Lanka Free Library

COLOMBO (News 1st); The World Bank’s Country Director for Sri Lanka Faris Hadad-Zervos said that the World Bank would extend further support after reaching an agreement with the International Monetary Fund. This was stated at a discussion between World Bank representatives and President Gotabaya Rajapaksa at the President’s House in Colombo, yesterday(29). There are 17 World Bank assures support to Sri Lanka

ECONOMYNEXT – Sri Lanka’s hoteliers have urged the government to extend the industry’s debt moratorium and implement the cabinet approval that was given to extend the moratorium that ends on June 30 by another six months.

Hiran Cooray, the past-President of the Hotels Association of Sri Lanka (THASL), urged the government to extend the loan moratorium by six months.

“One of the ways Sri Lanka can recover and earn is through tourism. That is why we are appealing to everybody: we need to bounce back and bounce back fast,” said Cooray.

“I strongly believe we can earn one billion dollars but for that tourism must survive. We have been requesting a moratorium [among other things]. That is just to make sure the tourism plant does not close down. We need the help to go forward.”

On June 08, the cabinet of ministers approved a proposal to extend the debt moratorium till the end of the year.

The industry’s debt is about 500 billion rupees, officials said.

However, the authorities have yet to extend the moratorium.

“We are not asking too much, and it is just for a period of six months,” said Anura Lokuhetty, Vice President of the Galle Face Hotel, speaking at a conference.

“We can’t understand why they should even think twice about it. Already there is cabinet approval. Its a case of implementing, which needs to be done immediately.”

Lokuhetty warned it will be a national disaster if the hotels and accommodation service providers are allowed to close down.

“It is a very dangerous situation. If the moratoriums are not extended the whole hotel sector will collapse and with the failure of the hotel industry all the other dependent sectors such as three-wheeler drivers, fisheries, food and beverages all will be affected.”

Hoteliers said many of the hotels are finding it difficult to pay salaries.

However they say they are confident that with the removal of travel advisories the industry will recover faster, despite a drop in air frequency.

The industry is also talking to the International Finance Corporation ( IFC) and the Asian Development Bank (ADB) to restructure their loans and are looking at green bonds.

“THASL started this discussion in 2021 but the then government was reluctant to obtain any foreign facilities because there was a belief there was enough money,” Asoka Hettigoda, Chairman and Managing Director at the Siddhalepa Group said speaking at the conference.

“However, when we approached ADB, they were keen to help us but they are waiting for Sri Lanka to sign a letter of intent with the International Monetary Fund (IMF).”

Hettigoda said the industry has prepared a proposal on how it’s going to pay and restructure its loans.

“We have discussed several options including a special purpose vehicle, bank-to-bank concept. We have looked at obtaining facilities from foreign donor agencies. We have also discussed a new concept of green bonds,” he said.

“Our current request is to look at these six months. We want to urge the government to immediately make this decision and not to let us get into non-perfomring loans.”

From January to April, the industry has earned 600 million US dollars and aims to earn about a billion dollars in the next six months.

However, air frequency to the island and tourist arrivals have more than halved with daily tourist arrivals numbering around 1,000. (Colombo/Jun29/2022)

ECONOMYNEXT – Sri Lanka will have to stand on its own feet Prime Minister Ranil Wickremesinghe as the country ran out of fuel due to forex shortages coming from a soft-peg destabilized by money printed mis-target interest rates.

“We have to come out of this situation,” Prime Minister Wickremesinghe said in a video statement. “But we have to come out by our own efforts.

“Others have no obligation to rescue us. If get up on our own efforts we can go further. But we cannot go on the current system.”

Sri Lanka now has a large public sector and a soft-pegged central bank which prints money to mis-target interest rates, triggering monetary instability and currency depreciation.

“There is a view among some that that they not getting the value for their dollars,” Wickrmesinghe said.

“That is why some remmittances are coming through Undiyal system. Some others are keeping their money abroad without sending.

Such phenomena is known as a loss of credibility of a pegged exchange rate.

When the credibility of the peg is lost, the currency has to be floated and interventions to maintain a a peg abandoned (a suspension of convertibility) and money printing halted.

To stabilize the exchange rate the domestic economy has to be smashed by killing private credit through high rates and monetary financing of the budget has to be halted through tax hikes and sales of Treasury bills to real buyers and not the central bank.

An International Monetary Fund program usually does that. Sri Lanka has gone to the IMF 17 times since a non-credible peg was set up in 1950.

