India All-Party meet heats up on Sri Lanka Crisis
India All-Party meet heats up on Sri Lanka Crisis
Ranil Wickremesinghe wins Sri Lanka’s crucial presidential vote
ECONOMYNEXT – Sri Lanka’s parliament elected Acting President Ranil Wickremesinghe as the 8th Executive President on Wednesday (20) with 134 lawmakers in the 225-member parliament voting in favour of the government-backed candidate.
The new vote came after the former leader Gotabaya Rajapaksa fled the country and resigned last week from Singapore, plunging the country into deep political crisis after months-long protests against him.
The protests came after Rajapaksa’s wrong economic and agricultural policies hit the country with dollar shortages following the Central Bank printing of trillions of rupees while maintaining a soft peg against the currency.
The country is still facing shortages of fuel, cooking gas, and medicines while it is also facing a looming food shortage.
Wickremesinghe was appointed as a PM of the country for the 6th time in May although he had only one seat in the parliament. He came to parliament on a residual vote total after his party had a humiliating defeat in 2019 Presidential elections.
At the election, 223 MPs cast their votes with two abstaining making the total count of valid votes at 219.
Candidates Dallas Alhahepperuma got 82 votes and Anura Kumara Dissanayake got only three votes.
(Colombo/Jul20/2022)
Sri Lanka’s crucial presidential vote becomes two-horse race
ECONOMYNEXT – Sri Lanka’s upcoming election in parliament for an interim president has effectively become a two-horse race with two strong contenders emerging following the last minute dropout of opposition leader Sajith Premadasa.
The candidatures of Acting President Ranil Wickremesinghe, ruling Sri Lanka Podujana Peramuan (SLPP) MP Dullas Alahapperuma and National People’s Power (NPP) MP Anura Kumara Dissanayake were proposed and seconded in parliament Tuesday July 19 morning.
Parliament called nominations for the vacancy left by the resignation of former President Gotabaya Rajapaksa who fled the country on July 13 following massive protests demanding his resignation.
Wickremesinghe’s name was proposed by Minister Dinesh Gunawardena and was backed by Minister Manusha Nanayakkara amid some hooting from the opposition benches.
Opposition leader Premadasa, who had previously announced that he was contesting, proposed Alahapperuma’s name which was seconded by SLPP Chairman and parliamentarian G L Peiris.
NPP MP Vijitha Herath proposed the name of party leader Dissanayake for the position, seconded by his colleague Harini Amarasuriya.
With Premadasa’s Samagi Jana Balavegaya (SJB), the main opposition, backing Alahapperuma and the NPP only holing three seats in parliament, Alahapperuma’s chances against Wickremesinghe are now looking better.
At least 105 SLPP members have met Wickremesinghe and discussed their grievances, particularly regarding new housing in place of their homes that were burnt by angry mobs on May 09. SLPP general secretary Sagara Kariyawasam has said the SLPP will back Wickremesinghe, a statement later contradicted by party chair Peiris.
Sri Lanka’s parliament has 225 members. Over half a dozen members are abroad and may return today for the vote tomorrow.
The Sri Lanka Freedom Party (SLFP), which has around 15 members, has said they will stay out of the vote in a bid to push for a consensus candidate. But at least 10 may break ranks, reports said.
SLFP chief ex-President Maithripala Sirisena has claimed that large sums of money was being offered to buy legislators.
Sri Lanka is going through its worst economic crisis since Independence, with a crippling dollar shortage resulting in long queues for fuel, cooking gas and other essentials.
The country has also seen much unrest in recent weeks, with protests intensifying and leading to confrontations between protestors and security forces.
While activists and opposition lawmakers accuse the government of overreach and violent suppression of peaceful protest, the government claims that “fascist” elements within the protest movement are deliberately engaging in violence seeking to destabilise the country. (Colombo/Jul19/2022)
Sri Lanka continues monetary financing of imports, pegging after ‘running out’...
