Sri Lanka vehicle registrations hit another all-time high: JBS

(LBO) – Vehicle registrations hit another all-time record on most categories barring 2-wheelers in September. In some categories the growth over the previous month is alarming, JB Securities said in a research note.

Total motor car registrations recorded 14,301 units in Sep up from 9,107 units in Aug and a mere 3,539 units 12 months ago. This is a 400% increase from 12 months ago and 57% increase over the previous month.

Brand new car registrations recorded 9,183 units in Sep significantly up from 5,216 units the prior month and a mere 980 units 12 months ago. This is a 940% increase in 12 months and 76% increase over the previous month.

Small cars (<1,000cc) accounted for the 8,891 units (97%). Maruti accounted for 7,789 units (85%) in Sep up from 4,259 the previous month (83% increase) and a mere 564 units 12 months ago (1,380% increase). Micro recorded 639 units (mainly Panda) up from 441 units the previous month and 152 units 12 months ago. Hyundai recorded 228 units mainly comprising of Eon. Tata’s Nano Twist is gaining traction but volumes are yet low at 127 units. Financing share recorded 68% up from 64% the previous month. Its noteworthy that Maruti Alto Financing share was 68% in Sep up from 61.7% in Aug in spite of the 70% loan to value cap coming into effect on 15 Sep.

Preowned car registrations recorded 5,118 units in Sep significantly up from 3,891 units the prior month (31% growth) and 2,559 units 12 months ago (200% growth). Toyota accounted for 1,908 units (Aqua 1,040 units, Axio 499 units) followed by Suzuki with 1,713 units (Wagon R 1,642 units), Honda with 954 units (Fit 715 units, Grace 202 units) and Nissan with 456 units (mainly Leaf). Financing share was 67.5% slightly higher than the previous month’s 65.1% but in line with the year to day trend.

Premium brands recorded 113 units comprising of 69 brand new units and 44 preowned units. Brand new Mercedes recorded 40 units (C class 18 units, E class 15 units and S class 4 units) and preowned recorded 25 units (C-class 3 units, E class 8 units and S class 1 unit). Brand new BMW recorded 19 units (5-series 17 units, 3-series 2 units) and preowned recorded 15 units (Mini cooper 6 units, 7-Series active hybrid 4 units).

Electric cars recorded 471 units in Sep up from 380 units in Oct and mere 15 units 12 months ago. Nissan Leafs recorded the bulk of the volume accounting for 458 units up from 373 units the previous month. There are also 4 Tesla Model S, 3 BMW I3 and 2 Mercedez Benz B class. Total Tesla Model S population is now 8 cars on the road.

SUVs recorded 887 units in Sep up from 652 units in August and 805 units 12 months ago. Mitsubishi accounted for 285 units (Outlander 154 units, Montero 127 units), Toyota accounted for 200 units (Prado 178 units) Honda 189 units (Vezel 177 units) and Nissan 97 units (mainly X trail hybrids).

Hybrids recorded 5,049 units in Sep up from 3,849 units in Aug and 3,339 units 12 months ago. Of the 5,049 units, cars accounted for 4,591 units followed by SUVs with 425 units and Vans with 33 units. In January Honda Vezels recorded 1,263 units, by Sep volumes have dropped to 177 units but Suzuki Wagon R hybrids that recorded 8 units in January increased to 1,637 units. The Suzuki Wago R also referred to as Stingray is a small 800cc car with a hybrid engine.

Vans recorded 1,337 units in Sep up from 1,234 units the prior month and a significant increase from 198 units 12 months ago. Preowned units accounts for 95% of volumes. Toyota accounted for 585 units (mainly KDH or better known as Hiace) followed by Suzuki with 454 units (Every – this is a minivan).

3-wheeler registrations recorded 12,375 units in Sep slightly below the ALL time record set in July of 12,248 and up from 10,366 units in August and 7,507 units 12 months ago. Bajaj maintains it dominance with 86% of the market. Financing share was 90%.

