SRI  LANKA  NEWS  IN  BRIEF  –  MARCH 2019 – By Victor Melder

    The International Monetary Fund on Friday revived a $1.5 billion bailout for Sri Lanka that was suspended over a government power struggle last year that seriously slowed economic growth. The Washington-based lender said officials visiting Colombo agreed to re-activate the three-year loan, which started in 2016 and spread the instalments over an additional year.”The team reached understandings at the staff level with the Sri Lankan authorities… to allow more time for the completion of the economic reform agenda,” the IMF said. The Fund had been due to release an instalment in October when President Maithripala Sirisena sacked his Prime Minister and called fresh elections, triggering a two month power struggle in the island nation. Because of the crisis, the economy grew by just 3.0 percent last year, making it the slowest expansion in 17 years, according to the Central Bank of Sri Lanka. The IMF said it expected Sri Lanka’s growth to improve to 3.5 percent in 2019. Sri Lanka’s Supreme Court eventually held that Sirisena’s actions were unconstitutional, allowing Premier Ranil Wickremesinghe to resume his duties. Wickremesinghe told parliament in January that his dismissal on October 26 was a “coup” and a “death blow” to the economy. During the crisis, three international credit rating agencies downgraded the country’s debt and the extra borrowing costs forced Sri Lanka to abandon plans to raise loans abroad .But the IMF noted that Sri Lanka’s economy was “gradually stabilising after the weak economic performance in 2018, in the context of external shocks and domestic political uncertainty.” Official figures show that Sri Lanka will have to repay a record $5.9 billion in foreign loans in 2019. One of the biggest drags on the balance sheet is national carrier Sri Lankan Airlines, which has accumulated losses and debts of over $2 billion. The government has failed to privatise the airline, but the president has revived attempts to find a partner who could inject new capital to keep the airline afloat. (Sunday Island, 3.3.2019)

Sri Lanka’s biggest mass grave predates the country’s bloody civil war by hundreds of years, according to an independent carbon dating report unveiled in a court. The remains of over 300 men, women and children were found last year at a site in the northern Mannar district, where ethnic Tamil guerrillas fought security forces during a 37-year ethnic war that ended in May 2009. Sri Lanka’s Office on Missing Persons (OMP) funded tests on the remains to determine whether the victims were killed during the conflict, which claimed the lives of at least 100,000 people. But a Miami-based laboratory concluded that the victims likely died up to 615 years ago – predating even the first European colonisation of the Indian Ocean Island by the Portuguese – according to testimony in the Mannar Magistrates’ Court. The mass grave in the former war zone was discovered by construction workers. The OMP, which is independent of the Government but has a State mandate, said just over 300 skeletal remains had been found, including the remains of about 20 children. (Daily Financial Times, 8.3.2019)

Finance Minister Mangala Samaraweera, yesterday, announced that all public servants would receive an additional allowance of Rs. 2,500 from July 1, and that a pension adjustment would be made on the same day to rectify all pension anomalies in respect of those who retired before 2016. The government has made an additional allocation of Rs. 40 billion for the increase in public servants’ allowance and Rs. 12 billion to rectify the pension anomalies. Presenting the government’s delayed budget, the Finance Minister reminded the House that the salaries of public servants had been increased by 107 percent under the current government. The Finance Minister, delivering the 2019 Budget speech, themed, ‘Focusing on Empowering the People and Nurturing the Poor’, said that several salient budgetary proposals were the removal of production tax imposed on small trucks, provision of milk to students in rural schools free of charge, increasing allocation for development of temples from Rs. 500,000 to Rs. 1 million, increasing allowance for persons with special needs from Rs. 3,000 to Rs. 5,000, allocating Rs 1,480 million to provide a 5,000-rupee allowance to kidney patients, increasing the allowances given to armed forces and increasing the salaries of teachers. Another salient feature was the proposal to give full scholarships to the top scorers at GCE AL students for them to study at prestigious international universities such as Harvard, MIT, Oxford and Cambridge. Samaraweera said 14 students would be selected for the programme in the current year and the number would be increased to 28 next year. The scholarship recipients would be required to return and serve here for 10 years in Sri Lanka. “Expressway rush hour toll fee has been increased by Rs. 100. According to the new tax revisions on vehicles, the Production tax on Petrol vehicles less than 1000cc has been increased by Rs. 175,000 and that on the petrol vehicles less than 1300cc has been increased by Rs. 500,000. Production tax on Petrol vehicles less than 800cc will be increased by Rs. 150,000. (Daily Island, 6.3.2019)