ECONOMYNEXT – Sri Lanka’s central bank has spent 222.73 million US dollars defending a peg and engaging in monetary financing of imports in June 2022, three months after apparently ‘running out’ of reserves, official data show.
Sri Lanka defaulted in April 2012 after two years of money printing to suppress interest rates combined with tax cuts in the worst currency crisis triggered by the central bank in its history.
At the time officials said the country had run out of reserves.
In March the rupee collapsed from 200 to 360 to the US after a botched attempt at floating (suspending convertibility) with a surrender rule (forced dollar sales to the central bank) and too low policy rates to curtail credit.
However the central bank continued to intervene in forex markets in both sides of a peg (now around 360 to the US dollar).
In June the central bank had bought 68 million dollars from banks, which are experiencing severe forex shortages due to a dysfunctional peg, down from 76.6 million US dollars a month earlier, putting pressure on the peg.
The central bank then sold 222.74 million dollars to defend the peg, engaging in monetary financing of imports.
The central bank gets deferred payments from the Reserve Bank of India and spends them on monetary financing of imports getting deeper into debt.
After giving dollars for imports, a pegged central bank then sterilizes the intervention injecting new money to maintain a policy rate and prevent reserve money from shrinking, effectively monetary financing imports by replacing lost rupee reserves in banks.
Related
Sri Lanka imports surge to US$2.2bn in Dec 2021 after reserves sales
However June reserve money growth slowed amid high interest rates, and is appearing to be shrinking in July as the economy is smashed by high interest rates and forex shortages.
In Sri Lanka there is a strong belief among economists who have rejected classical theory and also the business community that reserves should be used to finance imports and help the country live beyond its means due to the rejection of classical economics.
There were widespread calls for monetary financing of imports in Sri Lanka despite the country running low in early 2021 and imports having shot up over 2.0 billion US dollars by December after three months of sterilized interventions between 300 to 400 million US dollars a month.
Interventions are sterilized with the acquisition of government securities in banks, not private securities unlike in the days of the classical greats when central banks operated a floating policy rate against bankers acceptances, and it appears as budget financing to later observers. (Sri Lanka, world’s poor suffers from Fed’s accidental discovery)
After printing money to create forex shortages Sri Lanka’s economists in authority also have a habit of importing fuel on credit further boosting imports and getting state enterprises in to debt.
However after a default in April 2012 the time honoured tactic of indebting the CPC is no longer possible and oil imports have been settled quickly line any other import.
Sri Lanka also tried to get 6.0 billion US dollars of ‘bridging finance’ for imports and other spending in 2022 after defaulting in April 2012.
Since defaulting in April and running out of reserves, 337 million dollars had been spent on interventions with energy sector officials in particular pressing the central bank for money to import oil via pegging (weak side convertibility).
Clean floating central bank do not give a cent for imports.
Economists in authority Sri Lanka got the ability to create currency crises on August 28, 1950 with the creation of a money printing soft-peg after abolishing a hard peg that had kept the country stable for almost 70 years.
Analysts had warned that contradictory policy and a botched float would lead to continued monetary instability and high interest rates with damaging effects on the banking system unless a working monetary regime is established. (Colombo/July18/2022)
CSE: building a resilient, fair and modern equities market
Market cycles are indelible features of any modern economy. An upturn promises short-term gain, while a downturn presents lucrative long-term opportunities for savvy investors. No one can escape economic cycles, but a fair and robust market can give investors significant returns in the long term, help enterprises raise capital for growth and elevate the rest of the economy.
Dilshan Wirasekara assumed office as new CSE Chairman in June 2022 as the economy continued to sink deeper into crisis. However, Wirasekara and his team are determined to continue developing the exchange into a modern capital market and unlock opportunities for investors and companies despite the economic downturn. Wirasekara has served on the Board of the CSE since 21 November 2017 and is the Director/Chief Executive Officer of one of the leading investment banking firms, First Capital Holdings Plc.
