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ECONOMYNEXT – Sri Lanka’s influential Buddhist monks from three chapters started starve to death protest in Colombo on Thursday, demanding the government and President Gotabaya Rajapaksa to step down after series of failures.

ECONOMYNEXT – The World Food Programme (WFP) has commenced a programme to provide emergency food, nutrition, and school meals until December for three million people in cash-strapped Sri Lanka, a WFP report said.

The latest situation report said about three in 10 households – which comes to 6.26 million people – are food insecure, out of which 65,600 are severely food insecure, following shortages and skyrocketing food inflation.

“WFP is responding to the ongoing crisis, starting in the capital city of Colombo. It plans to support 3 million vulnerable people of Sri Lanka from June through December 2022.”

The programme prioritises “families who are unable to purchase increasingly expensive food, particularly those with children under five, pregnant and lactating women, and persons with disabilities.”

The support extended will be delivered through in-kind food, cash-based transfers, school meals, and nutritional support.

The report further said inflation of food prices in Sri Lanka for June was 57.4%, the highest rate since 1954.

As prices shoot up, due to Sri Lanka’s fuel crisis and fertilizer crisis leaving aisles and racks barren in groceries, households have deviated to employing food-based coping strategies such as eating less preferred and less nutritious food, and reducing food intake, the report said.

“The WFP anticipates that even more people will turn to these coping strategies as the crisis deepens.”

The WFP has reached to about 2,100 pregnant women, 88 percent of its initially targeted 2,375 beneficiaries in Colombo.

“The pregnant women receive three vouchers with a combined value of 15,000 rupees (approximately 40 US dollars and roughly half the cost of a nutritious diet for a family of four for a month) to supplement the family’s ability to purchase nutritious food and other necessities.”

The organisation is also working hand in hand with the government and has agreed to support one million schoolchildren aged between five to 10 with school meals starting from October 2022. This measure has been implemented towards vulnerable schools, where the Government’s national school meals programme has been halted due to budget constraints.

“WFP has purchased iron-fortified rice, pulses, oil and commodities. These are expected to arrive in August,” the statement outlined.

The WFP is in need of a funding requirement of 63 million dollars for the next five months starting July till December 2022. Thus far, the organisation has received 18.14 million dollars from the governments of Australia, Japan, and New Zealand, which represents 28 percent of its emergency appeal for 63 million dollars. (Colombo/Jul07/2022)

ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa on Wednesday called Russian leader Vladimir Putin and requested for fuel credit after a recent diplomatic spat between the two nations.

“Had a very productive telecon with the Russia President, Vladimir Putin. While thanking him for all the support extended by his government to overcome the challenges of the past, I requested an offer of credit support to import fuel to Sri Lanka in defeating the current economic challenges,” President Rajapaksa tweeted.

“Further, I humbly made A request to restart @Aeroflot_World operations in Sri Lanka. We unanimously agreed that strengthening bilateral relations in sectors such as tourism, trade & culture was paramount in reinforcing the friendship our two nations share.”

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Had a very productive telecon with the #Russia President, Vladimir Putin. While thanking him for all the support extended by his gvt to overcome the challenges of the past, I requested an offer of credit support to import fuel to #lka in defeating the current econ challenges.

— Gotabaya Rajapaksa (@GotabayaR) July 6, 2022

President’s call came after Sri Lanka’s action on detaining Russian aircraft Aeroflot in Colombo early in June had angered Russia, which later has threatened to halt bilateral trade and flight services to Sri Lanka, government officials have said.

Russia is one of the top buyers of Sri Lankan tea, the country’s top agricultural commodity export which fetches around $1.5 billion export revenue.

Sri Lanka also has been in the process to get Russian crude oil to manage the fuel crisis in the island nation. Thousands of motorists wait in queues for weeks to obtain limited fuel stocks in Sri Lanka as it has run out of dollars to import fuel.

Sri Lanka before April had 90-day and 180-day fuel credits to purchase fuel. The state-run fuel retailer Ceylon Petroleum Corporation has to pay only after the agreed grace period.

However, since Sri Lanka declared sovereign debt default on April 12, many oil firms are reluctant to extend credit to Sri Lanka amid foreign banks have rejecting to be the counterpart to open letter of credit for Sri Lankan buyers.