2-wheeler registrations recorded 30,240 units in Sep up from 25,836 units in Aug and 24,399 units 12 months ago. Bajaj does not seem to be marketing a lady’s bike, a category that has seen rapid growth, this may explain their drop in market share that used to be around 45-50% to 31.2%. Hero and Honda parted ways 2-3 years ago in India, Honda bikes that are Made in India have claimed 24.6% share (7,382 units) and Hero claimed 21.8% share (6,552 units). Of the 2-wheeler units 68% are below 130cc, a majority of them are the lady’s bike (scooter) – Hero Pleasure 4,463 unit and Honda Dio 5,522. Financing share was 60%.

Pickup trucks recorded 353 units in Sep slightly up from 327 units in Aug and 265 units 12 months ago. Tata claimed 74.5% of the market accounting for 263 units (207Di – 104 units, Xenon – 159 units). Financing share was 83%.

Mini truck registrations recorded 1,519 units in Sep slightly up from 1,385 units in Aug and 1,282 units 12 months ago. Tata claimed 55.7% of the market accounting for 787 units (Ace 486 units, Super Ace 301) followed by Mahindra with 536 units (Maxximo – 315, Maxi Truck – 221). Financing share was 93%.

Lite truck registrations recorded 701 units in Sep up from 601 units in the prior month and 294 units 12 months ago. Mahindra was the leader with a share of 70% accounting for 488 units. Financing share was 92%.

Medium truck registrations recorded 216 units in Sep up from 243 units in the prior month and 197 units 12 months ago. Financing share was 80.1%.

Heavy truck registrations recorded 136 units in Sep down from 144 units in the prior month and 133 units 12 months ago. Financing share was 88.2%.

Bus registrations recorded 235 units in Sep slightly down from 243 units in Aug and 247 units 12 months ago. Financing share was 93.3%.

Sri Lankan politicians fooling public with pension promises

ECONOMYNEXT – Sri Lanka’s politicians have been duping the public all these years with promises of pensions, especially at election time, which are unsustainable as they are not properly costed and funded, a forum was told last week.

Civil service pension schemes are not funded properly, said Nishan de Mel, Executive Director and Head of Research at Verité Research, a think-tank.

“The money today needed to pay retired people tomorrow, not only is it not funded but also not costed,” he told the National Pensioners Day Symposium organised by the Department of Pensions Thursday.

“That means there’s no recognition in government accounting or budgeting about how much it will cost tomorrow to pay pensions due tomorrow.

“The consequences are that it is very easy to make promises about increasing pensions schemes, especially when there’s an election, because you don’t have to put aside the money,” de Mel said.

“Politicians don’t have to put their money where their mouth is. That’s dangerous for governance. It means people who don’t have a chance to vote today, such as children, are being told to pay tomorrow without knowing the cost of that promise.”

As society ages, governments are under pressure to arbitrarily to increase pensions.

“We are setting ourselves up for a serious crisis.”

He said the government must ensure any pension fund is costed and reported in national budgets, recalling how some schemes like the farmers’ pension scheme collapsed as it was not properly funded.

Nisha Arunatilleke of the Institute of Policy studies said many informal pension schemes like those for farmers, fishermen and migrant workers are not sustainable.

“The farmers’ pension scheme ran out of money. They were not able to pay for a whole year and then was restarted.

“This is where the sustainability issue comes in – if you don’t plan it properly you might run out of money.”

Sri Lanka car registrations surge to all time high led as controls come in

Sri Lanka car registrations surge to new high led by Maruti as controls come in 

ECONOMYNEXT - Sri Lanka's vehicle registrations hit an all-time high of 63,687 in September 2015 with cars surging to 14,301 units from 9,107 units in August, as credit and import controls were slapped by authorities, an analysis of vehicle registry data shows.

Maruti/Suzuki vehicles led the charge, surging to 7,789 unit in September from 4,259 units in August and 1,363 units in January, an analysis of Sri Lanka's vehicle registry data by JB Securities, a Colombo-based equities brokerage showed.

Hybrid High

Hybrid vehicle registrations which fell from a peak of 4,320 unit in January 2015 following a tax cut recovered to 5,049 units in September driven by a surge in Suzuki Wagon R units to 1,637 in September from just 8 units in January.

Registrations of Maruti Alto, Sri Lanka's best-selling car, rose to 7,337 units in September from 3,647 unit in August.

JB Securities said some of the Maruti vehicles were being bought by families with state workers who had got sudden salary hike.