In this interview, he shares insights on the economic challenges and their implications for investors and companies looking to raise capital and how the CSE can fulfil its role as a growth facilitator, now more than ever.
What is your outlook for the economy and the equities market?
The economic and even the equity market outlook is quite daunting and challenging. If you look at how the equities market has behaved over the last couple of months, after reaching a high at the end of 2021, we had close to Rs5.5 trillion market cap and the All Share Price Index peaking at around 13,000 points in January 2022. The market has fallen 40% since, with the ASPI down to 7,500 points in mid-June and market cap declining to Rs3.2 trillion on the looming default, steep currency depreciation and steep 700bps policy rate hike in March. The depletion in forex reserves has precipitated an acute shortage of essentials and energy, dragging the economy deeper into crisis. Even listed companies are struggling to cope with the fuel and gas shortages and the power cuts.
The economy is heading for a sharp contraction, with the GDP forecast to decline by 5-7% in 2022. In this context, a challenging environment for equities is expected in the short term. The equity market reflects the broader economy, and the health of companies listed on the CSE will get challenged by rising interest rates, record high inflation, depreciation in the currency and shortages.
Anticipating a staff-level agreement with the IMF, we have pre-emptively rolled out a series of corrections by increasing fuel prices, removing subsidies, introducing formula-based pricing, tightening policy rates, reversing tax cuts, and allowing the currency to depreciate.
There may be a few things left. One is pricing utilities fairly, especially electricity. A tariff hike is currently on the cards, and with that, we could meet a good 75-80% of what would have been IMF conditions before we even reach an official bailout agreement. Other reforms will follow, including restructuring loss-making state-owned enterprises that continue to drain the public coffers, further fiscal consolidation and making debt sustainable via debt restructuring.
So immediately, the outlook is a bit negative, and we expect things to remain challenging in the next three to four months. However, towards the end of this year, the economic challenges will begin to ease and therein lies the equities opportunity. Once we reach a deal with the IMF, hopefully before the end of this year, that will be the catalyst for other bilateral lenders and friendly nations to come on board and offer to help us out, so we are moving in the right direction.
In the March 2022 quarter, total corporate earnings reached an all-time high of Rs286 billion, up 134% from a year earlier. Naturally, company earnings could decline as the economic crisis deepens and the tax reversals take effect.
Nevertheless, if you look at valuations, they are at historic lows. If you look at multiples for the entire market, we are trading below book value at an affordable 0.8x price-to-book multiple, and on trailing earnings, we are something like less than 5x the PE ratio. Investors will not find more attractive valuations.
Developed and more liquid markets are in the region of 15-20x price-earnings and 1.5-2x price-to-book multiples. The CSE has some brilliant companies that would remain profitable during these challenging times. There are also defensive counters like export-oriented and dollar-earning companies that can still do well in this environment. Therefore, I believe the longer-term prospects for the CSE are still exciting.
A question often asked is – with the interest rates at 20%+ would investors not shift from equities to fixed-income assets? That would be natural, but with inflation at 40%, the negative real returns from fixed-income investments are substantial. Equities could be one hedge against inflation, provided you take a three to five-year view on your investment portfolio. Investors need to focus on what those companies are. If you pick sectors like banking, most large-cap banks are trading at less than half their net asset value, some as low as 0.3-0.4x, and 2-3x PE, so those are real bargains in the long run.
Where do you see inflation, interest rates, and the currency heading?
Inflation would remain elevated around the 30-40% mark for at least another three to four months, especially with the electricity tariff revision on the cards. However, these are all one-off adjustments we made starting from the currency depreciation when everything imported went up in price: we also had issues with food production because of the fertilizer fiasco. Therefore, towards the end of the year, inflation should come down but will still average around 15-20% into 2023.
