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Parliament approves Domestic Debt Optimisation plan by majority of 60 votes
The Government’s Domestic Debt Optimisation (DDO) plan was passed by Parliament last evening by a majority of 60 votes. The resolution received 122 votes in favour and 62 against.
The resolution for the “implementation of the Domestic Debt Optimisation to restore sovereign debt sustainability” was passed after a debate lasting 10 hours
Sri Lanka Podujana Peramuna (SLPP) MPs in the Government voted for the resolution. They were joined by several MPs from the opposition. The main opposition Samagi Jana Balawegaya (SJB) voted against the resolution. MPs from the Tamil National Alliance, the National People’s Power, and those representing the Freedom People’s Congress and the Uththara Lanka Sabhagaya also voted against the resolution.
The SJB’s Vadivel Suresh, Sri Lanka Freedom Party’s Duminda Dissanayake, SLPP’s Anura Priyadarshana Yapa, John Seneviratne and Sudarshani Fernandopulle were among those who voted for the resolution from the opposition benches
Much of yesterday’s debate centred on how the DDO process could impact the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF).
The resolution was debated after an initial amendment was made to reflect the draft of the resolution approved by Parliament’s Committee on Public Finance (COPF). This was after COPF Chair Dr. Harsha De Silva pointed out that the Committee had agreed that the presentation made by the Central Bank Governor to the Cabinet of Ministers on June 28 should be directly incorporated into the resolution given that it was this presentation that contained details of how the debt restructuring programme was going to proceed.
Now that it has been passed by Parliament, the Government’s DDO plan will be formally presented to the people on Tuesday (4). The plan will also be sent to superannuation funds — the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) on the same day.
The EPF and ETF will have 21 days until July 25 to review the plan and decide whether to agree or disagree with it.
On Wednesday, Central Bank Governor Nandalal Weerasinghe made a presentation to the Cabinet outlining the next steps in debt restructuring and explaining the decisions taken in relation to domestic debt restructuring.
He said a common platform had been established with the support of Japan, France and India for coordinated talks to expedite the restructuring of Sri Lanka’s official debt. Discussions are ongoing with regard to the perimeter and parameters for debt restructuring in relation to bilateral and commercial foreign debt. The objective was to reach an agreement before the first review of the IMF’s External Funding Facility.
The Cabinet was told that creditors had highlighted the need to share the burden of the envisaged debt treatment between foreign and domestic creditors–in other words, domestic debt also had to be restructured.
Mr. Weerasinghe pointed out that the banking sector had already borne a significant burden of fiscal adjustment and the economic crisis in several ways. For instance, it had been paying higher tax rates than other corporates.
The total tax burden on the banking sector has risen from 39 to 48 percent. Through this, banks have helped the Government’s fiscal consolidation efforts. And the burden on the banking sector is borne, not only by shareholders but also depositors through lower returns on savings. The banking sector’s nonperforming (unpaid) loans have increased substantially.
Meanwhile, restructuring of the Government’s foreign currency debt is expected to also create a significant loss to the banking sector. A further burden on the domestic banking system could jeopardise financial system stability, the Governor had explained.
Against this backdrop, any disturbance to financial system stability could be costly, he said in his presentation. It would mean a fiscal cost to the Government in trying to restore financial stability; and it also entailed indirect costs, including depositors’ distress, business closures, interruptions to economic activity, reduced investor confidence, and reduced credit availability. He pointed out that the banking system in Sri Lanka had 57.2mn deposit accounts.
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