Unlike hybrid cars, which are owned by more affluent customers, and are found in traffic jams in Colombo, Maruti vehicles are hard seen, except outside Colombo and on weekends.

Sri Lanka's consumption, credit and imports have surged as the Central Bank failed to tighten policy as a budget deficit deteriorated state salary hikes but cut policy rates and printed tens of billions of rupees to keep rates down to generate a balance of payments crisis.

The rate cut in April also triggered capital flight from debt markets, adding fuel to the fire, which was kept burning with a steady release of liquidity to make banks give loans beyond their ability to raise immediate funds, critics have said.

Car imports have been an overt symptom of the underlying expansion in state and private credit.

Over the past month authorities slapped a series of administrative trade and credit controls on car imports, while ratcheting up monetization of debt and attempting to float the currency.

Trade controls on cars were imposed in the form of 100 percent margin on import letters of credit, as authorities have done in the past after generating a balance of payments crisis.

Loan-to-value margins were initially reduced to 70 percent, in a bid to limit credit to buy cars, mimicking ah hoc administrative control followed in centrally planned economies.

It was later relaxed to 90 percent after lenders said financing of second hard cars were also hit by the move.

While reducing loan to value ratio have some prudential value, in terms of collateral cover if applied consistently across time, they come as banks are being urged to give un-collateralized loans based on cashflow analysis.

Lending on enhanced state-worker salaries would be a 'good' banking practice, analysts say.

Printing money, pushing credit and then slapping administrative controls on specific sectors that rulers and bureaucrats consider 'unsuitable' or 'low priority' is a standard central planning tactic, where an all-knowing state tries to second guess citizens' decisions on optimal uses of money.

Announcement Effect

The September surge in car registrations could be an 'announcement effect', as market participants rush to beat a specific control or anticipated further ad hoc controls including credit, taxes or currency depreciation.

In July there were signs that car demand was slowing.

Central banks in third world and other emerging markets usually try to put controls on housing, or commercial property or whatever sector that is in vogue in a credit cycle after firing bubbles by delaying interest rate adjustments.

Ad hoc and selective administrative controls and moral suasion have been abandoned in many 'free countries' where monetary authorities also print money and fire bubbles but have learned hard lessons.

In the past Sri Lanka has put controls on so-called 'luxury goods' which are simple labour saving appliance or engaged in rationing especially oil.

In the past authorities have blamed oil imports on balance of payments troubles, after printing money - usually to give oil subsidies - and firing credit and consumption.

Sri Lanka’s Debt-to-GDP will rise in next two years: WB Report

Sri Lanka’s public debt-to-GDP is expected to rise in the next two years while increased wages, social welfare and interest payments will expand the fiscal deficit to 5.8 percent of GDP, the World Bank cautioned in a recent report released last week. According to the biannual economic update South Asia Economic Focus Fall 2015, Sri Lanka’s fiscal consolidation will be challenging in 2016 and beyond unless permanent revenue measures are implemented.

“The pace of growth and poverty reduction depends on the success of reforms that increase fiscal revenue, promote export-led growth, rebalance the role of the public sector, enhance economic inclusion by targeting poor areas and disadvantaged groups, and promote sustainable sources of growth,” the report titled ‘Getting Prices Right – The recent disinflation and its implications’ released on October 02 stated.

Sri Lanka’s fiscal deficit for 2014 was 5.7 percent of GDP, up from 5.4 percent for 2013. This marked a slight reversal of the consolidation in the post-conflict period. The widening primary deficit and slowdown in growth led to a slight increase in public debt to 71.8 percent of GDP, while contingent liabilities were estimated at 5.4 percent of GDP by end 2014.

The report added that key risks are a growth slowdown, which would lead to a fast rising public debt burden while Sri Lanka’s immediate challenges include managing currency pressure and raising revenue to reduce the 2015 fiscal deficit. According to the World Bank, structural challenges include increasing fiscal revenue and narrowing a persistent current account deficit linked to structural competitiveness issues in the export sector. The low tax revenue placed at 10.2 percent of GDP in 2014 remains a key macro-economic concern.

“While the direct impact of a slowdown in China is limited, continued economic woes in the Middle East, the EU and Russia could adversely affect exports and remittance inflows. Tightening global financial conditions could increase capital outflows and currency pressure, and make borrowing more expensive,” the report stated.

