure 2). Key products such as men’s underpants, brassieres, and shirts, which are among Sri Lanka’s top 10 exports to the EU, are vulnerable to the negative effects of GSP+ withdrawal.

The Impact on Jobs and Inclusive Economic Growth

Sectors highly vulnerable to export changes play a crucial role in promoting inclusive economic growth in Sri Lanka, as they provide significant employment opportunities for women and rural workers (Figure 3). As a result, any potential decline in exports would disproportionately affect these vulnerable groups within the labour force, intensifying the economic challenges they face.

The IPS analysis suggests that the loss of GSP+ could put 73,574 workers at risk of losing their jobs. The apparel sector employs 87.1% of these vulnerable workers. The apparel industry currently employs 475,741 workers, of whom 70.5% are women.

When the embedded employment in the export losses is broken down by gender and skill level, it becomes clear that women, along with low and medium-skilled workers, will be the hardest hit. Out of the 73,574 workers at risk, 42,958 are women in low or medium-skilled roles. In the wearing apparel sector, 61.4% of vulnerable employees are females employed in low and medium-skilled occupations. Overall, 82% of all vulnerable workers are low and medium-skilled, highlighting the disproportionate impact on these workers if GSP+ is withdrawn.

The Road Ahead: Strategies for Inclusive Growth

Sri Lanka cannot afford to lose GSP+ given the current economic situation and the growth stage of the country. The slowly growing employment numbers show that alternative sectors are not in existence to absorb the labour force vulnerable to the GSP+ loss. Finding alternative jobs in the formal sector will be even more difficult.

To avoid this scenario, it is in Sri Lanka’s best interest to comply with the agreed-upon conventions and retain the GSP+ status. In the future, as the country reaches higher income levels, the GSP+ loss may be more manageable. However, at this stage, GSP+ is a driving force for increasing Sri Lanka’s exports and overall income.

While maintaining the crucial GSP+ preference, Sri Lanka should attempt to increase its utilisation by expanding the cumulation of non-originating materials, similar to the recent EU approval of cumulation between Sri Lanka and Indonesia. Enhanced cumulation will especially benefit the country’s wearing apparel sector. The Trade Preference Outlook-2024 of the UNCTAD also underscores the importance of reforming rules of origin, accounting for supply chain realities.

In the longer term, Sri Lanka can look into options like entering a free trade agreement with the EU to cope with the adverse effects of GSP+ loss at a higher income stage of the country. This is particularly important as Sri Lanka’s eligibility for GSP+ is not only tied to compliance with the required conventions but also to its income classification. If Sri Lanka transitions to upper-middle-income status, it will no longer qualify for the GSP+. This highlights the need for long-term solutions to maintain preferential market access.

Source:Daily FT

A jet powered target drone, bearing the marking of the Indian manufacturer Anadrone has been found by a fisherman off Sri Lanka’s Eastern coast, a media report said.

The drone was found floating 36 kilometres off Trincomalee in the island’s Eastern waters, the fisherman told Sri Lanka’s Hiru news.

“We found it in the sea near some fish were swimming,” he said. “After we finished fishing, I took the object on board and brought it ashore. Then I informed the police and they said they will inform the Navy.

The words, Shikra, target can also be seen on wings of the drone, as well as Anadrone on the tail fin.

Similar drones are produced by Anadrone Systems Pvt Ltd, an unmanned vehicle manufacturer, according to its website.

“Anadrone Systems Pvt Ltd is a forward-thinking defense company headquartered in India, specializing in the design, development, and deployment of advanced unmanned aerial systems (UAS) and defense technologies,” its website says.

The firm won an order for 100 units of it Shikra high-speed target system from the Indian Navy, the news portal Iadnews.in says.

The drone found in Sri Lanka has the marking 0032.

Sri Lankan President Anura Dissanayake expressed interest in joining BRICS in a letter sent to Russian President Vladimir Putin in October, and the country expects a positive response in 2025 to join the organisation, the republic’s ambassador to Moscow, Pakeer Amza, told RIA Novosti.

“Sri Lanka expressed its interest in joining the BRICS family in a letter to President Vladimir Putin from President Anura Dissanayake. We have also addressed other BRICS countries with a request to join as a partner country and expect their positive response,” Amza said.

He specified that the Sri Lankan president had sent a letter to his Russian counterpart in October.

In October 2024, Sri Lankan Foreign Minister Vijitha Herath said Colombo had decided to apply for membership in BRICS and the New Development Bank.

He said Sri Lanka views BRICS as an effective partnership to realise its aspiration for mutually beneficial cooperation, peace and development through strengthening comprehensive multilateralism within the framework of the UN Charter.

In December, the Sri Lankan leader asked Indian Prime Minister Narendra Modi to support Colombo’s bid to join BRICS.

BRICS is an intergovernmental association created in 2006. Russia assumed the rotating presidency of the bloc on January 1, 2024. The year began with the accession of new members to the association.

In addition to Russia, Brazil, India, China, and South Africa, it now includes Egypt, Ethiopia, Iran, the United Arab Emirates, and Saudi Arabia, according to the Russian 2024 BRICS Chairmanship website.

Former Indian prime minister Manmohan Singh has died at the age of 92.