As a result, the $84.5 billion economy is forced to pay the money upfront when ordering the fuel shipments, the power and energy ministry officials say.

Sri Lanka managed limited fuel stocks from a $700 million credit line from India which exhausted with the last shipment on June 16.

Sri Lanka’s efforts to secure fuel credits from the Middle Eastern countries have failed as some countries have said they will help only after an IMF deal is signed.

Mahindananda Aluthgamage, who is a presidential advisor now, last week said President Rajapaksa called Putin last week without giving much details.

Related: Sri Lanka President calls Russia’s Putin, to visit UAE to seek fuel – Aluthgamage

The Aeroflot flight was detained following a court order obtained by Celestial Aviation Trading 10 Limited of Ireland, the owner of the aircraft, against Aeroflot in a Colombo court, over a lease dispute.

Russia has sought an assurance from the Sri Lankan government of not repeating the diplomatic spat it followed including the legal action after grounding an aircraft operated by Russia’s Aeroflot in Colombo, former president Maithripala Sirisena told the parliament this week.

Related: To resume flights, Russia has sought SL assurance of not repeating Aeroflot action-Sirisena

Government officials are divided on the way Aeroflot issue was handled. Some say the government should have sought diplomatic channels while others say it was a legal issue hence the way it was handled was appropriate.

On 2 June 2022, the Commercial High Court of the Western Province issued an enjoining order on the Aeroflot flight restraining it from taking off from Sri Lanka’s main airport near Colombo.

Later the Sri Lankan Court suspended an order preventing the Aeroflot flight from leaving Sri Lanka. The order was suspended after the Colombo Commercial High Court considered a motion filed by the Attorney General.

The Airbus A330-343 operated by Russian state-owned airline Aeroflot was denied permission to fly to Moscow as scheduled on June 2nd amid a legal dispute with a leasing company. The flight had more than 200 passengers onboard. (Colombo/July 06/2022)

ECONOMYNEXT – Sri Lanka may not be able to extend a debt moratorium for hotels and travel companies given during a Coronavirus crisis as concerns emerge over the stability of banks, tourism Minister Harin Fernando said.

“When a paper to extend the tourism sector loan moratorium was brought to the cabinet, the Prime Minister’s advice was to take case by case as we cannot give a blanket approval anymore,” Tourism Minister Harin Fernando told reporters on July 07.

“Because we have a threat of risk to the banks as well.”

The loan moratorium extended to the tourism sector by the State Banks came to an on June 30.

The cabinet of ministers on June 08 had initially approved to extend the tourism sector loan moratorium till the end of the year, a statement said at the time.

The leisure industry has “appealed to everybody possible” M. Shantikumar President of The Hotels Association of Sri Lanka told Economy Next on June 30.

“Up to now we have got no positive answer and in the absence of not getting the loan moratorium extension most of the hotels will close down.”

Sri Lanka’s central bank had printed money for two years to suppress interest rates and created the worst currency crisis in its history with the rupee falling from 200 to 370 to the US dollar in a botched float with a surrender requirement so far this year.

Interest rates have since been raised to kill domestic demand and stabilize the rupee. The higher rates and currency collapse lead to more bad loans as consumption falls, which tends to lead to economy-wide bad loans.

The industry has no cash flow to make any arrangements to pay loans and their priority is to pay salaries, which the industry is already finding it difficult to do, Shanthikumar said.

At least 80 percent of the industry will not be able to pay the loan or the interest, he said.

There is an estimated 500 billion rupees of tourism sector loans, industry officials say.

Minister Fernando said several discussions have been held with the Central Bank Governor and heads of banks.

“What I realized is that there are certain people in the industry who have taken these loans for the completion of hotels, and some have taken even before the Easter Sunday attacks in 2019,” Fernand

“Therefore, it has been a long time and the banks want to meet the beneficiaries one-on-one and reevaluate case by case and sort out this moratorium without giving a blanket cover.”

Discussions and the Prime Minister and President are looking for the best way out of it, he said.

Sri Lanka gave a moratorium on tourist hotels during the Coronavirus crisis. Tourism is also one of the few sectors that can survive when a currency collapses.