The report further warned that with the country approaching upper middle income status, borrowing terms are becoming more commercial, which could affect affordability.

“Finally, with limited national savings compared to national investment, Sri Lanka needs to attract FDI. Going forward, to sustain its high growth path it needs to increase growth in the manufacturing and export sectors,” it said.

The update projected that Sri Lanka’s growth is expected to reach 5.3 percent year-on-year in 2015 with significant contributions from the service sectors and accelerated private consumption, thanks to increased public sector wages partially compensated by reduced public investment.

“Currency depreciation will exert upward pressure on prices in the second half of 2015, but relatively low international commodity prices and lowered taxes on key commodities are expected to keep annual average inflation around 1 percent in 2015. Despite savings in the oil bill, private credit driven import expenditure is expected to widen the current account deficit to 3.2 percent of GDP in 2015, financed mainly by borrowing,” the report said. (AR) 

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Expectations from Budget 2016

As Sri Lanka gears up for its next budget proposals, the business and corporate community have already begun to come up with suggestions, concerns and proposals that could help create a wholesome strategy for the next year.

The Government announced that it would present the budget proposals for 2016 on November 20. Even though the upcoming budget will not be the first time where Finance Minister Ravi Karunanayake would be spelling out his plans for the nation’s economic progress, the context in which he is going to do so has added to the interest of the stakeholders and people alike.

The first reason is that it would be the first budget after the formation of the National Government. The interim budget proposals in January this year was more or less considered to be a populist budget, in order to score some brownie points from the people at the general election held in August.

The other reason the budget is much anticipated is due to the impact of the global phenomena on the local economic progression. The strengthening of the dollar against the rupee has had a hurtful impact on the importers and exporters.

The Nation Gain sought the opinion of several key stakeholders in various sectors for their expectations from the budget proposals, and the concerns that needed to be addressed through these proposals.

Masakorala calls for maritime policy



As far as the shipping industry is concerned, Chief Executive Officer (CEO), Shipper’s Academy, Colombo, Rohan Masakorala stated that Sri Lanka lacked the tools that were need for market reforms and are missing in institutions and laws.

He said that the country’s maritime/logistics sector needed modernization in rules and regulations to attract international capital and investment. “These can be customs, merchant shipping, ports, etc. a maritime policy must be adopted in Parliament,” he said.

“A strong maritime economy can help exports and trading environment of the country and achieve major development goals.”

Gomes wants public sector restructured

Managing Director/CEO, Chevron Lubricants Lanka PLC, Kishu Gomes speaking to The Nation Gain on his expectation of the next budget proposals stated that the government needed to make the public sector productive and self-liquidating to eliminate the burden on the economy and re-structure all the public sector commercial entities to eliminate losses.

Further, he pointed out the importance of encouraging Foreign Direct Investments (FDI) while suggesting consistent tax policy that wouldn't discourage FDIs.

In addition, he also urged the government to look at ways and means of minimizing foreign currency drain by allowing foreign universities and private investment in graduate and post graduate studies.

Do away with the minimum hotel room rate to be more competitive against Thailand, Malaysia, Vietnam, Indonesia and countries where the rate is 30% less.

Exporters hit by rupee dip – Daluwatte

Former Chairman, Exporters Association of Sri Lanka, Rohan Daluwatte stated that despite the perception that the rupee depreciation had benefited exporters, it was not so. He stated that sectors such as apparel did not reap the full benefit since its expenditure on importation of intermediaries had increased owing to the rupee dip.

“If the average income is US$ 4 billion, the import expenditure would be approximately US$ 1.3 to 1.7 billion, which is a big amount. The government has to have a serious look into these issues,” he said.

He further pointed out that next month’s budget proposals needed to draw focus on three main sectors, namely apparel, tea and fisheries.

“The Government has taken certain issues pertaining to the fisheries ban in the European Union countries and also on regaining the GSP+ facility. However, the Government has to have a plan to support the apparel and fisheries sectors until the existing issues are sorted,” he said.

Impact of rupee depreciation being studied – Wickramasinghe

The reign of the new regime after January 8 did not paint a rosy picture for the construction industry, which was thriving during the previous government owing to the numerous infrastructure development projects island-wide.

