NPP’s strong mandate is SL positive: SCB

Monday, 18 November 2024 04:27 - - {{hitsCtrl.values.hits}}

In its latest global research, Standard Chartered Bank says strong two-thirds mandate for NPP in Parliamentary Election should ease policymaking
Opines Cabinet formation and negotiations with IMF will be near-term focus
Forecasts Govt.’s fiscal policy stance likely to be known in February 2025 when 2025 Budget is announced
Reveals SL bond exchange is likely to be announced this week; SCB remains OW and sees recovery at 70

Global giant Standard Chartered Bank (SCB) has revealed that the strong mandate received by the National People’s Power (NPP) at last week’s Parliamentary Election is “positive” for Sri Lanka.

“A strong two-thirds majority allows the Government to make constitutional amendments.

With both the President and the Prime Minister from the same party, there should be fewer political roadblocks in the way of the Government to implement its political and economic agenda. The strong mandate allows the Government to focus on the long term and provides it with an opportunity to embark on a structural transformation of the economy to boost growth and support revenue-focused fiscal consolidation. While a strong mandate is positive, we still need to watch for any policy missteps given the strong mandate,” SCB Global Research said last week.

“We will watch for two key events in the near term: Cabinet formation (especially the composition of the Cabinet and key economic ministries) and progress on IMF negotiations. The IMF team is scheduled to visit Sri Lanka next week. Renegotiation with the IMF to ease the burden for the common man has been one of the key election promises in both the Presidential and Parliamentary Elections,” SCB added.

“It said the 2024 outperformance on fiscal consolidation and revenue growth could possibly create some room for the Government to provide relief on taxation. The Government has indicated that the final 2025 Budget will be presented only by February. We think the final Budget will give us an indication of fiscal policy direction under the new Government, though we expect it to adhere to the IMF’s debt sustainability parameters.”

Noting that Sri Lanka is planning to launch the bond exchange this week, SCB said S&P and Fitch have expressed their inability to rate the macro-linked bonds, though the bank thinks that should not matter as the straight bonds will still be rated.

“While SRILAN bonds have rallied in the past couple of months since the Presidential Elections, we see further upside and maintain our OW stance. We maintain our view

that there is an 85% probability that upside scenarios (as outlined in the restructuring agreement signed on 19 September) will be triggered and a 50% probability of upside scenario 2. This gives us a recovery value of 70 at an 11% exit yield,” said SCB’s Global Research report.