Mangala adamant economy remains buoyant Appropriation Bill presented in P ment Hayleys retains top spot in LMD 100 rankings...

Transcription

1 NEWS ROUND UP Wednesday, October 10, 2018 Contents Mangala adamant economy remains buoyant... 2 Appropriation Bill presented in P ment... 3 Hayleys retains top spot in LMD 100 rankings... 6 Fitch affirms Ceylon Electricity Board at AAA(lka) ; Outlook Stable... 6 SC rules that 20th Amendment approval needs P ment majority... 8 Unemployment up 4.6% in Q2... 9

2 Mangala adamant economy remains buoyant Rebuking Opposition claims, the United National Party (UNP) yesterday said the economy was not facing a crisis but the Government was enacting sustainable policies as opposed to dangerously populist measures. We assure that the economy is not near any turmoil, and under no circumstances will the Government let the economy go in that direction, Finance Minister Mangala Samaraweera told journalists at a press conference held at the UNP headquarters Sirikotha yesterday. Dismissing all allegations of distress on the economic front, he stated that the Government had not taken shortcuts towards populist economic interventions but had opted to take sustainable economic policies that lead to lasting growth. The weakening of the Sri Lankan currency did not indicate economic turmoil, he explained, adding that the perception of development had become somewhat unclear, with many economic osthars of the past regime constantly ranting about the rupee depreciation. Many countries in the world are experiencing depreciation with their currencies against the US dollar due to policies adopted by the Fed. Amidst this regional currency countries in turmoil like India, Pakistan, Indonesia, the Philippines, Australia and Russia are all facing this issue, but I can guarantee that Sri Lanka faced it in the most resilient manner, he added. Reiterating that the Government was determined not to use foreign reserves to defend the currency depreciation, Samaraweera said that only $ 250 million was spent thus far, as against the $ 4 billion spent by the former regime in 2012 to shield the rupee artificially and yet it depreciated by 14%. Noting that the Government inherited the consequences of the myopic policies of the past administration, he said that they chose not to tread the same path and laid a strong foundation for an export-led economy. It was virtually a fiscal time bomb we inherited from the crony capitalist system of Mahinda Rajapaksa. This year we have to pay Rs. 1.9 trillion, the highest debt repayment in the history of Sri Lanka and 83% of this was due to debts obtained by the Rajapaksa regime. Next year and the year after we have to pay over Rs. 4 trillion. No one is talking about this and misleading the economy, he claimed. Considering the continual pressure on the BOP from increased imports, he said the Government had implemented further measures to restrict the importation of vehicles and certain non-essential consumer goods. During the first 10 months the Minister pointed out that over 14 million LCs were opened to import vehicles. The Minister assured that a set of well-thought-out measures were being implemented to provide a sustainable, long-term solution to the development needs of Sri Lanka, from a protected domestic market-driven economy to a more outward-oriented economy focused on exports, entrepreneurship, FDI and private enterprises. We are going in the right direction, towards an export-oriented economy. Despite all these obstacles, the Government has not stopped development projects. The benefits of the reforms may not fully materialise immediately, but with the combined efforts of all stakeholders we have the opportunity to collectively build a strong, sustainable and equitable economy and society, Samaraweera declared. Despite all these challenges, the Minster was confident that the economy would grow over 4% by the end of the year.