Presenting the fifth budget of the current government and the 73rd national budget of Sri Lanka Samaraweera also said: Cigarette prices will be increased by five rupees from mid-night yesterday. Fees charged for the issuing of passports will be revised from July 1 and accordingly fee for one day service has been increased to Rs 15,000 and fee for regular service has been increased to Rs 3,500. “Enterprise Sri Lanka loan scheme will be spread across the country. Rs. 500 million has been allocated for the programme and Rs 60 billion already disbursed to over 30,000 recipients.  Action will be taken against bank officers who discourage Small and Medium Enterprises,” the minister said, adding that a hotline ‘1925’ is available to lodge complaints. The Finance Minister observed that only 30 percent of women were represented in the labour market of the country though 50 percent of university students were female and, therefore, he proposed amending labour laws to allow women to work from home and under flexible working hours. Samaraweera also stressed the need for more women in decision-making positions in the business sector. Tax concessions would be provided to companies that grant three-months of maternity leave. The Budget encouraged firms with over 250 workers to provide day care facilities for children of workers, he said Referring the need to combat the drug menace, the Minister proposed to establish special rehabilitation camps in Weerawila and Ambepussa for drug addicts. Females in prisons would be given the opportunity to learn arts and craft at a special facility in Dompe with an allocation of Rs 50 million, Samaraweera said. The budget also proposes a series of new loan schemes in the Budget 2019. It proposes to introduce a housing loan scheme ‘Home Sweet Home’ for newly wedded couples to repay within 25 years at a 6 percent interest rate. Rs 10 million concessionary loan will be given to middle income earners to buy their first house. He said that ‘Dream Home’ loans would be introduced for registered migrant workers to obtain Rs.10 million with two year grace period to be paid within 15 years. Students who could not get into universities after the AL exam would be provided ‘My Future’ interest free loans up to Rs 1.1 million with two years grace period to enrol at non-state universities. It has also been proposed to allocate Rs.600 million to expand ‘1990 Suwaseriya Ambulance Service’ throughout the country and improve parking places for them. With reference to foreign investments, the minister said foreign companies would not be allowed to bid without establishing a joint venture with a local company. The Minister said that Rs 48 billion had been allocated for the Gamperaliya development programme. He also disclosed that an expressway to Jaffna would be finished before the end of the tenure of the government. He said that the Outer Circular Highway construction would be completed this year and Ruwanpura Expressway construction too would commence this year. The Budget 2019 also proposes to construct two new harbours at Pesalai and Mandaitivu as fish exports to Europe increased after the restoration of GSP+ tariff concession. Other budget concessions and revenue measures were announced. (Daily Island, 6.3.2019)  

Sri Lanka has raised $2.4 billion as it returned to the international bond market for the first time since a political crisis triggered rating downgrades, the central bank announced. A power struggle between the president and the prime minister late last year prompted three international rating agencies to downgrade Sri Lanka, forcing the government to abandon plans to borrow overseas. With the end of the dispute, the International Monetary Fund has revived a bailout program with Sri Lanka, and Colombo has resumed its international sovereign bond sales. Sri Lanka’s central bank said it went to market on Thursday following the strong backing from the IMF which last week lifted its suspension of a $1.5 billion bailout agreed in June 2016. The issue of $1 billion in bonds with a five-year tenure and a 10-year $1.4 billion bond were hugely oversubscribed. Both bonds attracted offers of $7.5 billion, the bank said. The bonds were bought at an average yield of 6.58 percent for the five-year tenure and 7.85 percent for the 10-year bonds. Because of the political crisis, economic growth slowed to 3.0 percent last year, the weakest in 17 years, according to the central bank.  The IMF said it expected Sri Lanka’s growth to improve to 3.5 percent in 2019. (Sunday Island, 10.3.2019)

