Sri Lanka pension fund crisis looming

ECNOMYNEXT – Sri Lanka’s main state-run pension fund’s assets are not growing as expected with net contributions in danger of turning negative unless the retirement age is extended with the workforce aging, senior analyst at a stock brokerage said.

Murtaza Jafferjee, Managing Director of JB Securities, said pension fund assets are now about 1.9 trillion rupees with the Employees' Provident Fund (EPF), the largest, close to 1.5 trillion rupees.

“Pension fund assets, as a part of the financial system, are actually coming down – it has come down to about 15 percent,” he told an investment fund and asset management forum held by Fitch Ratings.

“What I suspect is happening is that most people are viewing EPF as a tax and they are collecting a lot of wages as allowances. So the (EPF) contribution is not based on the total wages only.

“That may explain why it is not keeping up with the financial system.”

The Employees' Trust Fund (ETF), a non-contributory benefit scheme where only the employer makes a contribution on behalf of the employee, has assets of about 194 billion rupees compared with 172 billion rupees the previous year.

Most of the growth in assets is coming via returns even for the EPF.

“Net contributions in 2014 have only been about 25 billion rupees, most of it coming through returns,” Jafferjee said.

“There are a lot of withdrawals - people are coming to 55 years and withdrawing the money,” he said.

“With our demographic aging structure, unless they move the retirement age, you might see net contributions going negative,” he said.

Jafferjee said the whole financial system has about 12 trillion rupees in assets of which 62 percent are with deposit taking institutions like commercial banks, finance companies and rural banks.

Contractual savings institutions like the EPF and ETF and insurance firms have less than 20 percent each.

Sri Lanka car dealers cash in on rupee free float windfall

ECONOMYNEXT - Sri Lanka car dealers have sharply raised prices for existing fleets imported before the rupee fell 11.76 percent against the Japanese yen this month.

There was a sudden rush to buy new and second-hand Japanese hybrid cars over the weekend with at least one advertiser warning potential buyers that they had only 60 days to beat a possible tariff hike in the November budget.

Hybrid cars which had been imported when the Japanese curreny hit a low of LKR 1.05 were dearer by an average of 300,000 to 500,000 as dealers cashed in on the government's currency free float that led to the depreciation.

Toyota Axio hybrid car which went for around LKR 4.8 million shot up to LKR 5.3 million on Sunday.

An exasperated government servant who hawked his duty concession permit for LKR 1.8 million to raise money for a new hybrid car said he had to look for another LKR 500,000 to buy his dream car.

The smaller Suzuki Wagon R and Sting Ray models which became popular after Finance Minister Ravi Karunanayake raised taxes on bigger Toyota Aqua and Honda models, were also going for about LKR 200,000 more.

This has had a knock on effect on the second hand car market too. The smaller Maruti Estilo model which fetched LKR 1.8 million for a two-year-old version had shot up to LKR 2.0 million, according to sellers this Sunday.

An advertiser in the popular Hit Ads of Sunday Times warned that electric cars may go up in price after the budget and suggested that customers place their orders immediately.

There were others promising guaranteed delivery of cars within a month to beat the budget.

Even the Bajaj three wheeler was raised by LKR 6,000 by David Peiris Motors company this month. The new Bajaja three wheeler is touted as an advance on the former models, but the build quality has got even worse with the local agent adding cheaper tyres to an already dangerous vehicle which is the cause of most accidents on Sri Lankan roads.

The Central Bank’s recent directive to restrict credit to finance the purchase of vehicles and the high exchange rate are expected to slow down imports after record breaking months when nearly 10,000 new cars got on the roads on a monthly basis.

In July, a staggering 400 new three-wheelers got on the road every day of the month.

Sri Lanka plans coal power plants in south

ECONOMYNEXT – Sri Lanka is to rely heavily on more coal-fired power plants in future with several planned for the south in addition to an already planned one in the east, according to the state utilities new generation plan.

The Ceylon Electricity Board (CEB) plans to build 1,200MW of coal power plants in the eastern Trincomalee port after a 500MW Indian unit is commissioned along with another 1,500MW in the south.

The CEB’s Long Term Generation Expansion Plan 2015-2034 said the earliest possible date of commissioning of 2x250MW coal plants by Trincomalee Power Company Limited under the Indian project is now 2020 considering the present progress of the project.

The project has been delayed by several years.

“Any further implementation delay of the plants would cause major capacity shortage and lead to a severe power crisis from year 2020 onwards,” the CEB’s new plan says.

The other candidate coal-fired power plants were considered from year 2022 based on the progress of the feasibility studies, it said.

Sri Lankan stocks end marginally lower; weaker rupee weighs

Reuters: Sri Lankan shares slipped for a fifth straight session on Monday and closed at their lowest in more than two months amid concerns that a weak rupee would hurt corporate earnings.

The main stock index ended 0.05 percent, or 3.50 points, lower at 7,104.37, its lowest close since July 15.

"The rupee weakness has already impacted the broader market without having any sectoral limitation," said Danushka Samarasinghe, head of research at Softlogic Stockbrokers.

"Prices of imported consumer items will go up. But it will take some time. I do not see any significant price increase if the rupee remains at 140 levels. But if it falls to around 145 levels, the price increase also could dampen the consumer demand and earnings."

The rupee fell 0.21 percent on Monday to end at 140.85/90 per dollar, not far from its record low of 140.98 hit last week, on importer dollar demand.

Turnover was 667.3 million rupees ($4.75 million), compared with the daily average of 1.12 billion rupees. The turnover has been about half of this year's daily average since Aug. 31, stock exchange data showed.

Analysts said investors were waiting to see how the government would bridge the budget deficit and where the revenue would come from, in its November budget.