Interest rates have eased to 21-23% since peaking at 25% in April-May 2022, and we expect rates will hold out at those levels for the rest of the year. Currently, elevated interest rates, even in the ballpark of 22-23%, are significantly high, so I do not think raising rates any higher would address inflation. Especially, as it’s seen as supply-side-led inflation as opposed to demand-driven.
Towards the end of the year, when we have the IMF programme, we expect foreign inflows to improve with investors and bilateral lenders taking a more positive view of Sri Lanka. The currency has depreciated more than it should have. If you take the real effective exchange rate, I think the rupee should be trading somewhere between Rs300-320 against the US dollar, whereas now the currency is trading between Rs360-370. So, a slight appreciation is possible by the end of the year.
You are taking over the reins as Chairman of the CSE during a daunting period for the economy. What are your plans for the exchange?
The primary role of the CSE is to conduct a free and fair market to facilitate capital formation effectively. Despite Covid-19, 2021 was a record year in the number of listings and value of the capital raised. However, a slowdown is inevitable under the present economic conditions. Over the last 20 years, we have had multiple challenges, from civil conflict to political unrest, natural disasters like the tsunami, the Easter bombings, and the pandemic. We have always been resilient and bounced back stronger. The current market downturn will be no different, harder to negotiate than before, but possible to overcome. We will continue to focus on our strategic objectives because we are not looking at it from a year’s perspective.
We have a long-term view of where the capital market should be and will build towards that. A big issue we have had is that our market has been a dual product market, we have equity which is a cash market, and we have listed debt or the debenture market. So, one area of focus is product diversification, and about two years ago, we put this strategic plan in place to introduce new products to broaden the investor base. We introduced REITs, brought in the SME board, and got approval to have a US dollar-denominated board where companies can list and raise foreign currency in the country. We are looking at commodity-backed products, stock borrowing and lending and regulated short selling. There are a whole lot of new products that we are currently working on that will be introduced in due course. The stock market is not just about buying and selling equities; you will soon have different asset classes that you can invest in through the Colombo Stock Exchange.
Another focus for us is to look at our infrastructure, primarily IT. We want to build a world-class exchange. The CSE has been far more advanced than our regional peers in embracing technology, even though we are a much smaller market. We were one of the first to move into CDS and scripless securities, and after the Covid-19 outbreak, we digitalized the entire exchange to enable remote operations. Another initiative on the infrastructure side was to move to DVP (delivery versus payment), as opposed to the previous T+3 basis. Also on the cards is the CCP (central counterparty settlement) system, elevating the bourse to the level of sophistication of most global exchanges and boosting investor confidence further.
Thirdly we are looking at how we can broaden our investor base by creating awareness, even working with the Ministry of Education to build capital markets into the national curriculum. Financial literacy is a problem. Many Sri Lankans are unfamiliar with the equities market, and digital technology can improve access and financial inclusion. Investing in technology is another prong in our growth strategy by elevating investor convenience and experiences. Out of the 650,000 CDS account holders (from an eligible population of 15 million), only 65,000 trade at least once a year. We will endeavour to grow the number of CDS accounts to a million over the next few years and increase active trading by introducing new products, enhancing efficiency, and creating more awareness.
These are the fundamentals of our strategic plan to help the exchange ride these challenging times and unlock opportunities for investors and enterprises. The CSE was fortunate to have had two good years of robust earnings that helped us build enough reserves to take care of rising costs and ensure we execute our market development strategies unabated.
What can the CSE offer investors and companies struggling to survive this crisis?
Companies may be reluctant to raise capital via listing because valuations are pretty low, but that has been a challenge for us in this market for a long time. For companies needing to raise capital, the CSE is the best option because debt financing is much more expensive now. With the current elevated interest rates, debt financing will be a daunting exercise if not an unviable option. Banks will not lend below the risk-free rate, so you are looking at 25%-plus borrowing costs. Our SME or Diri Savi board can enable smaller companies to raise capital on more favourable terms. That is also true for companies wanting to list on the main board.
