Asia's Most Distressed Sovereign Debt May Force Economy 'Reset' - BNN | Canada News Media
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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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A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

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

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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