3 According to him, during the first four months tax collection grew by 12.3%, with domestic consumption taxes growing by 9.1% and over 100,000 new tax files being opened. However, he insisted that Government revenue was highly dependent on the 82% indirect taxes as opposed to the 18% direct taxes they collect. He said the clear priority for the Government was to accelerate Enterprise Sri Lanka and Gamperaliya, which could have a transformational impact on both the rural and urban economies. Amidst all these economic challenges we face internally and externally, we have not forgotten rural development and the real entrepreneurs of this country. Under the Gamperaliya program 33,875 projects are ongoing islandwide, where the Government has allocated Rs. 20 billion for the past four months. No Government has spent such funds to uplift the rural economy in this country. We believe in giving to those who need assistance, not to cronies of the family, he added. As of 1 October, the Minister said that they had disbursed Rs. 5.4 billion for 26,978 projects under the Enterprise Sri Lanka project, which would help generate a true entrepreneurship culture in the country that leads to inclusive economic development. I do not believe that any of these projects would have been possible if the economy was in a dire situation, he stressed. The Minister asserted that this negative perception created by the Opposition painted a bleak picture for potential investors looking at Sri Lanka, noting that they were unaware of the reality of the situation. The foreign investors think there is political uncertainty in the country when they read the news but they do not know that these are a bunch of people who are desperately daydreaming of coming back to power, he added. The Minister said that the UNP would forge ahead toward the next presidential election despite all obstacles. (DailyFT) Appropriation Bill presented in P ment The Appropriation Bill to provide for the services of the 2019 financial year was presented yesterday in Parliament. Finance and Mass Media Minister Mangala Samaraweera moved the motion seeking House approval to raise and spend Rs trillion in 2019 to meet capital as well as recurrent expenses of the Government, setting the borrowing limit at Rs trillion. Compared to the 2018 Appropriation Bill, it is an increase of Rs. 394 billion. The highest recurrent allocation of Rs billion is for the Ministry of Public Administration, Management and Law and Order and the lowest of Rs. 243 million is for the Ministry of Petroleum Resources Development. However, with the motion moved, Chief Opposition Whip, JVP leader Anura Dissanayake, challenged the technicalities of the Appropriation Bill 2019, highlighting that the Government had failed to maintain the 30-day mandatory vacuum before presenting the Budget Speech, which is scheduled for 5 November. The Appropriation Bill 2019, gazetted on 21 September 2018, seeks passage to authorise the raising of loans within or outside Sri Lanka for the purpose of such service; to make financial provision in respect

4 of certain activities of the Government during that financial year; to enable the payment by way of advances out of the Consolidated Fund or any other fund or moneys, of or at the disposal of the Government, of moneys required during that financial year for expenditure on such activities; to provide for the refund of such moneys to the Consolidated Fund and to make provision for matters connected therewith. The debate on the Second Reading of the Budget will commence following the Minister s speech, which is scheduled for 5 November and will continue for five days followed by the Committee Stage process. The third and final Reading Division of Budget 2018 will be taken up during the first week of December. Ministry Recurrent Rs. Capital Rs. Ministry of Public Administration, Management & Law and Order 288,628,000,000 6,524,000,000 Ministry of Defence 274,667,000,000 31,451,000,000 Ministry of Provincial Councils, Local Government and Sports 193,960,025,000 51,691,775,000 Ministry of Health, Nutrition & Indigenous Medicine 143,625,998,000 41,856,400,000 Ministry of Finance & Mass Media 84,498,965,000 85,383,380,000 Ministry of Social Empowerment 64,714,000,000 1,305,000,000 Ministry of Education 60,700,000,000 44,300,000,000 Ministry of Agriculture 53,202,676,000 9,928,350,000 Ministry of Higher Education and Cultural Affairs 50,560,000,000 32,940,000,000 Ministry of Transport and Civil Aviation 32,916,950,000 36,261,000,000 Ministry of Home Affairs 28,903,000,000 21,236,000,000 Ministry of Social Welfare & Primary Industries 17,634,000,000 2,589,000,000 Ministry of Justice & Prison Reforms 16,126,815,000 2,901,000,000 Ministry of Posts, Postal Services and Muslim Religious Affairs 13,106,750, ,200,000 Ministry of Foreign Affairs 10,744,000, ,200,000 Ministry of Science, technology, Research, Skills Development & Vocational Training and Kandyan heritage 8,517,000,000 7,890,000,000 Ministry of Women & Child Affairs 7,388,104,000 1,665,090,000 Ministry of Lands & Parliamentary Reforms 6,011,790,000 3,329,860,000 Ministry of National Policies and Economic Affairs 5,942,895,000 52,460,612,000