Even from an investor perspective, you need to ride these phases out. A mistake many people make is selling out in a depressed market, but if you look at successful investors who made money, they bought in a depressed market and booked profits when markets recovered. Now is a good time for accumulating portfolios for people who have that risk appetite, who can ride this crisis out because these shares are ludicrously cheap and could lead to windfall returns three to five years down the line. It is hard not to lose confidence and avoid feeling depressed. But getting through this crisis and emerging stronger requires us to focus on the good things as individuals, companies, and a country.
We are grateful we have functioning capital markets where valuations offer attractive long-term potential. While it looks bleak now, I think the economy will begin to see some improvement before the year ends.
My message to investors and the entire market is to remain positive. If you keep that positive mindset, keep going, trying to achieve something more than what you had yesterday, I think we will move forward as a country.
Whether it is a company getting listed to raise capital or an investor coming in, my advice is to take a medium to long-term view, talk to us and see how the CSE can help you in that journey. We have an Investor Relations and Marketing Acquisition team continuously looking at potential companies for listing. Our teams would go and encourage these companies, talk about the benefits of listing, and sometimes, even jointly with other investment banking firms in the country, promote equity listing. We also have a team that can assist companies with the corporate governance standards, helping them understand the listing rules and the various compliances and regulations governing listed companies.
I remain optimistic about Sri Lanka and the Colombo Stock Exchange. We have seen the worst of times before, and although the next few months will be challenging, we believe that things will start getting better, and we will be on a path to recovery.
HNB’s Jonathan Alles on the need to empower banks
Jonathan Alles, Managing Director and Chief Executive Officer of HNB, one of the leading private banks in Sri Lanka, weighs in on the unfolding economic crisis and its impact on the banking sector. He offers suggestions on what Sri Lanka can do to enable its banks to become more effective in driving the economic revival as myriad challenges and looming haircuts from debt restructuring cause difficulties for banks.
HNB has one of the larger balance sheets in the financial sector in Sri Lanka. Whatever happens in the economy will impact your balance sheet, so what do you anticipate will happen with the economy looking forward?
The banking sector has a role in stabilizing the economy and reviving growth, as it has often done during past crises. HNB is a bank with the scale to make a significant impact. As such, we remain committed to securing the future of this country. But let us look at the immediate challenges confronting the banking sector.
The country is contending with a debilitating forex issue that is unprecedented in scale. The shortage of foreign exchange is so severe, that it is becoming increasingly challenging for banks to support imports. While the export sector has to be commended for its resilience, it is not generating sufficient forex inflows into the system.
Several measures have been adopted to contain the outflow, including delaying payments for non-critical imports and curtailing foreign transactions on credit cards. Each month the country raises approximately $1 billion from exports, whereas imports amount to nearly $2 billion despite the various import controls. In 2021, the annual import bill was about $20 billion, while exports were approximately $12 billion.
The halving in worker remittances – another vital source of foreign exchange – and earnings from tourism going into freefall have only compounded the forex shortage leading to shortages for essentials like food, medicine, gas and fuel. Some exporters and migrant workers may be holding on to their earnings overseas as they lack confidence, or resort to grey market channels to convert their forex earnings at a higher exchange rate for a few more rupees. This is the reality. We have to work with what we have, and without inflows into the system, banks have very little to work with to stabilize or fuel the engines of the economy.
The spate of downgrades of the sovereign rating and the announcement of the suspension of external debt has had a knock-on effect, cancelling our foreign exchange and swap limits in total. As a result, we are delaying disbursing forex to import clients, many of whom have been with us for 3-4 decades. These deep exclusive relationships stand on decades of reliability and trust, but that can only take us so far. This is the most serious structural challenge that has to be resolved.
