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Asia's Most Distressed Sovereign Debt May Force Economy 'Reset' – BNN

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(Bloomberg) — A would-be hub of Indo-Pacific commerce and global tourist gem, Sri Lanka was already struggling to deliver on grand visions before the coronavirus crisis struck the world economy. The next few months may determine its ability to avert a painful debt restructuring.

The South Asian nation is locked in talks with the International Monetary Fund for emergency-financing aid, after its second longer-term program with the fund in less than a decade expired last Tuesday. It’s shaping up as a classic battle between a political program geared toward goosing growth, and concerns about raising enough money to rein an already-massive debt load.

A sometime favorite among investors — Sri Lanka as of late 2019 had the largest overweight among JPMorgan Chase & Co. clients in Asian frontier bond markets — the country has faced down tough times in the past. And the central bank said last month it will again honor all its obligations on time.

That may depend on the policies set following upcoming parliamentary elections, a date for which may be announced Monday. Also key: the degree of forebearance from China and India, which have competed for influence in the strategically located Indian Ocean nation.

“Sri Lanka could avoid a debt restructuring, but it would need hard decisions and reset of the economy,” said Saurav Anand, economist for South Asia at Standard Chartered Bank in Mumbai. “Markets fear that given limited fiscal space, if there is a delay in resorting to corrective actions,” a renegotiation of the payment schedule will soon become inevitable.

Sri Lanka’s obligations are considerable: external debt makes up more than half of gross domestic product, and Fitch Ratings calculated some $3.2 billion of payments due between May and December this year.

The deep and sudden global recession caused by the coronavirus and moves to contain it has forced extraordinary measures by countries the world over. In Sri Lanka’s case, the added challenge is the pre-existing conditions of low growth and enormous debt.

The IMF’s 2016 Extended Fund Facility help for Sri Lanka, which expired this month, was supposed to set help set the nation on a stronger development track. Instead, its overall debt ratio has climbed past 90% of GDP, as per a JPMorgan report, and the economy last year expanded the least since 2001, at just 2.3%.

‘Complex and Unstable’

Visions of an export-oriented Indian Ocean hub contrasted with what the IMF in 2018 called a “highly protective” policy regime under which domestic industries were increasingly shielded. Trade and investment were more restrictive than in peer emerging nations, and a study showed the tax system to be “complex and unstable.”

President Gotabaya Rajapaksa’s announcement of wide-ranging tax cuts after his November presidential election victory — aimed at boosting growth — sparked renewed concerns about the country’s debt payments.

Sri Lanka’s dollar bonds have become the worst-performing among the sovereign frontier markets in Asia that have been able to raise offshore debt. The notes have lost about 33% this year, with its spread over U.S. Treasuries climbing more than 2,400 basis points at one point in May, according to JPMorgan Chase & Co. indexes. Its yield premium was about 1,700 as of June 5, more than double that offered by its peers in the region which are rated in the single B-grade category: Papua New Guinea, Mongolia and Pakistan.

On the sovereign ratings front:

  • Fitch cut the nation deeper into junk on April 24 at B- with a negative outlook.
  • Moody’s Investors Service placed it on review for a downgrade from its current B2 rating on April 17.
  • S&P Global Ratings also followed with a downgrade to B- on May 20 but with a stable outlook, saying additional credit lines from multilateral and bilateral resources could help augment $7.1 billion of foreign-exchange reserves.

The country’s debt load is also a legacy of a borrowing binge after Sri Lanka emerged battered from a bitter 26-year civil war in 2009. Some of that came from China, with Chinese President Xi Jinping’s Belt and Road initiative offering the elevation of Sri Lanka as an entrepot port on the route to the Middle East and Europe.

Sri Lanka’s government has indicated it’s expecting about $800 million from China and a $400 million swap line from India to boost reserves. The central bank said in a statement May 19 that the government will honor all its debt obligations on time, as it did in difficult times in the past. As for the IMF, no specific timeline has been announced for reaching a deal.

As for private-sector investors, all is riding on the official talks.

“We are currently defensively positioned on Sri Lanka dollar bonds despite the high yield,” said Thu Ha Chow, a Singapore-based money manager for Asian credit strategies at Loomis Sayles Investments Asia. “But we are following and awaiting for evidence of structural reforms that would build resilience into Sri Lanka’s economy.”

©2020 Bloomberg L.P.

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S&P/TSX composite gains almost 100 points, U.S. stock markets also higher

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TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Statistics Canada reports wholesale sales higher in July

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OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.

The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.

The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.

The personal and household goods subsector fell 2.5 per cent to $12.1 billion.

In volume terms, overall wholesale sales rose 0.5 per cent in July.

Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.

This report by The Canadian Press was first published Sept. 13, 2024.

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S&P/TSX composite up more than 150 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 172.18 points at 23,383.35.

In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.

The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.

The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.

The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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