5 Ministry of Mahaweli Development and environment 5,845,380,000 36,173,330,000 Ministry of Internal Affairs and Wayamba Development 5,826,540,000 1,922,775,000 Ministry of Irrigation and water Resources & Disaster Management 4,876,260,000 33,506,740,000 Ministry of Youth Affairs, Project Management & Southern Development 4,240,667,000 4,316,550,000 Ministry of Plantation Industries 3,260,000,000 4,802,000,000 Ministry of Fisheries & Aquatic Resources Development and Rural Economic Affairs 3,057,750,000 12,245,800,000 Ministry of Industry and Commerce 2,965,000,000 7,411,000,000 Ministry of Labour & Trade Union elations 2,826,000, ,000,000 Ministry of Sustainable Development, Wildlife and Regional Development 2,467,000,000 2,367,000,000 Ministry of Resettlement, Rehabilitation, Northern Development and Hindu Religious Affairs 2,191,580,000 3,265,800,000 Ministry of Telecommunication, Digital Infrartsture & Foreign Employment 1,199,710,000 2,978,700,000 Ministry of Housing & Construction 993,000,000 11,586,000,000 Ministry of Megapolis and Western Development 937,000,000 47,410,000,000 Ministry of Ports & shipping 789,000,000 1,071,000,000 Ministry of Development Strategies and International Trade 660,000,000 3,231,000,000 Ministry of national Integration, Reconciltion and Official Kanguaes 649,260,000 5,462,750,000 Ministry of Public Enterprise & Kandy City Development 575,400, ,900,000 Ministry of Power & Renewable Energy 562,465, ,100,000 Ministry of Hill Country New Villages, Infrastructure and Community Development 368,000,000 3,515,000,000 Ministry of City Planning and Water Supply 351,000,000 45,934,000,000 Ministry of Tourism Development and Christian Religious Affairs 339,665, ,535,000 Ministry of Highways & Road Development 254,000, ,000,000,000 Ministry of Petroleum Resources Development 243,000,000 66,700,000(DailyFT)

6 Hayleys retains top spot in LMD 100 rankings In an exclusive pre-publication release to Daily FT, the publisher of leading business magazine LMD, Media Services, announced its top 20 line-up in the forthcoming LMD 100 special edition. Hayleys retains the No. 1 slot in the 25th edition of Sri Lanka s pioneering listed company rankings for financial year 2017/18. With its consolidated revenue exceeding Rs. 163 billion, the conglomerate secured top spot for the second consecutive year on the back of a 47% hike compared to 2016/17. This marks the fourth occasion that Hayleys has occupied the prime position in Sri Lanka s version of the Fortune 500. After breaking into the top 10 last year, LOLC climbs another four places to take second place on the podium with a top line of almost Rs. 150 billion. Last year s runner up John Keells Holdings (JKH) takes third place with an increase in revenue of 14%, having occupied the No. 1 spot on 13 previous occasions over the years. The other listed companies in the top five consist of Hatton National Bank and Commercial Bank, claiming fourth and fifth places respectively. Sampath Bank enters the top 10 by moving up five notches to claim the No. 6 position, followed by Dialog Axiata, CT Holdings, Lanka IOC and Cargills to round off the LMD 100 s top 10. A spokesperson for Media Services says that the 100-strong rankings once again affirm that Sri Lanka s largest conglomerates, banks, finance companies and insurance firms continue to lead the way for listed entities in this country. In addition to the listed company rankings, the annual LMD 100 special edition will cover the economy and performance of the top 10 in the period since the end of the 2017/18 financial year. It will also feature a series of interviews with some of the LMD 100 s high achievers. Media Services says the LMD 100 special edition will be released in December. (DailyFT) Fitch affirms Ceylon Electricity Board at AAA(lka) ; Outlook Stable Fitch Ratings has affirmed Sri Lanka-based Ceylon Electricity Board s (CEB) National Long-Term Rating at AAA(lka) with a Stable Outlook. CEB s rating is equalised with that of the Sri Lankan sovereign (B+/Stable), reflecting strong linkages with the parent, in line with Fitch s Parent and Subsidiary Rating Linkage criteria. The equalisation takes into consideration CEB s strategic importance to Sri Lanka in ensuring power security and supply of affordable electricity to the public as the monopoly electricity transmitter and distributor in the country. CEB also accounts for around 70% of the power generation in the country. Key rating drivers were as follows: Strong linkages with State: Fitch assesses the linkages between CEB and the State as strong, reflecting high ownership and management control, explicit guarantees and financial support through equity infusions and debt funding.