And it is the result of the country having defended the currency for too long by sacrificing its forex reserves. Alternatively, the grip should have been gradually eased, avoiding the steep overnight depreciation from Rs 200 against the US dollar to Rs 390, compounding the stress on the economy and the people of Sri Lanka as price adjustments overshot.
However, we are hopeful the exchange rate will correct itself, easing significantly to more appropriate levels once an IMF programme is in place. Had we gradually let go of the exchange rate three months ago, as most reputable experts had called for, we believe the US dollar would be range-bound at Rs 250-260 today instead of Rs 370! What the country needs right now is for an IMF programme to come through fast, and we are made to understand that discussions with the IMF are progressing well.
The IMF Board will need reassurances from the government concerning debt sustainability and that creditors are satisfied with the repayment plans. We are hopeful the IMF Board will approve a programme for Sri Lanka by this October or November at the earliest, mapping the disbursement of agreed-upon funds over the next few years. Parallel to these efforts, the Government will need to have a focused budget for the short term to deal with some of the immediate issues, and a clear roadmap and plan for economic revival and sustainable growth. In the interim, the country will have to secure bridging finance from supporting nations and multilateral agencies to deal with the shortages of essentials like food, gas, fuel and pharmaceuticals.
How is the banking sector geared to deal with these challenges and enable the rest of the economy?
It is going to be a difficult task, especially given that dwindling foreign exchange reserves and external borrowing lines mean the sector is dependent on deposits. At present, inflows into foreign currency deposits are also weak, which in turn constricts foreign currency lending. We understand that foreign currency borrowers are struggling, but banks may likely have to encourage them to start repaying. In the absence of deposits, the loan repayments can generate some forex liquidity into the banking system to support export finance at least, if not more.
On the Sri Lanka Development Bonds, domestic investors are getting rupees instead of the US dollars they invested and now have to build their forex reserves from scratch. Given how dire the situation is, no one is complaining because we all understand the need to work together to reset the economy, starting with the long-overdue exchange rate and interest rate adjustments. We now see efforts to correct interest rates from the disparity and arbitrage between interbank rates and the Treasury bill bond rates. Policy rates increased by about 700 basis points, but that had a knock-on effect. Today, Treasury securities are around 25-28%, which is phenomenally high. The authorities are also keen not to add further inflationary pressure by printing any more money.
Today the country is in hyperinflation territory, with inflation rising to 54.6% in June, and this is from an economy that once prided itself on maintaining inflation at 4-6%. Clearly, something has gone wrong with our fundamental, fiscal and economic management.
Interest rates have followed inflation to some extent. We cannot continue to sustain high expenditures by printing money because that money would end up in the economy. When there are fewer goods and services available due to supply constraints, price inflation takes over. In that aspect, we are happy to see some fiscal adjustments taking shape in the form of tax increases.
As borrowers, both individuals and businesses, contend with elevated interest rates and low debt servicing capability due to the impacts on earnings from the economic crisis, banks are likely to see loan repayments shrink, even as COVID-era moratoriums come to an end. Banks are looking at deteriorating asset quality and higher impairment costs. The more we impair, the more the P&L gets impacted, leading to challenges around capital and liquidity.
Thankfully, most banks are well-capitalized and have the buffers to surmount the challenges. Few anticipated the scale and impact of the current external debt crisis. Now, with banks exposed to Sri Lankan ISBs and SLDBs at varying degrees, any proposed haircut would impact their capital very significantly.
If you had some recommendations for policymakers, what would those be?
Banks would like to get involved and drive the economic revival. After all, that is what we are there to do. However, to be effective, policymakers must firmly commit to structural reforms, including fiscal and monetary policy, and formulate plans with adequate accountability and review processes in place to take the economy forward. From what we have seen over the last few years, we have resorted to short-term fixes and postponing the inevitable in some cases. The government and people of this country cannot expect the banking sector to solve fundamental problems with the economy, nor should they expect banks to resuscitate state institutions and every failing industry. We pride ourselves on building a resilient banking sector for the country with solid KPIs, capital buffers and profitability. But beneath all that are some ill-advised ventures such as investments in loss-making SOEs or even the extensive moratorium programme post-COVID, which the banking sector is exposed to that could lead to significant stresses.