However due to persisting forex shortages from a broken peg, Sri Lanka has been unable to import fuel, and the country has also been hit by power cuts. (Colombo/Jul06/2022)

ECONOMYNEXT – Sri Lanka Prime Minister Ranil Wikcremesinghe should resign from the post of Finance Minister for delaying dollar earning avenues and for “planning for disaster”, newly sworn in ruling party MP and business tycoon Dhammika Perera said, challenging Wickremesinghe for a debate.

Speaking in Colombo Wednesday July 06 morning, Perera said Wickremesinghe has no appetite to resolve Sri Lanka’s ongoing dollar crisis.

“All of Sri Lanka’s economic challenges are linked to the dollar crisis. The Finance Minister plans to borrow money from friends. He has no future cashflow planning for the country,” he said, reading from a document.

“The minister delayed all matters related to dollar earning, borrowing, bridging finance, avaialble credit lines and essential goods credit line. I think for these reasons the minister of finance should resign,” he said.

Speaking impromptu, he told reporters that he will “not allow such things to happen to the country”.

“I too will come out in support of the aragalaya. We cannot resolve the people’s problems by staying silent,” he added.

Perera challenged Wickremesinghe and some 10 economists said to be advising him to come to an open debate on the latter’s handling of Sri Lanka’s economic crisis, the worst since Independence.

“I will not allow this country to be dragged to a disaster from now on. I challenge him and the media to bring him out. I am ready without a script or piece of paper to do that with him,” he said. (Colombo/Jul06/2022)

ECONOMYNEXT – Sri Lanka should stop money printing earlier than indicated in a statement by Prime Minister Ranil Wickremesinghe, opposition legislator Harsha de Silva said, though legislators have already given extensive powers to the agency engage in liquidity injections.

“Prime Minister Ranil Wickremesinghe talked about money printing,” de Silva told parliament.

“He said, the inflation is going up and the printing should be stopped. But he also said it can only be stopped by the end of 2023 or in early 2024,” Silva said.

“It cannot happen like that and you have to take a decision right now. We all must understand that if nothing is being done, the inflation will go up until 100 percent from the predicted 60 percent.”

Silva the country has already become an unlivable place for the general public and according to the CBSL data, the food inflation of the country has risen up to 80.1 percent in June, 2022.

Sri Lanka’s central bank has now created the worst currency crisis in its 72-year history giving soft-peggers the ability to trigger currency crises and high inflation abolishing a currency board where money printing was outlawed.

Sri Lanka’s intermediate regime central bank was set up as a fundamentally flawed Latin America style agency with dual anchor conflicts in 1950 by US money doctor, but with no active open market operations in the initial stages.

A reserve collecting peg collapses when the central bank prints money to keep rates down. Sri Lanka’s central bank repeatedly prints money whenever domestic credit picks up, regardless of whether state or private credit is picking up including when the US hikes rates under pseudo monetary policy independence, with devastating consequences on the people.

However after 2015 with flexible inflation targeting the rupee was hit with extreme open market operations, to target an output gap (printing money to push growth up) creating currency crises and pushing growth down in their wake and impoverishing the people with rupee depreciation.

Under ‘flexible’ inflation targeting a reserve collecting peg was repeatedly bombarded with liquidity injections to manipulate rates down (call money rate targeting) until the currency collapsed.

The currency was depreciated under real effective exchange rate targeting including in 2017 when there was not credit pressure and the rupee was facing upward pressure and large volumes of inflows were sterilized, as growth and private credit slowed.

There is nothing politicians in Sri Lanka can do, whether in power or in opposition when the countries central bank decides to print money to drive interest rates down.

“I don’t know whether you can take that decision now because Nandalal Weerasinghe has been appointed as the CBSL governor,” de Silva told Prime Minister Wickremesinghe perhaps in a reference to central bank independence.

In 2018 as credit recovered, de Silva pleaded with the then leadership with of the central bank in vain to allow rates to go up as the currency was hit with liquidity injections, after giving ‘central bank independence’, to the agency during the ousted ‘Yahapalana’ administration.

Fiscal dominance including de facto fiscal dominance was removed by the Finance Minister Mangala Samaraweer raising taxes, bringing the deficit down and market pricing fuel.

The central bank printed money anyway ignoring political pleas and busted the currency from 152 to 182 and drove away foreign investors in rupee bond by undermining the credibility of the peg.