7 The Government also implicitly guarantees CEB s project loans (about 80% of outstanding debt), which are extended by bilateral and multilateral agencies and routed through the Government for development of power infrastructure. CEB provides electricity at subsidised rates, fulfilling an essential service for the Government. CEB has almost full network connectivity and accounted for more than 70% of Sri Lanka s generation capacity at end Fitch does do not expect CEB s linkages with its parent to weaken in the medium term as the Government s need to provide electricity at subsidised rates can be carried out only by a State entity such as CEB, as private companies would not be willing to incur losses. Fitch views CEB s standalone credit profile as much weaker than its support-driven rating and believes providing a notch-specific standalone credit view of CEB is meaningless due to poor margin visibility and the need for continued state support to sustain operations. Tariff increases unlikely: Fitch does not expect the Government to increase electricity tariffs in the foreseeable future to levels that adequately cover CEB s generation, distribution and transmission costs. The Government sets tariffs based on its socio-economic objectives and has not revised tariffs for almost three years despite rising generation costs. CEB s average cost of supplying a unit of electricity to customers in 2017 was around 20% higher than the average tariff. The Government faces elections in the next 24 months, and amid rising living costs due to higher fuel costs and local-currency depreciation, Fitch does not expect the Government to raise electricity tariffs or implement a cost-reflective pricing formula. Rising generation costs: Fitch expects generation costs to remain high in the next couple of years amid rising oil prices and volatile contribution from low-cost hydropower. It expects the share of hydropower in the generation mix to remain below historical levels due to declining load factors and very little new capacity additions. It expects CEB to turn to high-cost oil-based sources to meet the shortfall. In addition, CEB and independent power producers have been compelled to purchase fuel at market prices since mid-2018, after the Government introduced a pricing formula, compared with subsidised prices offered previously. Fitch does not expect the LNG projects proposed under CEB s generation expansion plan for to contribute significantly to the generation mix in the next two to three years. Weak balance sheet: CEB s balance sheet continues to weaken due to persistent losses and significant investments. It is unable to recover operating costs under the current tariff structure, and has to borrow to sustain its day-to-day operations. Further CEB, as the Government s main investment arm in the power sector, is likely to have large capex to improve country s power generation and transmission and distribution network. As such Fitch does not expect CEB s balance sheet to recover in the medium term unless the Government reduces its debt by converting some of it to equity. Derivation summary: Fitch has rated CEB at the same level as the sovereign due to the strong linkages with its parent. The rating is not derived from its standalone credit profile and thus is not comparable with industry peers. Fitch s key assumptions within its rating case for the issuer were as follows: Electricity consumption in Sri Lanka to increase by 5% per annum over ; no material electricity tariff increases in the next two years; generation mix to broadly remain at 30% coal, 30% fuel, 30% hydropower and 10% other;

8 capex of Rs. 120 billion in 2018 and to moderate to Rs. 60 billion per annum from 2019, mainly for generation, transmission and distribution. Rating sensitivities: Developments that may, individually or collectively, lead to positive rating action there is no scope for an upgrade as CEB is at the highest rating on the Sri Lankan national ratings scale. Developments that may, individually or collectively, lead to negative rating action a significant weakening of the strong linkages between the sovereign and CEB. Tight but manageable liquidity position: As at end-2017 CEB had Rs. 54 billion of unrestricted cash and unutilised credit facilities to meet Rs billion of debt falling due in the next 12 months. Fitch does not expect free cash flow to turn positive in 2018 amid continued operating losses and capex of around Rs. 120 billion. However it believes the Government will step in and provide liquidity support if required, as it has in the past. (DailyFT) SC rules that 20th Amendment approval needs P ment majority The Supreme Court has determined that several proposed articles of the 20th Amendment to the Constitution presented in Parliament by the Janatha Vimukthi Peramuna (JVP) on 5 September require a special majority in Parliament followed by a referendum on par with the provisions of Article 84 (2) of the Constitution in order to be approved. The articles in question are articles 2-16, articles 19-23, articles 26-30, Article 32 and articles It was further determined that draft articles 17, 18, 24, 25, 31 and 33 should be passed with a special majority in Parliament on par with Article 82 (5) of the Constitution. Opposition JVP lawmaker Vijitha Herath moved a private member bill on 5 September in Parliament to amend the Constitution to abolish the Executive Presidency. The Bill mainly proposed amending Article 4, articles 30-31, articles 33-35, articles 37-41, Article 41c, articles 42-44, Article 46, Article 48, articles 50-52, Article 65, Article 70, Article 80, Article 85, article 88-89, articles 92-94, 99, Article 111C, Article 129, Article 153 and Article 156 of the current Constitution. On 18 September Parliament received the copies of the 10 petitions filed in the Supreme Court challenging the 20th Amendment. MP Herath, who was granted leave to introduce the Bill, explained the purpose of moving a private member motion was that many candidates offered to abolish the Executive Presidency at the previous presidential election and the same intention has surfaced at different forums that discussed amending the Constitution even though no substantial action has been taken. Criticising the slow process followed to draft a new Constitution, Herath stated: Even though the abolition of the Executive Presidency was considered the point of moving the 19th Amendment, nothing of that sort happened. The Constitutional Assembly started drafting a new Constitution but it appears to be taking a long time. From the viewpoint of the public, in order to establish democracy in the country the Executive Presidency should be abolished. This Bill is aimed at abolishing the Executive Presidency as the 20th Amendment to the Constitution. We think the massive power entrusted to one person is an issue that needs to get changed. We seek Parliamentary approval to pass this Bill and public support to establish a civilised country. (AH) (DailyFT)