However, most of these projects were either halted or had to slow down when the interim government launched investigations on the tender processes.

The Chamber of Construction Industry (CCI) said that at least 1000 projects were halted due to these investigations.

President, CCI, Dr. Surath Wickramasinghe said that they were currently in the process of drafting the proposals to the Treasury and added that these factors would also be included in the document. He told The Nation Gain that they were also studying two crucial aspects, namely the impact of the rupee depreciation on the industry and also the increasing cost of construction. “We have a huge problem due to the shortage of labor. 

We are compelled to import labor along with other materials. Therefore, it has become very expensive. This aspect too will be incorporated in our proposals,” he said.
Liberalize tea imports – Rohan Fernando

Chairman, Tea Exporters Association of Sri Lanka (TEA), Rohan Fernando says that they had called for the liberalization of tea imports so that it would allow import of tea for value addition and re-exports. “The liberalization is the only way forward if we are to enhance revenue earnings of the tea industry,” he said.

The tea industry had been facing one of its worst crises in recent times owing to the domestic issues faced by the export market such as Iran, Syria and Russia.

Fernando stated that the government needed to encourage companies that invest heavily on equipment and machinery to the value of over Rs. 200 million through providing tax concessions and front-load depreciation allowances.

He also suggested that the government simplify Cess collection on tea exports. Accordingly, at present, a cess of Rs.4.00 per kg is charged on the export of pre-packed tea products while the cess on bulk tea exports is 2.5% of the average tea auction price of previous month subject to a minimum amount of Rs.10.00 per kg.

“In addition, a promotion and marketing levy of Rs.3.50 per kg is payable to Sri Lanka Tea Board. It is proposed to simplify the cess payment by introducing a flat rate Rs.4.00 per kg for all tea exports,” he said.

Strengthen tax collection base – Jinadasa

Chief Strategist at CAL Securities, Purasisi Jinadasa listed several aspects that needed to be focused on the budget including the strengthening the tax collection base. He said it was important to implement a better mechanism to collect income taxes to reduce loopholes and avoidance and lower the burden/prevent double taxation on people who do pay.

He also said that the budget should discuss the sense of applying a retroactive tax on income on corporates. “Will the little amount of money collected really offset the negative signal to both investors and consumers, which is much more long lasting?” he asked.

Another key aspect Purasisi pointed was the development of the export sector. “Emphasizing traditional exports is likely to lead to failure and the newer sectors (other than services) will take several years to develop in any meaningful form,” he said.

“Education and medical system in Sri Lanka needs a significant overhaul. What are the plans to strengthen these two vital institutions? Providing them for free is wonderful, however mismanagement of the resources and system negates the gift (drain on national resources),” Jinadasa added.

Sri Lanka’s strategy on foreign policy is also a factor that needed to be looked into while drafting the budget proposals, according to Jinadasa. “Mismanagement/short-term visions and bending over will lead to chaos and prolong Sri Lanka’s development curve,” he said.
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Finance Minister to bridge a budget deficit of Rs.1,349.12 bln

Finance Minister Ravi Karunanayake will unveil measures to bridge the budgetary gap of Rs.1,349.12 billion in 2016 when he presents the maiden budget of the new government in parliament on November 20.

Budget 2016 is now being prepared based on the Medium term Budgetary framework 2016-2018, a media release issued by the Finance Ministry revealed.

The Treasury has conducted budget discussions with the Ministries and Provincial Councils while considering policy framework and priorities in drafting budget estimates for 2016, it said.

According to the Appropriation Bill for the budget 2016 approved by the cabinet, the revenue at the prevailing rates structure and foreign grants have been estimated to be around Rs. 1,789 billion. The expenditure provision covered in the Appropriation Bill has been estimated as Rs. 1,941 billion which consists of Rs. 1,314 billion for recurrence expenditure and Rs. 626 billion for capital expenditure.

The total expenditure provision for 2016 without budget proposals to be introduced at the second reading of the budget (November 20) is estimated at Rs. 3,138 billion.

The appropriation bill for the budget 2016 is scheduled to be tabled in Parliament on October 23.

