Government intensifies its fight for economic survival amidst political instability
With just over 600 days more to go in a tenure of governance marred by recent political instability, the debt-laden government is trying to find a short term way out of its economic woes, official sources revealed.
The fight for economic survival will be crucial at this moment as the coalition government is being pressurised to take austerity measures to provide relief for the people amidst dissension among its major constituent parties.
The increasing of frail state revenues while curtailing public expenditure was the challenge before the Treasury to bridge the gap in the fiscal account and tackle the heavy public debt this year, a top official of the Finance Ministry told the Business Times.
The next tranche from the IMF of its US$ 1.5 billion three-year extended fund facility is crucial for the country at present as most of its monetary, fiscal and reserves targets are on track, he said.
However the Sri Lankan government has delayed in the implementation of energy pricing formula and the reforms into loss-making state-owned enterprises (SOEs) due to opposition from political pressure and this could prompt the international lending agency to further delay or suspend the tranche, he pointed out.
The Finance Ministry has been convening high-level meetings with public and private sector stakeholders while gathering innovative ideas from diverse partners in order to strengthen the policies suitable for a higher middle income, export-oriented economy amidst political instability.
The Government will endeavour to undertake a comprehensive reforms agenda in the legal system and currently it is evaluating the Customs Ordinance of 1869, as well the Excise Ordinance of 1912.
Also, extensive reforms are to be introduced in labour laws, housing and land laws, he said revealing that the government will make full use of its eligibility to funding from the International Bank for Reconstruction and Development.
He noted that the World Bank’s transitional support to face the interim period without an adverse impact on the economy will also be helpful to face present challenges. The Government plans to grow revenue to 16.4 per cent of GDP to Rs. 2.3 trillion (Rs. 2,326 billion) for 2018 with 87 per cent of the revenue expected through taxes of which taxes on goods and services are projected to contribute 61 per cent of tax revenue, he disclosed .
The new Inland Revenue Act will bring an additional Rs. 30 billion to state coffers this year, Deputy Treasury Secretary, S.R. Attygalle told a media conference recently adding that thereafter it will raise a sum of Rs. 60 billion per annum by way of removing various tax exemptions and introducing new taxes such as Capital Gains Tax.
According to Finance Ministry estimates, non-tax revenue is forecasted to be 8 per cent of the total expected government revenue.
The total planned expenditure for 2018 is Rs. 3 trillion (Rs. 3,001 billion) resulting in 21.1 per cent of GDP, growing from 20.6 per cent of GDP in 2017.
The Treasury will not have to bear the large repayments of debts this year, a top official of the Finance Ministry who wished to remain anonymous told the Business Times revealing that interest payments of US$ 600 million and $2.5 billion of Sri Lanka Deavelopment Bonds (SLDB) mature this year.
This will be met by the issuance of fresh Sri Lanka Development Bonds (SLDBs) of $3 billion, he disclosed adding that the total estimated foreign debt service payments, including interest and principal payments, amount to over $2.9 billion this year. The government aims to sell $5 billion-worth of debt securities this year, a mix of $3 billion of development bonds and $2 billion of sovereign bonds and a renminbi-denominated panda bond, equivalent to $500 million, is being “considered and which may take place late in the first half of the year, subject to conditions,” he said.
Foreign investments in the government securities market witnessed a net inflow for the eleventh consecutive month in January 2018 in comparison to the net outflow recorded in January 2017. Further, long term loan inflows to the government recorded a net outflow of $ 2.5 million during the month of January this year.
In terms of foreign direct investments (FDIs) including foreign loans to BOI companies in 2017, Sri Lanka received $1,913 million, registering the highest ever FDI inflows in the history, the Central Bank said.
| Sri Lanka tastes success in raising $2.5 bn in bonds | |
| Sri Lanka’s Central Bank (CBSL) marked its return to the US dollar bond markets with a successful issuance of new US$ 1.25 billion 5-year and $ 1.25 billion 10-year Senior Unsecured Fixed Rate Notes. The notes are with maturity dates of April 18th, 2023 and April 18th, 2028 respectively, the CB said in a media release, adding that the notes were issued on behalf of the government. This marks Sri Lanka’s 12th US dollar benchmark offering in the international bond markets since 2007. “This also represents the largest offshore bond offering ever by Sri Lanka and is a strong reflection of the international investor community’s continued support for Sri Lanka through the years,” the CB said. Citigroup, Deutsche Bank, HSBC, J.P. Morgan and Standard Chartered Bank acted as the Joint Lead Managers and Bookrunners on this successful transaction. “Identifying a supportive issuance window in a challenging market environment, Sri Lanka announced the transaction during the Asia morning of April 11th 2018. The joint syndicates released terms and initial price guidance for new 5-year and 10-year tranches at 6 per cent and 7 per cent areas, respectively. The transaction saw strong interest from a wide range of high quality investors, which allowed the issuer to tighten price guidance by 25 bps each across both tranches. The notes eventually priced during New York hours, well inside the initial price guidance with a coupon of 5.75 per cent and 6.75 per cent for new 5-year and 10-year tranches, respectively,” the release said. The final order book stood at $3 billion across 235+ accounts for the 5-year tranche and $3.5 billion across 190+ accounts for the 10-year tranche. This clearly reflects investors’ continued confidence in Sri Lanka and its economic outlook. |