9 Unemployment up 4.6% in Q2 Unemployment grew marginally by 4.6% to an estimated 381,834 people in the second quarter of 2018 from a year ago, while there was higher male participation in the labour force, the Census and Statistics Department revealed yesterday. The overall unemployment rate was at its highest among females at 7.4%, while it was 3.1% for males, the Census and Statistics Department said in its quarterly Labour Force Statistics Bulletin. The unemployment recorded in the second quarter of last year as well as during the first quarter of this year was 4.5%. According to the survey, unemployment has remained below 5% since the third quarter of The survey results further revealed that unemployment among females was higher than males, across all age groups in the second quarter of Youth and female unemployment contribute more to the overall unemployment of the country, the report said. The youth unemployment rate within the age group of years in second quarter was 22.5%, which is the highest reported unemployment rate among all age groups, with 32.3% females and 17.6% males. Female labour force participation fell to 32.5% in the second quarter of 2018 from 35.9% a year earlier, with declines being seen across most age groups. The highest unemployment rate is reported from the G.C.E (A/L) and Above group which is about 8.9% or 170,647 individuals, where 5% is male and 12.7% is female. Female unemployment rates are higher than those of males in all levels of education. This further shows that the problem of unemployment is more acute in the case of educated females than educated males, which was observed consistently over the results of previous survey rounds as well, the report said. According to the survey, the estimated economically active portion of the population amounted to about 8.3 million in the second quarter, with 65.9% comprised of males and 34.1% females. The economically inactive population numbers about 8 million, of which 26.1% are males and 73.9% are females. The highest employment share is in the service sector where both male and female participation is high, while the lowest participation was seen in the agriculture sector. Employment in agriculture fell to a historic low of 24.2% in the June 2018 quarter amid a recovery from a two-year drought, with 1.93 million people working in the sector, down from 2.11 million or 26% of total labour a year earlier. However, agriculture sector Gross Domestic Product (GDP) grew 4.5% in the second quarter as supply chains returned to normal but contributed 8.4% to GDP. Employment in industrial activities fell 27.5% to 2.19 million of the labour force, from 2.3 million or 28.3% of labour from The economic growth in the industrial sector was 2.3%, contributing 25.6% to GDP in the second quarter. According to the report, the services sector was the only sector that grew rapidly in the second quarter at 4.8%, covering 57.1% of the GDP, which saw an increase in employment. The survey showed that 48.3% of labour was employed in the services sector in the second quarter, up 45.7% to 3.72 million a year earlier.

10 It was also pointed out that the majority of the workforce was made up of private sector employees followed by own-account workers. Consideration of the distribution of labour force participation by age group and gender depicts high male participation compared to female participation across all age groups. The highest participation rate for males was reported from the years age group (96.5%), while for females it was reported from the age group (49.9%). While the working age population increased by half a million from a year earlier, the number of people in the labour force fell by 167,334. Labour force participation fell to 53.9% during the second quarter, down from 54.7% a year earlier.(dailyft)