We need to brace ourselves for that. There must be some focus to protect and strengthen the banking industry. Given its essential role in facilitating exports, SMEs and other critical sectors, if there is an industry that needs a national fund to support it right now, it would be banking. We need some amount of liquidity in dollars to restore confidence in our ability to execute international transactions and honour external payments. The entire economy stands to benefit.
Repaying any dollar liquidity support over a short to medium-term period is possible, but the challenge remains about sourcing such funds in the first place.
That is where investors come in. They can add their support to the banking sector, and in the process, buy into the underlying spirit of the remarkable changes that we have seen in Sri Lanka over these past months, namely: the belief that we can, and will turn this economy around. It will take time, but we will come through in the end.
That is where investors come in. They can add their support to the banking sector, and in the process, buy into the underlying spirit of the remarkable changes that we have seen in Sri Lanka over these past months, namely: the belief that we can, and will turn this economy around. It will take time, but we will come through in the end.
While painful, it created greater resilience because there were tight controls, as well as monitoring, to ensure that banks built in greater stability. That checked the insanity, and now banks are more accountable to investors and public depositors because they cannot do anything and everything. Banks are merely the custodians of shareholder and depositor funds. As such, we are accountable for every single rupee. That is the level of care in which we run banking operations and manage this business.
With export revenue and inward remittances deteriorating, we also have to surrender 25% of forex inflows to the Central Bank, making it harder for us to service our customers. With potential haircuts from restructuring ISBs and SLDBs, the banking sector is constricting further. Moving forward, the banking sector needs greater flexibility to support our customers, and at this stage, we only want dollars for essentials like food and fuel. While it may complicate negotiations with some foreign creditors, I believe that local government debt i.e. Treasury Bills and Sri Lanka Development Bonds should remain out of any debt restructuring agreement, since the impact on domestic banks, and by extension, the grassroots of the economy and the average Sri Lankan will be severe. In addition, authorities need to pay more attention and have stricter controls in tracking export revenues and import outflows to avoid any leakages, and in addition, introduce new measures to encourage remittances into the country, while tracking and identifying some of the big illegal market activists and take appropriate action. We only have difficult choices ahead, but with the right balance of policies, there is still a narrow path for progress to be made.
We have a complex problem comprising myriad complex issues with no easy solutions, so what would you like to fix if you could?
In a word: leadership. This is the moment to bring in real experts in their respective fields to lead the development of policies that will secure this country’s future. We have always had such people, but they have never been allowed to do their jobs. We need economists and experts in banking and finance to set macro-economic policy, and align it with the requirements, and objectives of the real economy.
There are many Sri Lankans with impressive achievements and experiences with global and local financial organizations, including the IMF and World Bank, while less qualified people were allowed to run the economy into ruin here. We need to attract Sri Lankan professionals on the ascendency or pinnacle of their careers to take up the mantle of leadership, and help reset the course and steer the economy out of this crisis. We need sweeping education reforms to foster entrepreneurship, build and nurture future-ready talent, and improve access to finance for sustainable growth and elevated livelihoods from the grassroots upwards.
We need to drive sustainable sources of generating the most important foreign exchange – exports. This means strategic import substitution and modernization of agriculture. It means supporting technopreneurs, and Sri Lankan professionals to export their services. It requires an urgent restarting of tourism, remittances inflows, and the promotion of Sri Lanka as an education hub to retain foreign currency in Sri Lanka while generating additional earnings through foreign students.