Sri Lanka’s tourist arrivals rose 7% in February 2019 compared to the same period last year, the data released by the Sri Lanka Tourism Development Authority (SLTDA) showed. The month recorded 252,033 tourists arriving in the country compared to the 235,618 arrived in February 2018. India, United Kingdom, China, France and Germany were Sri Lanka’s top five international tourist generating markets in the month of February this year. India was the largest source of tourist traffic to Sri Lanka with 13% of the total traffic received in February 2019. United Kingdom accounted for 12% of the total traffic; while China, France and Germany accounted for 11%, 7% and 7% respectively. Arrivals from North America rose 61.7 percent to 16,280 in February and the arrivals from US rose 61.7 percent to 9,678 during the month while arrivals from Canada increased 61.8 percent. Tourist arrivals from Europe increased by 11.4 percent with the arrival of 135,934 tourists. Most of the tourists came from UK (29,750), followed by France (17,295), Germany (17,268), and Russian Federation (13,008). Tourist arrivals from Middle East declined by 5.2 percent with the arrival of 3,691 visitors compared to the 3,894 arrived in February 2018. Tourist arrivals from Asia & Pacific declined by 3.8 percent with 94,058 arriving in the island. Tourist arrivals from India declined by 1.9 percent with 32,286 visitors arriving while arrivals from China fell by 22.0 percent to record 28,039 arrivals. Arrivals from Australia recorded 54.8 percent increase with 8,810 visitors entering the country in February 2019. (Daily Island, 11.3.2019)

A concessionary loan agreement for JPY 30,040 million (approx. Rs. 48 billion) was signed yesterday between the Government of Sri Lanka and Japan International Cooperation Agency (JICA) for engineering services and construction of a Light Rail Transit (LRT) line between Malabe and Colombo Fort. 
The loan will finance Sri Lanka’s first rail-based, electrified urban mass rapid transit line. It will serve to connect the Colombo’s commercial hub with the administrative capital, and significantly reduce travel time in the most congested transport corridor in the country, and the only major corridor currently not supported by railway. The Malabe-Fort LRT line has a total length of approximately 16 km, with 16 stations. The stations are placed at frequently accessed locations and include Malabe – IT Park, Battaramulla, Rajagiriya, Cotta Road Railway Station and National Hospital up to current Fort/Pettah Railway Station. The entire rail track and stations will be on elevated viaducts to minimise requirement of land acquisition. At peak travel times in the morning and evening, trains are planned to run every two to three minutes (headway). Each four-carriage train will have a passenger capacity of over 800, which could be increased by adding more carriages in future when necessary. With an 80km/h top speed, travel time from Malabe to Fort will be approximately 30 minutes (incl. stopping time at stations) with the LRT. The Government of Sri Lanka has requested for the cost of infrastructure, rolling stock and engineering services to be financed through a series of time-slice loans from JICA, in line with the annual fund requirement for the project. High quality Japanese technology would be used to establish Sri Lanka’s first urban electric light rail line. In order to promote technology transfer and economic cooperation between Sri Lanka and Japan, JICA’s loans for this Project are provided under Special Terms for Economic Partnership, with interest rates of 0.1% p.a. for civil works and equipment cost, 0.01% p.a. for engineering services cost and 40 year repayment period including 12 years’ grace period. To facilitate inter-connectivity with other public transport modes, multi modal terminals are proposed at Malabe (together with bus terminal) and Cotta Road (connecting with railway). At Fort/Pettah the LRT line will connect to the planned Multi Modal Transport Hub accessible to both railway and bus. Station facilities and LRT carriages will be designed to ensure accessibility to persons with disabilities, as well as passengers with small children and senior citizens. Although the elevated viaduct will minimise the requirement, some land acquisition is needed at the Depot and some of the Station locations. The Ministry of Megapolis and Western Development, the executing agency for the Project, will conduct such acquisition in accordance with the National Involuntary Resettlement Policy, and JICA’s environmental and social considerations guidelines to ensure inclusive development through public projects. Since the railway tracks and stations are constructed at high elevation and over national roadways with high traffic volume, appropriate safety measures during construction are critical to ensure the safety of the construction personnel and the general public. JICA will continue to pay special attention to safety aspects in implementation of the project. (Daily Financial Times, 12.3.2019)