Over 7 years three currency crisis were created in rapid succession with the 2020-22 one the worst crisis where 2.6 trillion rupees were printed and the rupee has now fallen from 200 to 360 to the US dollar with soft-peggers impoverishing both wage earners and the elderly.

In the 2020-2022 crisis, the banking system was pumped with excess liquidity of up to 200 billion rupees under modern monetary theory up from around 60 billion rupees under call money rate targeting and output gap targeting, which is a milder version of MMT.

The entire world is now suffering from liquidity injections made by the Federal Reserve under its dual mandate which is being conveniently blamed on Russia and Ukraine.

“Due to the current inflation, the depreciation of the rupee has reduced the value of the money in the Employees’ Provident Fund and the Employees’ Trust Fund by 50 percent and the real value of pensions has also decreased by 50 percent,” Prime Minister Wickremesignhe said.

“Think about how this situation affects our senior citizens. Poverty is spreading among all of them. The value of the money they receive has decreased by 50 percent.

“Their purchasing power has decreased by about 50 percent. Presenting positive ideas is easy. But it is difficult to find answers to these problems.”

“What is the solution to this? Stabilizing the rupee as soon as possible, strengthening the rupee without letting it fall. For that purpose, we have implemented a plan to limit the printing of money in the future.

“In 2023, we will have to print money with restrictions on several occasions. But by the end of 2024, it is our intention to stop printing money completely.

“We aim to reduce the inflation rate to between 4 and 6 percent by 2025.”

The central bank, driven by REER econometrics in part and interest rate manipulation mostly, had been engaging drip-drip depreciation for 70 years busting the currency from 4.70 to the US dollar to 360 so far in the worst record among South Asian soft-pegs.

The leadership of the central bank around 2019 had also developed a draft Monetary Law to legalize the flexible exchange rate and flexible inflation targeting, institutionalizing dual anchor conflicts – having both an exchange rate and monetary policy.

Sri Lanka has gone to the IMF 16 times so far due to soft-pegging (operating both an exchange and money policy to create balance payments trouble) and is now going for the 17th IMF bailout.

Though there have been expectations of the country moving to inflation targeting, failed attempts were made to target inflation by continuing to operate a flawed peg (now called a flexible exchange rate) instead of floating rate.

The current law was revised by then-Governor A S Jayewardene taking away ‘exchange rate policy’ or the mandate to maintain the external valued of the currency if there was a decision to go for true inflation targeting.

But the draft monetary law attempts to institutionalize dual anchor conflicts by bringing back monetary and exchange rate conflicts.

Article 7 (1) (a) of the draft law is to “determine and implement monetary policy”

Article 7 (1)(b) of the draft law is to “determine and implement exchange rate policy”

Article 7 (1) (c) is to “hold and manage official international reserves of Sri Lanka”

Analysts have warned that unless parliament brings strict law to curb soft-pegging and supporters of soft-peggers outside the agency who have turned their backs on classical economics and sound money the country will have no future.

The IMF generally does not stop soft-pegging because soft-pegging is required for an net interational reserve target and for its own loan to be repaid.

Unlike in earlier IMF programs involving reserve money targeting, current ones have a monetary policy consultation clause, allowing a soft-peggers to easily create currency crises within a program (2018)and soon after an IMF program ends leading to yet another bailout. (Colombo/ July 05/2022)

ECONOMYNEXT – Sri Lanka Tourism Development Authority (SLTDA) has requested foreign visitors to fill out a form to obtain emergency fuel in a move to ease the travelling for tourists amid acute fuel shortage and boost foreign revenue from the industry.

The facility is available till the 10th of July and will be given on a priority basis.

“Sri Lanka Tourism Development Authority with Ministry of Tourism is facilitating emergency assistance to provide fuel for commuting and arriving guests,” a request form on the SLTDA website showed.

Travelers after submitting the form will be notified via email/WHatsApp and directed to obtain the fuel from a state-run Sri Lanka Transport Board deport or a nearby Army Camp for fuel.

Sri Lanka has almost dried out it’s fuel bunkers as of now but it’s awaiting shipments this month amid a severe dollar shortage in the ongoing economic crisis.

The earliest one is said to arrive between July 8 and 9 – a 40,000 metric tonne diesel shipment worth 66.5 million US dollars from the UAE.