Singh was one of India’s longest-serving prime ministers and he was considered the architect of key liberalising economic reforms, as premier from 2004-2014 and before that as finance minister.

He had been admitted to a hospital in the capital Delhi after his health condition deteriorated, reports say.

Among those who paid tribute to Singh on Thursday were Prime Minister Narendra Modi, who wrote on social media that “India mourns the loss of one of its most distinguished leaders”.

Modi said that Singh’s “wisdom and humility were always visible” during their interactions and that he had “made extensive efforts to improve people’s lives” during his time as prime minister.

Priyanka Gandhi, the daughter of former prime minister Rajiv Gandhi and a Congress party member, said that Singh was “genuinely egalitarian, wise, strong-willed and courageous until the end”.

Her brother Rahul, who leads Congress, said he had “lost a mentor and guide”.

Singh was the first Indian leader since Jawaharlal Nehru to be re-elected after serving a full first term, and the first Sikh to hold the country’s top post. He made a public apology in parliament for the 1984 riots in which some 3,000 Sikhs were killed.

But his second term in office was marred by a string of corruption allegations that dogged his administration. The scandals, many say, were partially responsible for his Congress party’s crushing defeat in the 2014 general election.

Singh was born on 26 September 1932, in a desolate village in the Punjab province of undivided India, which lacked both water and electricity.

After attending Panjab University he took a master’s degree at the University of Cambridge and then a DPhil at Oxford.

While studying at Cambridge, the lack of funds bothered Singh, his daughter, Daman Singh, wrote in a book on her parents.

“His tuition and living expenses came to about £600 a year. The Panjab University scholarship gave him about £160. For the rest he had to depend on his father. Manmohan was careful to live very stingily. Subsidised meals in the dining hall were relatively cheap at two shillings sixpence.”

Daman Singh remembered her father as “completely helpless about the house and could neither boil an egg, nor switch on the television”.

Consensus builder

Singh rose to political prominence as India’s finance minister in 1991, taking over as the country was plunging into bankruptcy.

His unexpected appointment capped a long and illustrious career as an academic and civil servant – he served as an economic adviser to the government, and became the governor of India’s central bank.

In his maiden speech as finance minister he famously quoted Victor Hugo, saying that “no power on Earth can stop an idea whose time has come”.

That served as a launchpad for an ambitious and unprecedented economic reform programme: he cut taxes, devalued the rupee, privatised state-run companies and encouraged foreign investment.

The economy revived, industry picked up, inflation was checked and growth rates remained consistently high in the 1990s.

‘Accidental PM’

Manmohan Singh was a man acutely aware of his lack of a political base. “It is nice to be a statesman, but in order to be a statesman in a democracy you first have to win elections,” he once said.

When he tried to win election to India’s lower house in 1999, he was defeated. He sat instead in the upper house, chosen by his own Congress party.

The same happened in 2004, when Singh was first appointed prime minister after Congress president Sonia Gandhi turned down the post – apparently to protect the party from damaging attacks over her Italian origins. Critics however alleged that Sonia Gandhi was the real source of power while he was prime minister, and that he was never truly in charge.

The biggest triumph during his first five-year term was to bring India out of nuclear isolation by signing a landmark deal securing access to American nuclear technology.

But the deal came at a price – the government’s Communist allies withdrew support after protesting against it, and Congress had to make up lost numbers by enlisting the support of another party amid charges of vote-buying.

A consensus builder, Singh presided over a coalition of sometimes difficult, assertive and potentially unruly regional coalition allies and supporters.

Although he earned respect for his integrity and intelligence, he also had a reputation for being soft and indecisive. Some critics claimed that the pace of reform slowed and he failed to achieve the same momentum he had while finance minister.

When Singh guided Congress to a second, decisive election victory in 2009, he vowed that the party would “rise to the occasion”.

But the gloss soon began to wear off and his second term was in the news mostly for all the wrong reasons: several scandals involving his cabinet ministers which allegedly cost the country billions of dollars, a parliament stalled by the opposition, and a huge policy paralysis that resulted in a serious economic downturn.

LK Advani, a senior leader in the rival BJP party, called Singh India’s “weakest prime minister”.

Manmohan Singh defended his record, saying his government had worked with “utmost commitment and dedication for the country and the welfare of its people”.

Pragmatic foreign policy

Singh adopted the pragmatic foreign policies pursued by his two predecessors.

He continued the peace process with Pakistan – though this process was hampered by attacks blamed on Pakistani militants, culminating in the Mumbai gun and bomb attack of November 2008.

He tried to end the border dispute with China, brokering a deal to reopen the Nathu La pass into Tibet which had been closed for more than 40 years.

Singh increased financial support for Afghanistan and became the first Indian leader to visit the country for nearly 30 years.

He also angered many opposition politicians by appearing to end relations with India’s old ally, Iran.

A low-profile leader

A studious former academic and bureaucrat, he was known for being self-effacing and always kept a low profile. His social media account was noted mostly for dull entries and had a limited number of followers.

A man of few words, his calm demeanour nevertheless won him many admirers.

Responding to questions on a coal scandal involving the illegal allocation of licences worth billions of dollars, he defended his silence on the issue by saying it was “better than thousands of answers”.

Source:BBC