Non-ideological...

“A more likely outcome seems a U-shaped recovery with a period of flat growth,” the report predicted.

According to the International Monetary Fund (IMF) and the World Bank, Sri Lanka’s economy is set to enter into a period of recession this year.

Therefore, it was urged that the government’s top priority on the economic front should be to lessen the hardship on the people as much as possible with pragmatic policies and careful execution of such policies.

“The sharp economic downturn coupled with a slow recovery implies a growing risk of mass unemployment and rising poverty in Sri Lanka. This would cause misery to the population and have devastating social consequences. Domestically, there could also be significant financial strains from the over-stretched public health system and payments to the poor and vulnerable,” the authors of the report pointed out.

As the twin deficit economy was severely impacted by the pandemic further constraining the fiscal space and the capacity to respond to the crisis, the report emphasised that the second priority must be attached to building fiscal and external reserve buffers to increase resilience by de-risking the economy going forward.

In this regard, it was urged to draw funds from both domestic and external sources to build buffers and to have a sizable fiscal response to address the crisis.

“At this perilous juncture, the authorities need “to go big” in terms of borrowing domestically (including from CBSL) and from official development partners to overcome the lack of fiscal space. Such borrowing should be strictly allocated to social protection and productive investment,” it stressed.

In particular, the government was encouraged to make use of the current favourable environment to enter into a programme with the IMF as it has given greater priority to growth, employment and social protection instead of stabilisation/austerity during the COVID-19 crises.

Further, the Ministry of the Finance and the Central Bank were urged to issue a clear statement about frameworks for formulating consistent and predictable macroeconomic policies to avert possible scenarios leading to macroeconomic instability and policy uncertainty.

The report underscores that such measures are crucial as the effects of the global output collapse are being transmitted to Sri Lanka through falling demand for exports, capital outflows, falling remittances, a halt in tourism and a loss of business confidence, while high external debt payments denominated in US dollars amid dwindling reserves further complicate the external economic landscape in the country.

Thirdly, the report recommended the government to take urgent measure to grant concessional loans guaranteed by the government/cbsl based on credit lines from international financial institutions to facilitate the private sector firms restructure businesses to reap new opportunities and to create jobs.

“Given the binding fiscal constraints related to the solvency of the country and the current constitutional limitations,which constrain fiscal space, it is recommended that these firms are granted concessional loans guaranteed by the government/ CBSL based on credit lines from the international financial institutions,” the report read.

As the COVID-19 pandemic has led to the closure of a large swathe of the economy, causing an unprecedented impact on economic activity resulting in widespread disruption of livelihoods as well as businesses, it was emphasized such relief is required to avoid large scale job losses.

The study group also called the government to adopt a refined strategy, which is pragmatic and nonideological in nature while drawing lessons from past experiences.

“It should draw lessons from the low growth, muted investment, high unemployment and black-market prices associated with the inward-looking policies of the 1970-77 era as well as the increased vulnerability to external economic shocks, climate risks, increased inequality, reduced social protection and pandemics of the period since the opening up of the economy in 1977,” the report stated.

It also noted that careful consideration should be given on resetting the role of the State in the new normal of the POST-COVID-19 world while acknowledging the important role of the State in responding to such crises.

“It should be calibrated in such a way that inefficiency and corruption are minimized and the role of the private sector as the primary engine of growth and wealth creation is not stifled.”

In order to assess the economic damage caused by the COVID-19 pandemic and to develop an actionable national economic strategy, the report suggested a Presidential Task Force assisted by a multidisciplinary advisory group of experts, who could provide technical advice and support with monitoring outcomes.

In addition, the report also proposed to setup a committee of secretaries of development ministries, chaired by the Secretary to the President, to improve consistency and predictability of policy making as well as priority-setting and co-ordination for implementation.

Pvt. sector...

The stronger private sector credit deployment in March mirrors the loan growth numbers coming out by individual banks pointing towards a gradual upsurge in borrowers’ activity since January 2020.

For instance, Commercial Bank had a loan growth of just about Rs.30 billion for the three months while Sampath Bank had its growth at Rs.25 billion for the same period, both projecting to end up with well over Rs.100 billion in new loans for the year if not for the virus.

Meanwhile, many banks reported a jump in their bottom lines purely from lower taxes during the period ended March 2020 although their operating results were affected by heavy credit costs stemming from coronavirus related business impact.

Private sector credit, which at the start of the year appeared to have the potential to grow by around 15 percent for the year, after coming in at a very low of 4.5 percent in 2019, is now projected to grow by around 6 percent, according to First Capital Research.

At a meeting held last week, the government has requested the banks to provide concessionary rate loans to identified sectors such as plantations, small and medium enterprise manufacturing, housing and construction and value addition to agri-based produce.

State lenders already have introduced many subsidised loan schemes targeting agriculture and plantation sectors.

Besides, the banks have become partners to deploy Rs.50 billion refinance credit scheme made available by the Central Bank for eligible borrowers to overcome their urgent financing requirements caused by the interruptions to their businesses from the new coronavirus induced shutdowns.

There is a potential that the Central Bank could come up with a similar or higher refinance scheme.

Further, the Monetary Board has cut its key policy rates four times so far this year by as much as 150 basis points, eased capital requirements and allowed banks to draw down from the capital conservation buffer among others with the expectation of passing the benefits to borrowers via lower interest rates and ramping up lending.

Meanwhile, in other credit, banks gave Rs.35.7 billion in fresh credit to public corporations in March, up from Rs.12.6 billion in February.

Further, the net credit to government by the banking system surged to Rs.270.4 billion in March from Rs.41.9 billion in February as government raised money via government securities, mainly to combat the new coronavirus.

