SL could open up vehicle imports in 4Q upon debt restructuring completion

SL Banks’ Association Chief says country is ‘couple of months’ away from striking a deal with bondholders 
By Nishel Fernando 

While underscoring  that Sri Lanka is only a couple of months away from completing debt restructuring, a top banker weighed in on opening up of vehicle imports in the last quarter of this year once that is done. 
Sri Lanka Banks’ Association Chairperson and Standard Chartered Bank of Sri Lanka Chief Executive Officer Bingumal Thewarathanthri noted that the safest way is to wait for debt restructuring, which is a “couple of months away from now”, following which there will be a rating upgrade.

“So, the right time would be the fourth quarter of this year, you don’t have to wait until next year. We can start with electric or hybrid vehicles.

“We can start slowly and go forward, because we have to open up, we can’t keep going on like this,”

Thewarathanthri told a panel discussion organised by Ceylon Motor Traders Association in Colombo last Tuesday. 
While being optimistic of striking a deal with bondholders shortly, he cautioned that if vehicle imports are opened too quickly, the Rupee will crash by 10-15 percent.

Therefore, the ideal time would be the fourth quarter of this year, when Sri Lanka’s foreign reserves are expected to hit the US$ 6 billion mark.

“Five months from today, we will have an additional US$1 billion and IMF funding will also come, so we will get to a comfortable US$ 6 billion before the end of this year,” he added. 

Potential increases in crude oil prices due to heightened tensions in the Middle East and a rise in economic growth in China may exert pressure on the Balance of Payments (BOP).

On the other hand, Thewarathanthri noted that unusual appreciation of the Rupee does not auger well for exports. 
“It’s not healthy for exporters, so one solution could be opening up imports, but the real challenge is that we don’t know what the potential outflow would be,” he said.

Meanwhile, he urged the automotive industry stakeholders to collaborate with the government to halt revenue leakages.

“Please make sure that you work with the tax authorities and government and when you make sales, make sure people have tax files. In this country, you can carry Rs.20 million of hard cash and buy a vehicle. I haven’t seen many countries like that. I am very concerned about the underline operations of this industry,” he elaborated. 

Revenue targets for 2024 likely to be missed

While Sri Lanka is on course to secure IMF executive board approval for the second review of US$ 3 billion bailout package, it is likely to miss revenue targets set for this year, according to Thewarathanthri. 

“I am fairly confident that Sri Lanka will pass this review, and we will get US$ 330 million, but that’s not the point. It looks like we are going to miss the (fiscal) targets. We are of the view that maybe we are going to come close to Rs.3.7 trillion. We have set a (revenue) target of Rs.4.2 trillion (for this year),” he said.

However, the government exceeded the revenue target by six percent in the first quarter, by collecting Rs.834 billion to state coffers, against the targeted Rs.787 billion.

He also noted that the primary surplus target also remains challenging. 

As per the IMF programme, Sri Lanka set a primary surplus target of 2.3 percent of GDP for 2025 from last year’s 0.6 percent.

He stressed that political leaders must look at how Sri Lanka could move forward with ambitious fiscal targets at a time of high poverty rates. 

“How far can we go with increasing taxes and elevating poverty levels could be a question. That could be the larger question for anybody in these political parties or for the government to tackle this year, but I don’t see a risk of this review failing at this point,” he said. (NF)