Sri Lanka hopes to resume road projects after debt restructuring, IMF review

ECONOMYNEXT – Sri Lanka shares closed down on Monday as the market is down on uncertainties on the International Monetary Fund review on the crisis hit island nation obtaining the second tranche, an analyst said. 

The main All Share Price Index was down 0.89 percent or 102.09 points to 11,363.64, while S&P SL20 was down 0.96 percent or 31.09 points to 3,213.42. 

“The market is down as the IMF team will be in Sri Lanka till the end of September, with finalizing the second tranche,” an analyst said. 

A team from the International Monetary Fund will be in Sri Lanka from September 14 to 27 to conduct the first review of an Extended Fund Facility arrangement, a spokesperson said.

The review will be conducted on June data.

Officials have said Sri Lanka has over-achieved key IMF quantitative performance criteria though tax revenues, which is an indicative target has fallen short.

Sri Lanka is also hoping to wrap up debt restructuring by September of October.

“Sri Lanka has fallen short of some of the requirements by the IMF, which has posed uncertainties in the market,” an analyst said. 

Fitch Ratings said it has downgraded the rating on several bonds involved in a domestic debt restructuring to default, while the long-term local currency rating was downgraded to ‘Restricted Default’.

Fitch downgraded Sri Lanka’s foreign currency rating to restricted default when the country defaulted on its sovereign and bilateral creditors last year.

 Sri Lanka will have to wait till the International Monetary Fund (IMF) has completed its first review of the ongoing IMF programme for the government to review its own fiscal policy, an official said, noting however that it will not step out of the programme’s framework regardless.

“Let’s wait and see until the review is over. State revenue is not where it was expected to be. There are several reasons for that. Until the end of the review, we cannot make a clear statement on how we can bring state revenue to adequate levels,” said Semasinghe.

Losers during trading were Commercial Bank, Sampath Bank and Hayleys PLC. 

Analysts said that there was profit taking in the banking sector waiting on clarity for debt restructuring and the second tranche. 

Sri Lanka’s economy has stabilized faster than some other countries that went into crisis recently, State Minister for Finance Shehan Semasinghe said.

“Our economy is on a progressive trajectory,” Semasinghe told parliament in a debate to pass a tax linked to domestic debt restructuring.

“Compared to other countries’ whose economies collapsed we have been able to in the shortest time stabilize the economy.

“Other countries are commending our progress.”

The market saw a net foreign inflow of 35.4 million rupees, while the yearly net foreign inflow was 1 billion rupees. 

Majority of the net foreign inflow was derived from Tokyo Cement, which pushed the materials index as a heavy turnover yielder. 

Market turnover was 659 million rupees, this is the lowest turnover the market has generated since June 06, while the average turnover was 2 billion rupees. 

Majority of the turnover was derived from the material sector bringing in 123 million rupees, the banking sector brought in 115 million rupees and the capital goods sector accounted for 104 million rupees of the turnover. (Colombo/Sept18/2023) 

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