Sri Lanka set up a non-credible with money printing powers in the style of Argentina’s central bank in 1950, abolishing a currency board or credible peg which had kept the economy stable through a Great Depression and two world wars.

The Great Depression was a crisis in the Gold Standard ares triggered mostly by the US Fed.

Wickremesinghe said Sri Lanka is facing the worst crisis in modern times.

Sri Lanka has faced big crisis in 1869 over the collapse of the coffee industry.

“At the time the crisis was limited to Colombo, Kandy and Galle and most people were in rural areas,” Wickremesinghe said.

Sri Lanka also faced a big crisis in 1884 when also commodity prices collapsed. There was a banking crisis in the silver area at the time and a Eastern and Oriental Bank, which was among several banks that were issuing money in the country closed their doors.

The banks had loans in silver (rupees) and borrowings in sterling (gold) amid bad loans in troubled coffee plantations.

Colonial authorities set up the currency board at the time as a separate agency with the Ceylon Rupee having fallen to as much as 50 percent. (Colombo/June30/2022)

ECONOMYNEXT – Sri Lanka stocks recovered on Wednesday (29), recovering  from a two-month closing low hit on the previous session on the hopes that the country will finally reach an IMF deal, brokers said.

The main All Share Price Index (ASPI) closed 0.73% or 53.26 points higher at 7,365.92, recovering from its lowest close since April 27.

“The market moved up on the hopes of an IMF deal as the staff-level discussions ended today while there was some bargain hunting as market had slipped significantly,” a top market analyst said.

“However, this is not sustainable because the economic concerns are still heavy while the T-bill rates moved up close to 300 basis points.”

The IMF expected to issue a statement on its discussions with Sri Lankan officials on Thursday.

The yields in T-bills rose between 180-312 basis points at a weekly auction on Wednesday.

Government on Monday has declared that it can only provide fuel for essential services including health and all non-essential services to work online as the country has run out of fuel, while Power and Energy Minister on Sunday asked the public to use fuel sparingly as there was no fuel shipment scheduled to arrive into Colombo in the foreseeable future.

The Minister said that Sri Lanka’s oil suppliers are wary to supply after the recent downgrades.

The turnover was 778.7 million rupees, less than a quarter of of this year’s daily average turnover of 3.47 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 public sector and the schools have moved online for two weeks on the government’s advice to reduce transport and save fuel.

Though a new prime minister and a new cabinet have been appointed, analysts see little progress on both the economical and political fronts. The country is struggling to ensure a continuous supply of fuel due to a shortage of US dollars.

The more liquid S&P SL20 index up 0.59% or 13.84  points to 2,350.28.

The market has so far lost 9.1% in June after gaining 6% in May. It lost 23% in April followed by a 14.5% fall in March.

The market has lost 39.7% 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 gain was led by Senkadagala Finance, which gained 23.1% to 393.8 rupees a share.

Expolanka gained 3.2% to 175.3 rupees a share, while Browns Investment up 2.7% to 7.5 rupees a share. (Colombo/June 29/2022)

ECONOMYNEXT – He has backed many governments in power and he was part of some but he now comes in as a minister with more powers to give effect to his promises.

Dhammika Perera, Sri Lanka’s latest Minister of Investment Promotion in the crisis-hit Gotabaya Rajapaksa administration, made a name for himself in gaming, protected businesses and acquisitions that also brought him into banking, hotels, exports and retail.

He has been talking about innovation, entrepreneurship, and the economy for the past few years and promised that he can do a much better job given the chance.

Sources close to Perera said the businessman has been eying a direct role that could influence change in the country’s economy.

Under Mahinda Rajapaksa’s second tenure as the President, Perera was secretary to the Ministry of Transport after being the chairman of the Board of Investment (BOI) in the first.

But he could not make any significant changes in the sectors he headed. Soon after he was given the Investment Promotion portfolio last week, he asked for some time to put a few key issues in order.

“Though the country is in this situation, I think it won’t be a challenge for me to bring in investments,” Perera told the media after he was sworn in. He was referring to the country’s ongoing economic crisis, the worst in its post-Independence history.

“I have brought foreign direct investments even during the war. So, it should not be an issue for me. From Tuesday (June 28) onward, there will be approvals given in just one day.”

This time he is taking a job in government at a time when the country’s exchange rate peg has lost credibility and the economy is in the midst of unprecedented monetary instability which can only be fixed by the central bank.