Defence allocation rises, education up four-fold, President’s budget slashed

By Chandani Kirinde

The Defence budget will remain high next year also, but most significantly the allocation for education has been increased four-fold. The defence allocation is more than Rs. 306 billion. In contrast, the allocation for the Office of the President has been heavily reduced in comparison to allocations made under the previous administration.

According to the 2016 Appropriations Bill, which will be presented to Parliament later this month, more than Rs. 257.6 billion of the money allocated to the Defence Ministry will go for recurrent expenditure while capital expenditure will be around Rs. 48. 9 billion.

The total allocation made to the Ministry of Defence for 2015 when it was amalgamated with the Ministry of Urban Development was around Rs. 285 billion. Next year, however the Defence Ministry alone will get around Rs. 306 billion, of which close to 85 per cent will be spent on operations activities of the Ministry, the Sri Lanka Army, the Navy, the Air Force, the Department of Civil Security and the Coast Guard Department.

The allocation to the President’s office for both operational and development activities is a little more than Rs. 2.3 billion, down from the Rs. 9.6 billion that was allocated in the 2015 Budget. The allocation for the Ministry of Education will see a four-fold increase from the previous year, going up to more than Rs. 185.9 billion from the Rs. 47.6 billion allocated in the 2015 Budget.

The other big allocations are for the Ministries of Local Government and Provincial Councils (Rs. 237 billion), University Education and Highways (Rs. 171 billion), Public Administration and Management (Rs. 156 billion), Finance and Planning (Rs. 107 billion) and Health, Nutrition and Indigenous Medicine (Rs. 174 billion).

The total Government expenditure for 2016 is estimated at around Rs. 1,941 billion, of which Rs. 1,314 billon will be for recurrent expenditure and Rs. 626 billion for capital expenditure.The 2016 Appropriation Bill for 2016 was approved by the Cabinet this week and it is to be tabled in Parliament on October 23.

The Budget speech or the Second Reading of the Budget will be made by Finance Minister Ravi Karunanayake on November 20.

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Pan Asia gears up for Rs. 100 bn asset base

Following the completion of the Pan Asia Banking Corporation PLC’s (Pan Asia Bank) Rs. 4 billion debenture issue that was oversubscribed exceeding Rs. 5.5 billion, the bank is now gearing up for a higher growth trajectory aiming to achieve a Rs. 100 billion asset base, a Pan Asia Bank Media release said.

“This is the second such debenture the bank issued in a span of 12-months.

Its Rs. 3 billion subordinated debenture issue in October 2014 was also oversubscribed on the opening day itself,” the release added.

Pan Asia Bank’s Director and CEO, Dimantha Seneviratne attributed the success of the issue to the confidence placed on the bank and its improved performance by the investors. “I believe it was a strong endorsement received from the wider investment community on the bank’s direction and the recent performance,” Mr. Seneviratne was quoted as saying in the release.

The bank’s debenture was the first such listed corporate debt issuance in two months and its offered an opportunity for the individual investors as well as large corporate institutions to lock-in their funds.

“The bank’s management took a bold decision to go ahead with the debenture at a time when there was uncertainty about the movement in interest rates and we are confident that we made the right decision. We will lock in these funds soon to ensure any downside risks are mitigated,” Mr. Seneviratne was quoted as saying.

The bank will utilise these funds to grow its retail, SME and corporate loan books as the bank wants a balanced, sustainable and a quality growth in its asset base, according to the release. “The funds will also be utilized to stabilize our earnings stream and improve stock of liquid assets and government securities,” Mr. Seneviratne has said.

In early September, the bank received US$ 10 million re-financing line from the Europe based green financier, the Global Climate Partnership Fund (GCPF) to fund small to large scale renewable energy and energy efficiency projects, which marks the completion of the US$ 20 million re-financing facility with the GCPF which began in 2013.

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New asset holding company to manage SoBEs

Sri Lanka’s 55 major state-owned business enterprises (SoBEs) are to be transformed to profitable ventures with a new management under an independent asset holding company putting an end to the accumulation of massive losses year after year, officials said.

These enterprises have not been managed properly during the past 50 years and have become white elephants to the economy burdening the public, they said. Trustees of the proposed SoBE asset holding company are to appointed in consultation, compromise and consensus with political parities and civil society organisations.