In addition to urgently expanding our export capacity, we need to simultaneously curtail all wasteful expenditure. Sri Lanka cannot afford a single white elephant. All of the existing investments in non-productive assets need to be re-evaluated and repurposed for a productive purpose or be liquidated. Underperforming sectors – including the public and private sectors and SOEs, need to either be reformed or shut down so that their labour can be redirected into the parts of the economy capable of generating foreign exchange or providing essential products or services. Sri Lanka has no choice left but to transform into a productivity-obsessed nation.
Most importantly, Sri Lanka needs leaders with integrity who can end the culture of corruption, cronyism, and welfare entitlement once and for all. We need disciplined and principled leaders who lead by example at all times. As individuals, we must also set the example ourselves, wherever we are and whatever we do. Let’s wake up and do the right thing for our country and our people. Everybody is watching us. Let’s not embarrass ourselves further. We are made of better stock and capable of so much better. Whatever it takes, we must unite to help our country and our people out of this crisis and towards prosperity.
Second Indian Fertilizer shipment in two weeks
Sri Lanka Acting President declares state of emergency
ECONOMYNEXT – Sri Lanka Acting President Ranil Wickremesinghe has declared a state of emergency with effect from Monday July 18.
According to an extraordinary gazette issued Monday morning, the emergency was declared in the interests of public security, the protection of public order and the maintenance of supplies and services essential to the life of the community.
Wickremesinghe was sworn in as Acting President on Friday July 15 before Chief Justice Jayantha Jayasuriya. He was appointed following the resignation of former President Gotabaya Rajapaksa who fled the country following a massive protest that demanded his ouster.
Sri Lanka is going through its worst economic crisis since Independence, with a crippling dollar shortage resulting in long queues for fuel, cooking gas and other essentials.
The country has also seen much unrest in recent weeks, with protests intensifying and leading to confrontations between protestors and security forces.
While activists and opposition lawmakers accuse the government of overreach and oppression of peaceful protest, the government claims that “fascist” elements within the protest movement are deliberately engaging in violence seeking to destabilise the country. (Colombo/Jul18/2022)
Sri Lanka bank negative NOPs reducing, flexibility given: CB
ECONOMYNEXT – Negative net open positions in Sri Lanka’s banks were reducing in early July, while flexibility has been given to lenders given current crisis, Central bank officials have said as the country is gripped by the worst monetary crisis in seven decades.
“Given the situation we have given some flexibility for banks on prudential basis for them to manage without imposing strict NOP positions,” Central Bank Governor Nandalal Weerasinghe told reporters after the July monetary policy meeting.
“They can go negative or positive depending on the liquidity availability. They are given the flexibility in this kind of situation.
“They are using that space and going up and down. Some banks are going negative and again acquiring positive if they get liquidity.”
Negative NOP are least in foreign banks and but a found in higher volumes in state and private banks, market sources say.
Sri Lanka’s banks are facing the most severe currency crisis (soft-peg crisis) in the last seven decades with lenders forced to pay up on letters of credit and also repay foreign lenders or depositors with loans to the state or state enterprises sometime being repaid in rupees.
However there is some improvement in July.
“Overall there is a build up of NOP position by the banks these days due to conversion that are taking place,” Director of Economic Research, P K G Harischandra said.
In past forex shortages coming from the soft-peg bank NOPs have mostly been positive, and the central bank have issued rules to reduce them, sometime delaying rate hikes to curtail credit and outflows.
In the current crises some banks had problem honoring swaps and also letters of credit particularly to oil suppliers.
Imports are coming down overall, with higher interest rates curtailing credit.
The issue here is there are legacy payments,” Governor Weerasinghe explained. “Those are coming due. There are arrears coming due. The banking system has some arrears to be paid. Those are adding to the day to day outflows.
“That will have to be taken care of, or we have to seek extension of those credits going forward, so that we can manage the situation.”
Sri Lanka’s imports fell to around 1.4 billion dollars in May from around 2 billion dollars in late 2021 when large sterilized interventions were being made. (Colombo/July18/2022)