Unlike during the civil war, when monetary policy was better, the country has now defaulted after two years of state interventions in the form of aggressive stimulus. Investors are uneasy and the public is in survival mode with the currency having all but collapsed.

Many people are looking to leave the island.

Perera promised to fast-track passport processing and promised to ease the traffic outside the main Department of Immigration and Emigration office in Colombo within a week while introducing one-day services in regional Department of Immigration and Emigration offices in Matara, Kandy, and Vavuniya.

“It will take 14 days for me to come up with a road map. I already have a plan. I will resolve all the issues pertaining to investments and passport issuance immediately,” he said.

Critical failures

Perera’s appointment comes after President Gotabaya Rajapaksa and his advisors pushed for quick state interventions in agriculture by banning chemical (inorganic) fertilizer while the currency collapse and high inflation are causing malnutrition among poor children.There are shortages in fuel, cooking gas, and medicines, though trade controls have made big profits for protected businesses.

Thousands of youth-led protesters are still agitating for more than 80 days demanding that President Rajapaksa resign due to his ill-advised policies that have brought the country to its knees.

Perera succeeded former Finance Minister Basil Rajapaksa, President Rajapaksa’s younger brother who resigned from parliament last month after many of the ruling Sri Lanka Podujana Peramuna (SLPP) MPs asked him to quit.

Before Perera was appointed, the island nation witnessed the resignation of a prime minister, the entire cabinet (twice over), a central bank governor, and a treasury secretary between April 03 and May 12.

Perera’s appointment comes at a time the Rajapaksa administration is going through political instability with the originally strong SLPP government having lost its mandate in the face of mounting public protests.

Before his appointment, Perera had revealed his ambitious plans to attract foreign currency inflows through attracting 25,000 foreign students into Sri Lanka’s university system to earn 2.25 billion US dollars, establishing a budget airline hub to earn 2 billion dollars, and providing opportunity for private sector educational institutions to teach ICT.

He has also revealed plans to develop Sri Lanka’s coconut industry to earn 600 million dollars, construct hospitals with internationally recognised facilities to earn 200 million dollars, improve the fisheries industry to earn one billion dollars, and to make Sri Lanka the country with the best business investment environment in Asia with a view to generating three billion dollars.

Perera has been one of the few businessmen who has navigated the country’s inward looking policies well.

Frontline Socialist Party (FSP) member Pubudu Jayagoda before Perera’s name being considered for the national list MP post exposed that Perera’s casino business failed to pay taxes in the past year. However, Perera later said he had settled it 10 days before he was sworn in as an MP.

Perera has given some hope after consecutive failures of the embattled President Rajapaksa, former finance minister Basil Rajapaksa, and former central bank governor Ajith Nivard Cabraal – all of whom built strong hopes among sections of the business community in the beginning.

Analysts say Perera has huge odds to beat in his task to bring investors if monetary stability is not restored soon. (Colombo/Jun29/2022)

ECONOMYNEXT – Sri Lanka has sought a loan from Qatar to import oil Power and Energy Minister Kanchana Wijesekera has said, as an intermediate regime central bank crisis deepened.

Wijesekera who is in Qatar said in a twitter.com message that he was met the Deputy Director Genral of Qatar Fund for Development.

“Discussed possible Credit Line facility for Petroleum and Gas supply,” he said in the message. “Was informed that funds has been allocated for medical supplies and will consider the request for a credit facility n support the IMF program.”

Sri Lanka has a habit of borrowing foreign exchange to buy oil after the central bank prints money to mis-target interest rates.

The cascading policy error was started over 20 years ago by purchasing Iranian light crude on credit.

In later instances of money printing (currency crises) the CPC was made to borrow dollars from state banks until the loans became a threat to them.

CPC now also owes money to foreign oil suppliers.

Sri Lanka is now borrowing from India in the ongoing currency crisis.

Sri Lanka has a flexible exchange rate, perhaps the most dangerous monetary regime cooked up Western Mercantilists which is driven by conflicting money and exchange policy leading to frequent currency crises.

Sri Lanka is now in a deep monetary meltdown with the country scrambling for 6.0 billion US dollars in loans despite defaulting. (Colombo/June29/2022)

ECONOMYNEXT –  Sri Lanka Cabinet has given green light to a proposal submitted by the Prime Minister to obtain a grant from the United States of America, nearly two years after President Gotanaya Rajapaksa rejected a $480 million from the U.S.-based Millennium Challenge Corporation (MCC).