Meanwhile, the money supply measured by broad money (M2b) expanded by 11.6 percent on a year-onyear basis in March, up from 8.4 percent in February, an indication that the credit to both the private and public sector was improving the money in circulation in the economy.

However, the country is yet to see if the strong rebound, which was on the works in the first quarter seen from the credit numbers, would be reflected in the first quarter GDP data, although the lockdowns went into effect from mid-march.

NTB March...

NTB expects a shortfall in revenue against its targets as a result of the debt moratorium, interest rate ceilings and sluggish demand for credit in the ensuing period of the year. However it does not expect the negative impact to pose a significant stress on the bank’s liquidity.

“The bank is in the process of gathering applications for the debt moratorium by customers and the eligible applications still being reviewed.”

Meanwhile, NTB reported an operating profit before taxes on financial services of Rs.1.81 billion compared to Rs.1.94 billion in the year earlier period as the bank provided Rs.820 million for possible bad loans arising from the pandemic-driven business interruptions.

This is a 68 percent increase from the same period in 2019.

“When assessing the impairment provisions, the bank considered the potential impact of the COVID-19 pandemic on customers as well as the relief package introduced in the form of a debt moratorium by the government,” NTB said.

“Additional impairment provisions were made for identified customer segments impacted due to COVID19 related developments, by assessing potential delays to the cash flow expectations based on currently available information,” the bank added.

Fee and commission incomes hardly grew between the two periods due to lack of growth in loans.

The bank reported earnings of Rs.3.38 a share or Rs.959 million for the three months under review compared to Rs.2.72 a share or Rs.772.9 million in the year earlier period as the government removed the Debt Repayment Levy and the Nation Building Tax on the banking sector.

The bank had a deposit growth of Rs.6.7 billion during the three months.

John Keells group has 29.51 percent stake in NTB. During the quarter under review, Sri Lanka Insurance Corporation Limited’s Life Fund entered the top 20 shareholders of the bank with 2,664,000 shares or 1.09 percent stake being the twelfth largest shareholder.

SLT records...

There is widespread expectation that the remote working arrangements that were experimented during the pandemic could stay in place indefinitely for certain back-office work and work which doesn’t require in-person collaboration as employers had found the arrangement has largely been successful.

As hybrid work arrangements between remote working and central office for a couple days a week increasingly seem plausible, employers might re-think the need for having central offices in cities at exponential rents and would instead redeploy such money into technology and telecommunication services to provide their employees the flexibility and virtual interaction among them.

This could stoke new avenues for telecommunication companies, which otherwise would be slow to evolve.

In order to explore further potential and opportunities coming out of this pandemic, SLT along with its mobile telephone subsidiary Mobitel (Pvt) Limited, has formed a task force in collaboration with other telcos in the industry, the company said in a separate disclosure on the impact of the pandemic on SLT.

Telecommunication sector was looked upon largely as a ‘pandemic-proof’ industry as self-isolating people and businesses, which strive to continue operations that have heavily relied on telecommunication services to stay connected, share information and conduct virtual meetings.

Although revenue and operating profit remained intact for the most part during March, SLT said its operating profits were depressed somewhat from the provisioning made against overdue debtors.

Although such provisioning was not separately given, the company said it had to provide Rs.536 million for overdue debtors together with depreciation.

“Low disposable income levels of customers coupled with regulatory instructions to refrain from disconnecting the subscribers who have not paid, the collection of billed revenue is a challenge in this financial year,” the company said in a note accompanying the interim results.

“Nevertheless, the government’s decision on extending the due dates for payment of some taxes and levies has eased off the situation in the short term. In order to mitigate cash-flow related challenges, the group has decided to limit capital nature expenditure only for the critical areas and to utilise the procurement models with deferred payment plans,” it added.

The SLT group reported operating profit of Rs.3.2 billion for the three months, up 28 percent YOY.

Meanwhile, the group reported earnings of Rs.1.04 a share or Rs.1.88 billion for the three months compared to Rs.1.22 a share or Rs.2.2 billion in the same period last year as the earnings were impacted by higher finance cost and foreign exchange translational losses resulted from the depreciation of the rupee against the dollar.

The group had Rs.526 million as interest expenses and finance cost for the three months, up from Rs.209 million in the year earlier period.

The foreign exchange losses were Rs.683 million compared to a gain of Rs.172 million in the year earlier period.

While, the group said the higher finance cost is due to increased borrowings made during the last few years on infrastructure development, its share of foreign currency borrowings are at a low level, keeping its associated risks to a minimum.

Meanwhile, in order to keep the group’s exposure to a minimum over rupee depreciation, SLT said they are renegotiating with foreign suppliers on certain expenses needed to be made using foreign currency.

Dialog March...

Further the global impact of COVID-19 pandemic has adversely affected Dialog’s international business where inbound and outbound roaming contributed 2 percent of the group revenue in FY2019.

Going forward the company expects its revenue to be impacted and some receivables to be written off.

“Based on present trends, we expect an adverse impact on group revenue, impairment of trade receivables and health and safety related expenses. The group has resorted to aggressive cost rescaling and rationalisation initiatives both in operating and capital expenditure to soften the impact on the business,” Dialog Axiata said in a note accompanying the interim results.

Meanwhile,the group reported earnings of 18 cents a share or Rs.1.49 billion for the three months ended March 2020 compared to 60 cents a share or Rs.4.9 billion in the year earlier period.

This is due to Rs.1.4 billion of net foreign exchange translational losses booked against the profit on account of the group’s foreign loans. The group booked a gain of Rs.1.5 billion in the year earlier period.

However, the group estimates after tax profit at Rs.3.1 billion, normalising for the forex loss.

Malaysia based Axiata Investments (Labuan) Limited has 83.32 percent stake in Dialog Axiata, while Employees Provident Fund has 2.92 percent stake being the second largest shareholder.