ECONOMYNEXT – A crisis committee appointed by President Gotabaya Rajapaksa to ensure essential items are available amid a forex shortage has focused on the needs of an April 2022 New Year season, its chief Finance Minister Basil Rajapaksa has said.

Sri Lanka is facing severe forex shortages, amid excess rupees produced by the central bank to keep interest rates low and fixed and imports are soaring.

“Our first task is to provide consumers essential items without a shortage in Sinhala-Hindu New Year that is up coming up,” he told meeting at the Finance Ministry earlier this week.

“It is not only that period, we want to make sure it happens even after that. It is mainly the responsibility of the two trade ministries.”

As of February 11 there, cement, wheat and cooking gas were in short supply but there were stocks of most other goods, Minister Rajapaksa had said.

Minister Dayasiri Jayasekera had a problem with good being priced differently in some districts.

Television channels showed people queuing up for cement this week.

President Gotabaya ordered the committee to be formed on February 07.

Sporadic shortages have been seen as foreign exchange releases for shipments were delayed amid money printing and credit which was driving imports to high levels.

Sri Lanka’s central bank has provided US dollars to importers as containers got stuck at Colombo Port and fuel ships also arrived in Colombo and waited for the letters of credit to be cleared from around September 2021.

Sri Lanka inflation is soaring and severe forex shortages have emerged as money was printed continuously from around February 2020 to create a ‘production economy’ blowing the balance of payments apart.

Analysts and economists have called for a revamp of the country’s monetary law to stop the central bank from printing money to manipulate interest rates. Politicians passed the law in 1950 to enable money printing, and the rupee which was fixed from 1885 started to collapse.

Sri Lanka is currently printing money to sterilize interventions (after giving reserves for imports) and maintain a 6.5 percent policy rate, which is less than half the 14.2 percent inflation generated by the central bank in the year to January 2022 by printing money.

The central bank is also printing money to give an eight rupee subsidy to expat workers who send dollars through official channel. The money boomerangs on the 200 to the US dollar peg triggering more forex shortages.

The central bank is also creating money through a forex surrender requirement, but dollar sales to commercial banks are exceeding purchases. (Colombo/Feb13/2022)