The $57 million comes through two agreements signed between the Governments of Sri Lanka and U.S. to supply funds to strengthen the cooperation for democratic good governance and social integrity’ and to create a sustainable and covered economic development’

The proposal by the Premier Ranil Wickramasinghe suggested signing a new agreement for implementation of a new programme for financing 57 million US dollars by the United States Agency for International Development (USAID).

 The project has been named as ‘The Programme for a Democratic, Prosperous Sri Lanka with the Ability to Survive Amidst Disasters’ until the year 2026, paying the preliminary attention on the fields of productive democratic governance, growth based on a secure market and strengthening the resources required to sustain pressure and stress.

President Rajapaksa in November 2021 said that his government will never sign the MCC agreement proposed by the U.S soon after the then Secretary of State Mike Pompeo’s visit. However, the U.S. cancelled the MCC offer to Sri Lanka one month after Rajapaksa’s statement. (Colombo/ June 28/2022)

ECONOMYNEXT – Sri Lanka stocks ended at a two-month closing low on Tuesday (28), slipping for the second session as the country’s fuel shortage which has led to a gradual standstill weighed on the market sentiments, brokers said.

The main All Share Price Index (ASPI) closed 1.87% or 139.25 points lower at 7,312.66, its lowest close since April 27.

“This is how the market will be for the next 10 days until we have some confirmation on the fuel supply,” a top market analyst said.

“However, if there’s news about an IMF staff-level agreement tomorrow, we may see some positive in the market.”

Government on Monday has declared that it can only provide fuel for essential services including health and all non-essential services to work online as the country has run out of fuel, while Power and Energy Minister on Sunday asked the public to use fuel sparingly as there was no fuel shipment scheduled to arrive into Colombo in the foreseeable future.

The Minister said that Sri Lanka’s oil suppliers are wary to supply after the recent downgrades.

Traditional suppliers to state-run fuel retailer Ceylon Petroleum Corporation could no longer bear the risk of supplying Sri Lanka due to unsettled arrears, he said.

The country also has issues in opening letter of credit and some of the new suppliers are asking for pre-payments.

The turnover was 815 million rupees, less than a quarter of of this year’s daily average turnover of 3.47 billion rupees.

A 10-member IMF team arrived in Sri Lanka and began discussions on policy corrections with Prime Minister Ranil Wickremesinghe on June 20 and the talks have been seen as positive for the investor sentiment. However, Sri Lanka must show progress on debt restructuring before IMF lends any money.

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 public sector and the schools have moved online for two weeks on the government’s advice to reduce transport and save fuel.

Though a new prime minister and a new cabinet have been appointed, analysts see little progress on both the economical and political fronts. The country is struggling to ensure a continuous supply of fuel due to a shortage of US dollars.

The more liquid S&P SL20 index plunged 1.88% or 44.65  points to 2,336.44.

The market has so far lost 9.7% in June after gaining 6% in May. It lost 23% in April followed by a 14.5% fall in March.

The market has lost 40% 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.

Expolanka Holdings led the fall, slipping 4.2% to 169.75 rupees a share.

Sampath Bank fell down 3.5% to 30 rupees a share, while Aitken Spence eased 6.4% to 79.2 rupees a share. (Colombo/June 28/2022)

COLOMBO (News 1st); Parliamentarian Mahindananda Aluthgamage has defined what essential services are to the people of this country. However, it is important to go back in history to identify the caliber of this person. State Minister Shasheendra Rajapaksa and Mahindananda Aluthgamage were two key officials responsible for the country’s fertilizer crisis. It was Minister Mahindananda Aluthgamage Is media not essential?

ECONOMYNEXT – Sri Lanka gross domestic product (GDP) contracted 1.6 percent in the first quarter of 2022 the state statistics office said as monetary instability took its toll in the worst currency crisis in the history of the country’s intermediate regime central bank.

Agriculture contracted 6.8 percent, industry shrank 4.7 percent but service grew 0.7 percent.

The economy started slow compared to 2021 “due to adverse effects of some factors such as inflation, foreign exchange devaluation and dollar deficit,” the statistics office said.

Forex shortages are a problem associated with intermediate regime central banks (flexible exchange rates).

Sri Lanka ‘s central bank started to employ increasingly aggressive open market operations after 2015 with the adoption of a highly discretionary flexible inflation targeting coupled with output gap targeting (printing money for growth) three currency crises in a row.

The GDP deflator was 19.3 percent and the national consumer price index grew 18.6 percent as the central bank inflated the economy.