Weekly Market Forecast: Budget 2021 to Fiscal Consolidation, Enhanced Revenue
By Paneetha Ameresekere.
In the backdrop of the devastation caused by COVID-19, Sri Lanka asked the IMF for a ‘COVID-19 relief package’ totalling between USD 700- 800 million from its Rapid Financing Instrument (RFI) set-up to aid countries in distress. (See also CT of 9 May)
Local officials who wished to remain anonymous had then told CT that teams from the Government of Sri Lanka (GoSL) and the Central Bank of Sri Lanka (CBSL) are in an advanced stage of negotiations.
Local sources in negotiations with the IMF then told CT that they are not in a hurry to receive this money. “We have no urgency to obtain this money. We can wait till October (next month), they said, adding that that’s when a sovereign bond for USD one billion matures.
Payments from the RFI come as a bullet payment and not in tranches. Such payments are not wholly made to the CBSL for balance of payments support, i.e. to strengthen the country’s foreign reserves, but may be channelled directly to the Treasury for budgetary support. RFI facilities generally come with no interest charged and are payable over 10 years with a five-year grace period.”
But now at least four months have transpired since GoSL had made this request to the IMF, but there appeared to be no light at the end of the tunnel.
Therefore, Ceylon FT made a recent email query to the IMF in this regard. We asked the IMF, whether they were first awaiting the outcome of ‘Budget 2021’ due to be presented in Parliament in November, i.e. in another two months time, before making their next move?
IMF’s Mission Chief to Sri Lanka, Masahiro Nozaki, a Japanese; on 24 September in reply, didn’t give a direct answer.
Nozaki, in an email forwarded by IMF’s Media Division, in Washington, DC, said, “We are assessing all relevant conditions on their (Sri Lanka’s) request for an RFI, taking account of the new Government’s policies and efforts to address the daunting economic challenges posed by COVID-19.”
“We continue to engage with the Sri Lankan authorities and are considering the full set of options for engagement,” he added.
Nonetheless, one may foresee that Budget 2021, in conformity with IMF’s general requirements, would move towards fiscal consolidation, increased revenue, by enhancing the country’s tax regime and the liberalisation of administered prices, if in the event that would benefit cash-strapped State owned enterprises.
Markets received their ‘best’ news after eight months when Guardian Capital Partners plc on Wednesday (23) announced to the Colombo Stock Exchange that it planned to dispose of an 83.97 per cent (21,692,800 shares) of Ceylon Guardian Investment Trust plc at a mutually agreed price which will be disclosed upon agreement plus at a premium of Rs 40 million to Gazelle Asset Management plc.
Gazelle is a company incorporated in Singapore, unrelated to Carsons or Bukit Darah, Guardian’s parent and or associated companies. (Ceylon FT of Thursday’s)
This announcement has to be looked at in the context that the bourse, in the calendar year to Thursday has suffered a record net foreign outflow of Rs 38.17 billion. For a country which is suffering from a scarcity of US dollars, led by a deficit in the balance of payments in the current account ‘spearheaded’ by a trade deficit, this foreign buy is good news.
Guardian made this announcement after markets closed on Wednesday. Ceylon Guardian closed that day at Rs 30.10 a share, down 90 cents on Wednesday. Assuming that this deal is being executed at Rs 30.10 a share, then the value of this sale would be equivalent to Rs 692,953,280, including the premium. With the buying rate of the dollar at Rs 182.97 on Wednesday, this would therefore be equivalent to an inflow of USD 3.79 million.
Carsons, Bukit, Guardian Capital, Ceylon Guardian, among others, are controlled by the Selvanathan brothers, Mano and Hari.