The weak rupee curbed investor risk appetite and rising market interest rates also hit sentiment, with t-bill yields at their highest level in more than five months at the last auction.

Foreign investors were net sellers of 4.8 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 2.99 billion rupees.

Shares of Hemas Holdings Plc fell 2.71 percent, while Distilleries Company of Sri Lanka Plc dropped 1.26 percent and the country's biggest listed lender, Commercial Bank of Ceylon Plc, declined 0.60 percent. 

($1 = 140.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez)

EU to grant GSP+, lift fish export ban

Hiran H.Senewiratne

European Union Ambassador to Sri Lanka David Daly said the new government’s policies on improving human rights, good governance and strengthening democratic institutions is very encouraging to grant GSP plus and lift fish export ban to EU countries.

“The EU is seriously considering Sri Lanka’s request, as the EU has to go through a rigorous evaluation process before taking the final decision to grant both GSP plus and remove the fish export ban to the EU,” Daly told at the 23rd Annual Export Awards ceremony of National Chamber of Exporters of Sri Lana (NCE) at Hilton Hotel Colombo last Friday.

The EU withdrew the GSP Plus facility in August 2010 alleging Sri Lanka’s failure to comply with the eligibility criteria that include the implementation of international human rights conventions.

“Once the GSP plus and fish ban are removed , Sri Lanka have access to exports in 28 member states of the EU,which amounts to Euro 2 billion trade, which will help to increase exports since the EU is a growing market for Sri Lanka, he said.

Sri Lanka’s has now identified exports as a way forward to double exports in order to build a strong and sustainable economy, he said.

To double exports ,the EU is a very lucrative market if Sri Lanka can adhere to good governance, rule of law, give priority to human rights and also quality which are the main focal factors to tap the EU market, Daly said.

In order to further develop business cooperation between EU and Sri Lanka, the EU will fund new a new project to provide the Sri Lankan government and the private sector assistance in four areas, he said.

“We are going to grant 8 million Euros for the development of SME sector to improve quality standards to enter the EU market,” he said.

Daly said that they will trade policy support, facilitate trade, improve quality standards and sanitary and phytosanitary support and help sector specific business involved in the SME sector to penetrate into this advanced markets.

He also said as the number one export destination for Sri Lanka, the EU is proud to remain the preferred choice for exporters in the country. Exporting to the EU single market means following the same transparent rules, same rules of origin the same duties and a single currency for business transactions, he said.

Deputy Foreign Affairs Minister Dr. Harsha de Silva said Sri Lanka does not have a future without increasing exports and therefore he wants to promote economic diplomacy based on trade investment, growth and development and business.

He said that Sri Lankan business people are not sufficiently present in the international market and to facilitate business they are going to set up a special office in foreign missions to oversee businesses in Sri Lanka.

“Foreign offices will be revolutionized to manage and take the lead to promote trade, investment and promote business for Sri Lankan exporters make their presence felt in the global market, “he said.
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SEC gets tough on ‘too smart’ investors

By Duruthu Edirimuni Chandrasekera

The Securities Exchange Commission (SEC) is keeping a close watch through its ‘surveillance’ mechanism and has warned a few stockbrokers for trying to be ‘too smart’. Informed sources said that warning comes on the back of the regulator bracing itself for an internal restructure in a bid to enhance its efficiency level while getting some pending issues sorted fast.

“The SEC has warned a few stockbrokers verbally since January for ‘derailing’. They had identified the misdemeanours and albeit small had called them to say they are on the watch,” a source told the Business Times. He added that the regulator has done a Gap analysis and identified a few weak areas which it plans to strengthen. According to the source, this will entail creating new divisions for specific subjects and most importantly transferring certain personnel to different areas of expertise.

The SEC has come under fire recently – especially pertaining to certain probes, with stakeholders claiming that the regulator is lagging behind with pending investigations. The source added that SEC in this instance also wants to strengthen its investigations unit and bring in staff that isn’t susceptible to external forces. “It’ll basically be a new organizational chart to tackle the ‘pending’ matters more efficiently and fast-track them.”
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Two more high profile, former CIFL officials arrested

Two more high profile suspects have been arrested and joins Deepthi Perera, former chairman of the failed Central Investments and Finance Co (CIFL), in temporary custody over the CIFL crash.

CID took into custody J.K. Wickramaratne, former CEO and S. B. Kondadeniya, a former Director, CIFL and produced them before Colombo Chief Magistrate Gihan Pilapitiya on Tuesday who ordered that they be remanded till September 23.

In the meantime, Deepthi Perera, in hiding in Cambodia and arrested on arrival in Sri Lanka on August 10 with a bogus passport, on Tuesday presented to court – through his lawyers – a restructure plan to revive the collapsed finance company.

He submitted the plan (based on his promise) after a court-directed meeting with the Central Bank last week.The Magistrate gave one week’s time for the Central Bank and the CIFL Depositors Association (CIFLDA) to go through the plan and make their observations and re-fixed the case for 23 September.

Hundreds of depositors of CIFL were left high and dry after the company – like many finance companies that failed – were unable to pay, first their interest and then their deposits, some years ago. Under the plan, a loan amounting to Rs. 1 billion will be sought from the Central Bank Insurance Fund while a foreign investor is to invest Rs.1 billion which however would be ploughed into CIFL only after nine months. Mr. Perera plans to settle the existing deposits amounting to Rs. 3,400 million spread over five years.

According to the plan the first payment of Rs 75 million would be paid after 11 months of the CIFL revival. Thereafter in the next year Rs. 510 million would be paid to depositors, Rs. 820 million in the second year, Rs. 1,205 million in the third year and Rs. 865 million in the fourth year.
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