This was a fulfillment of the pledge given in the United National Party (UNP) manifesto presented before the people during the general election period. Sri Lanka will learn from Singaporean and Malaysian holding companies to reform SoBEs under the proposed asset holding company, a senior official of the Finance Ministry who wished to remain anonymous, told the Business Times.

In the past, these enterprises have had lenient financial regulations than government departments, paving the way for the elected ruling party henchmen to misuse them more easily. As a result the existence of state enterprises has become one of the key causes of corruption in the country in the recent past, he added.

Senior government officials revealed that the plan involves restructuring SOBEs by strengthening their balance sheets and finding ways for these organisations to seek their own funds, internally, with little or no financial support from the government. Currently most of the SOBEs are managed by financial support from the Treasury. On the other hand whatever these state companies collect through revenue or levies is transferred to the Consolidated Fund – through regulation – which in turn is used by the Treasury to return some part of these earnings, back to the organisation for operational and management.

A senior government official, who spoke on condition of anonymity, told the Business Times that the entire structure of funding state institutions is to change under this process.

State Owned Business Enterprises (SOBEs) in Sri Lanka represent a substantial portion of GDP, capital investments, employment and play a dominant role in key sectors of the economy whose performance is of great importance to broad segments of the population and to other parts of the business sector.

According to Finance Ministry statistics, during the first three months of 2015, 11 SoBEs contributed towards government’s non-tax revenue by way of paying dividends and levies to the Consolidated Fund totalling Rs. 9.5 billion.

Outstanding debts to banks of SoBEs as at 31.12.2014 were Rs. 471 billion while it increased by 6 per cent to Rs. 499 billion I the first three months of 2015. Profitability (less debts) of these SoBEs for the year 2014 was Rs. 59 billion while it recorded Rs. 34 billion for the three months of 2015.

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SEC to tighten, enhance surveillance mechanisms

By Duruthu Edirimuni Chandrasekera

The Securities and Exchange Commission (SEC) is to tighten loopholes while enhancing its surveillance system in a bid to better combat market frauds, officials said. ”With a new system we want to detect manipulations/frauds early so that we can put a stop to such things immediately,” a SEC official told the Business Times. Currently the SEC has a system from Millennium Information Technologies (MIT) which they acquired in 2010. According to the official, this system’s contract is coming up for renewal in March next year. “The SEC has an option to either extend the current system or source MIT’s latest version of the surveillance system.” He said the SEC may opt for a new system with the latest version of the MIT system or the regulator may opt for a new vendor altogether.

The official highlighted that there’s a need for a new surveillance system since the regulator now wants to detect market manipulation and insider dealing in a more effective manner. “This will enhance the SEC’s ability to monitor the market in a much more efficient and also in a professional manner,” the official added.

He said the surveillance system generates alerts out of unusual market movements while identifying curious trading patterns. It also spots odd transactions such as chronological connections with customer orders that are placed by stockbrokers. With this system, it’s possible to examine the historical performance of securities prior to the disclosure of material information pertaining to the company in question has been made. He added last year the SEC’s surveillance system was able to detect some 20 possible market violations. “There were six incidents of insider dealing, three cases of front running while itpicked up some 10 trading patterns that were questionable,” the official said.

The current system was a Rs. 20 million investment, which identifies unusual trading patterns, such as chronological connections with customer orders. This IT driven system replaced the manual checking system that was in effect over five years ago to monitor market manipulation and insider dealing.

While there was a high growth in the Colombo stock market seen in 2009, 2010 and in the first quarter of 2011, it also caused a high degree of price volatility and also created many regulatory and supervisory issues. “Market misconduct, particularly in the form of insider dealing and market manipulation is, put simply, cheating and reduces investor confidence. The new system will help the SEC identify the signs of insider trading and market abuse,” he explained.

Broker in the dockA high profile stock broking house is in the dock for alleged fraudulent activities that happened during the last regime, informed sources said.

The probe against the company and top officials are nearing completion, according to them. The probe is essentially on market manipulation and insider dealing, according to the sources. “The SEC has warned a few stockbrokers verbally since January for upsetting (the market) and disruptive behaviour,” a source said while declining to give more details.

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