Land prices in Colombo, in the second half of 2018, have increased by 18% compared to the 2nd half of 2017, according to the Land Price Index (LPI) for Colombo District, compiled by the Central Bank of Sri Lanka (CBSL). “The index has reached 125.9 during the 2nd half of 2018, recording an increase of 18 per cent compared to the 2nd half of 2017. The three sub–indices of LPI, namely residential, commercial and industrial have contributed to this increase,” CBSDL said issuing a press release. CBSL adds that LPI is compiled covering all Divisional Secretariat (DS) divisions of  the Colombo District using per perch bare land prices collected from the Government Valuation Department in order to monitor the developments in the real estate sector. To maintain homogeneity, three separate sub-indices for residential, commercial and industrial lands are computed, considering the diverse nature of the land use, and the overall LPI is calculated by taking the average of these three sub-indices Daily Island, 12.3.2019)

Tourist earnings rose to $ 4,381 million in 2018, in comparison to $ 3,925 million in 2017, the Central Bank said this week but workers remittances declined by 2.1% to $ 7 billion last year.  Workers’ remittances in December 2018 declined by 13%, year-on-year, to $ 584 million. On a cumulative basis, workers’ remittances recorded a decline of 2.1% to $ 7,015 million in 2018, from $ 7,164 million in 2017. Tourist arrivals recorded a growth of 3.5% in December 2018, resulting in a total of 2.3 million arrivals during 2018, compared to 2.1 million arrivals in 2017. Tourist arrivals from all major regions, except East Asia and the Middle East, increased in 2018.India remained as the leading source country for tourist arrivals in 2018, while China remained the second largest origin, albeit with a marginal decline, followed by the UK, Germany, and Australia. With the growth in tourist arrivals, and an increase in estimated average spending by tourists, earnings from tourism recorded a healthy growth of 11.6% during 2018. (Daily Financial Times, 16.3.2019)

Sri Lanka has obtained a US$ one billion (Rs 178 billion) loan from China Exim Bank for the construction of first stage of the Central Expressway project.  The loan is required for the construction of the Kadwatha-Mirigama section – a stretch of 37.09 km — began in 2015 soon after the United National Front Government was elected to power. “Sri Lanka’s financial situation, political issues and adverse reports about utilisation of funds for various projects delayed the approval of the loan,” ERD  Director General R.M.P. Rathnayake said..  The expressway’s first phase was due to be completed by June next year, but it would now take about three more years. Road Development Authority Chairman Nihal Suriyaarachchi said the completion of the Kadawatha-Mirigama stretch would enable the linking of the southern expressway to the first phase. The extended sections of the Southern Expressway — Matara to Beliatta (30 Km), Beliatta to Wetiya (26Km) and Wetiya to Andarawewa (15 Km) and Andarawewa to Mattala and Hambantota (25 Km) — would be ready for opening in August this year, he said (Sunday Times, 17.3.2019)

The Ceylon Electricity Board (CEB) commenced the implementation of the cloud seeding project where moderate artificial rainfall was experienced in the catchment areas of the Maussakele reservoir. Sri Lanka Air Force deployed a Y-12 aircraft to introduce the chemicals into the cloud in order to induce the showers. The Y-12 aircraft hovered above the reservoir at 8000 feet which is reported to have produced a moderate rainfall for about 45 minutes, according to a senior Sri Lanka Air Force official .A team of artificial rain experts from Thailand had provided the necessary technical assistance to carry out the project upon a request put forward by the CEB. A CEB official noted that a similar artificial rain project was carried out successfully in the catchment areas of the Maussakele and Castlereigh reservoirs in 1980. (Times online, 22.3.2019)