Related : https://economynext.com/sri-lanka-to-receive-9-fuel-ships-between-july-august-96808/

The island nation’s move comes as it’s usable foreign reserves have plummeted to almost zero while the tourism industry saw a revival from Covid-19 hit pandemic last year though the political crisis since April has dampened the arrivals. (Colombo/Jul05/2022)

ECONOMYNEXT – Sri Lanka stocks fell over 1.5 percent on Tuesday (05) to more than two-month low, after a gloomy picture on the economy given by Prime Minister Ranil Wickremesinghe in the parliament amid acute fuel shortage has almost grounded the economy to a halt, brokers said.

The main All Share Price Index (ASPI) closed 1.64% or 120.96 points lower at 7,238.59, the lowest since April 26.

“We saw some profit-taking today in Lanka IOC share shares as it continued to gain in the past few days. However, the market was mainly brought down by the PM’s speech,” a top market analyst said.

The PM said the GDP would shrink to 76 billion dollars in 2022 from 84 billion dollars, while the inflation to hit 60 percent by end of this year.

The market sentiment did not improve despite the PM informing the parliament that a staff-level agreement with IMF could be reached by August 2022 once the country presents a debt restructure plan.

Many public offices and all schools were closed on Monday due to a government decision to save fuel. Sri Lanka is facing the worst fuel crisis in its post-independent era.

Analysts have said the market had a lot of gloomy sentiments as investors did not know what to do as the market was under selling pressure with no takers.

Last week’s T-bill auction saw yields rising between 180-312 basis points, which also raised concerns among stock market investors.

Government has also declared that it can only provide fuel for essential services including health until July 10 and all non-essential services to work online as the country has run out of fuel.

The turnover was 916 billion rupees, less than a half of this year’s daily average turnover of 3.38 billion rupees.

Market analysts have said investors were heavily feeling the pinch of economic crisis as the country’s fuel bunkers have dried out the island nation was frantically looking for dollars to purchase fuel.

The more liquid S&P SL20 index dipped 2.21% or 51.84  points to 2,293.24.

The main ASPI has lost 1.4% in July so far after falling 9.3% in June, reversing a 6% gain in May. It lost 23% in April followed by a 14.5% fall in March.

The market has lost 40.8% so far this year after being one of the world’s best stock markets with an 80% return last year when large volumes of money were printed.

Sri Lanka’s sovereign debt default has already led the country to be rated with restricted/selective default rating by rating agencies, which has weighed on investor sentiment.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

The fall was led by the market heavyweight Expolanka, which fell 5.4% to 162.3 rupees a share.

Sampath Bank slipped 3.7% to 28.6 rupees a share, while Browns Investment closed weaker 4.2% at 6.80 rupees a share. (Colombo/July 05/2022)

ECONOMYNEXT – The World Bank has agreed to provide 110 million US dollars to purchase fertilizer to Sri Lanka, Agriculture Minister Mahinda Amaraweera said on Tuesday as the island nation is facing a looming food shortage amid an economic crisis.

Sri Lanka’s fertilizer shortage has hit the production of its staple food rice and the price of rice has already more than doubled due to supply shortage. The rice production has reduced by up to 40 percent in the last Maha cultivation season ended in February this year, the government has said.

President Gotabaya Rajapaksa’s gamble to make the country ‘only organic cultivation’ by banning chemical fertilizer hit farmers as well as consumers due to lower production.

The ban was lifted in November last year, but the country could not import any fertilizer as it does not have dollars.

“The amount given by the World Bank goes as a concessionary loan. It is not a commercial loan,” Amaraweera told the weekly cabinet media briefing on Tuesday (05) adding that the loan will bear lower interest rate.

He also said the World Food Program (WFP) has pledged to provide 365,000 urea bags free of charge for low income Sri Lankan farmers.

Related: https://economynext.com/fao-to-provide-urea-cash-for-crisis-hit-sri-lankan-small-hold-farmers-95882/

Amaraweera said the ultimate goal is to have a successful Maha cultivation season which starts in November this year to ensure self-sufficiency in rice production.

“To have a successful Maha season we are underway with the relevant discussions. We will be able to produce the required rice with no requirement of importing in the next Maha season.” (Colombo/July 05/2022)