Inflation rose to 2.4% in February from 1.2% in January, largely on non-food items, the Census and Statistics Department said.  Headline inflation as measured by the year-on-year change in the National Consumer Price Index (NCPI, 2013=100) increased to 2.4% in February 2019 from 1.2% in January 2019 mainly due to the base effect. Meanwhile, year-on-year Non-food inflation increased to 6.7% in February 2019 from 6.5% in January 2019 while Food inflation also increased to -2.9% in February 2019 from -4.8% in January 2019.
The change in the NCPI measured on an annual average basis marginally decreased to 1.7% in February 2019 from 1.8% in January 2019. The month on month change of the NCPI was -0.5% in February 2019. This was mainly due to decrease in the prices of the items in the Food category where vegetables, green chillies, rice, coconuts, limes, big onion and banana recorded significant decreases. However, on month on month basis, the prices of the items in the Non-food category increased among which the Education sub-category recorded the highest increase. Further, Health, Transport, Alcoholic Beverages and Tobacco, and Housing, Water, Electricity, Gas and Other Fuels sub-categories also reported increases during the month.  The core inflation, which reflects the underlying inflation in the economy, increased from 5.1% in January 2019 to 5.5% in February 2019 on year-on-year basis. Meanwhile, annual average core inflation also increased from 2.7% in January 2019 to 3% in February 2019. (Daily Financial Times, 22.3.2019)

The Export-Import Bank of China (EXIM Bank) of China has agreed to provide a concessional loan of US$989 million covering 85% of the contract price for the Central Expressway Project Section 1 from Kadawatha to Meerigama. The loan is to complement the existing expressway network, Central Expressway Project (CEP) has been initiated with the purpose of linking Colombo with Kandy and Kurunegala. Section 1 of the CEP will start from Kadawatha where four expressways, namely Outer Circular Highway (OCH) II, OCH III and Colombo-Katunayaka Expressway and the Central Expressway link through the Kadawatha interchange. This will create an uninterrupted connectivity from Hambanthota to Katunayaka or Hambanthota to Kandy linking several provinces and economically important ports, airports and commercial cities. The Export- Import Bank of China (EXIM Bank) has agreed to provide a concessional loan amounting to US$ 989 million covering 85% of the contract price, for the Central Expressway Project – Section 1 from Kadawatha to Meerigama. The total estimated cost of the project is US$ 1,164 million. Furthermore, this loan is the single largest loan approved by the EXIM Bank for Sri Lanka. (Daily Mirror, 23.3.2019)

Tourism Development Minister John Amaratunga said the government would grant on arrival visas for tourists from 36 countries free of charge from May 1 onwards for a trial period of six months. Minister Amaratunga said that tourists from the countries such as those in European Union, New Zealand, Australia, Thailand, Cambodia and Japan would be given this facility. Afterwards, the Minister said it would be implemented for six months initially. “Depending on its success, we will decide whether to proceed with it further or not. They will be allowed into the country without a fee. Every year, there is a drop in tourist arrivals during the six months period starting from May. We will implement this program during this period in a move to boost tourist arrivals,” he said. The Minister said his target was to attract three million tourists to the country by the year’s end. (Daily Mirror, 25.3.2019)

The depreciation of the Sri Lankan rupee between January 2015 and November 2017 has increased the foreign debt by Rs.626.4 billion, the Government told Parliament yesterday, but stressed that foreign investment increases showed that confidence in the Sri Lankan economy was improving. Responding to a question for oral answer, the State Minister of Finance Eran Wickramaratne held the rupee had depreciated by 14.6% during the period in focus affecting the amount of total foreign debt of the central Government.  Rejecting impact on rupee depreciation from failing investor confidence on bonds, the State Minister said: “Depreciation of the rupee will lead to increase the foreign debt. This wouldn’t have happened if we took rupee loans.” “Foreign Direct Investment in 2016 was $1.5 billion. This has gone up to $ 1.7 billion in 2017 and was increased to $2.34 billion last year. This shows the growing foreign direct investment in Sri Lanka,” he confirmed. According to research, Sri Lanka’s total external debt decreased to $ 53,177.39 million in the third quarter of 2018 from $ 53,487.28 million in the second quarter of 2018. The external debt in Sri Lanka averaged $ 44,865.87 million from 2012 until 2018, reaching an all-time high of $ 53,487.28 million in the second quarter of 2018 and a record low of $ 37,098.10 million in the fourth quarter of 2012. (Daily Financial Times, 27.3.2019)