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ECONOMYNEXT – Sri Lanka’s cabinet of ministers has approved a proposal to limit the release of fuel to essential services from midnight June 27 to July 10, cabinet spokesman Minister Bandula Gunawardena said.

Minister Gunawardena requested the public to limit nonessential travel and use fuel sparingly.

Sri Lanka is going through a deepening fuel crisis with refusing to confirm letters of credit issued by the country’s state banks, and oil suppliers are also rejecting them due to the country’s inability to pay in dollars.

Foreign banks refuse to confirm Sri Lanka state bank letters of credit: Minister

Fuel prices were also raised on Sunday (26).

Sri Lanka bus operators want tariff hike to account for central bank actions

Sri Lanka has been depending on Indian credit lines for fuel, and according to Power and Energy Minister Kanchana Wijesekara, the state run Ceylon Petroleum Corporation (CPC) will need the help of the Treasury for repayments.

The fuel crisis has left Sri Lanka’s roads bare, with even the most populated roads looking like ghost towns. Drivers line up for days in fuel queues, and it has become common to see abandoned vehicles waiting in line for fuel that, according to authorities, is simply not available. (Colombo/Jun27/2022)

ECONOMYNEXT – Sri Lanka’s private bus service will be unable to function at normal levels until a solution for the fuel crisis is proposed, Sri Lanka Private Bus Owners’ Association (SLPOA) Chairman Gemunu Wijeratne said.

“Even today fewer than 10 per cent of buses are running. Drivers are on strike because they have no fuel,” said Wijeratne, speaking to EconomyNext on Monday (27)

Sri Lanka is currently going through an indefinite interruption of fuel supply. Power and Energy Minister Kanchana Wijesekera has said foreign banks are refusing to confirm letters of credit issued by Sri Lanka state banks, and oil suppliers are also rejecting them due to the country’s inability to pay in dollars.

Foreign banks refuse to confirm Sri Lanka state bank letters of credit: Minister

Fuel prices were also raised on Sunday (26), and the island’s private bus owners have requested the annual price revision for bus fares to take place to cover costs due to the loss of income from the reduction of passengers due to the closure of schools and public offices.

Sri Lanka bus operators want tariff hike to account for central bank actions

Wijenayake said on Thursday (23) that 75 per cent of buses were in operation, and that 100 per cent operations would resume when schools and government offices were opened, but the fuel crisis has put a dent in those plans.

Sri Lanka has been depending on Indian credit lines for fuel, and Wijesekara stated that the state run Ceylon Petroleum Corporation (CPC) will need the help of the Treasury for repayments.

The fuel crisis has left Sri Lanka’s roads bare, with even the most populated roads looking like ghost towns. Drivers line up for days in fuel queues, and it has become common to see abandoned vehicles waiting in line for fuel that, according to authorities, is simply not available.

“Buses are almost empty in the afternoons, so drivers are waiting longer at stops,” said Wijenayake.

However, the lack of buses means peak hours are usually jam packed and uncomfortable for passengers.

“We don’t trust the government at all. We have been waiting here for three days, because even if they say that there is no fuel, we will get a message that there is,” said one irate driver waiting in line – a sentiment echoed by many drivers. (Colombo/Jun27/2022)

ECONOMYNEXT – Sri Lanka stocks closed at one-week low on Monday (27), reversing a four straight session winning streak as the country’s fuel shortage weighed in on the market sentiments, brokers said.

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 main All Share Price Index (ASPI) closed 2.6% or 199.3 points lower at 7,451.91, its lowest close since June 20.

“The market slipped on the fears that the economy would come to a standstill as the country struggles to find dollars to buy fuel,” a market analyst said.

“There is no confirmation when we will get the next shipment.”

Minister of Power and Energy told reporters 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 opening letter of credit and some of the new suppliers are asking for pre-payments.

Analyst have said there was a lot of selling pressure in the market because the investors do not see an ideal market at least for the next 9-months due to high interest rates and taxes.

The turnover was 1.4 billion rupees, highest since June 7, but still less than a half of this year’s daily average turnover of 3.49 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 3.6% or 89.10 points to 2,381.09.

The market has so far lost 7.9% 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% 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 with slipping  7.8% to 177.3 rupees a share.

Browns Investment fell down 10.5% to 7.7 rupees a share, while LOLC Holdings eased 6.9% to 406.3 rupees a share. (Colombo/June 27/2022)

ECONOMYNEXT – Sri Lanka’s exports grew 9.9 percent to 980.2 million US dollars in May 2022 from a year ago, the island’s Export Development Board said as the country grapples with the worst currency crisis in the history of its central bank.

Export to United States, the largest buyer of Sri Lanka goods, increased by 25.02 percent to US$ 266.42 million, with apparel up 40.83 percent and Coconut based products 29.69 percent.

From January to May exports to the US was up 20 percent to 1,364 million US dollars.

Exports to India increased 20.61 percent to US$364.99 million while, exports to Pakistan fell 6.75 percent to US$ 33.99 million.

Woven fabrics to India rose 162.2 percent and other textiles83.42 percent from January to May.

Exports in the five months to May was up 9.7 percent to 5.1 billion US dollars.

Sri Lanka’s exports are growing despite fuel shortages from forex shortages as an intermediate regime central bank continues to print money and force sell dollars to itself through a surrender requirement.

Exports of Apparel & Textiles grew 30.1 percent to US$ 482.7 million in May 2022.

Export earnings of kernel products were up 5.37 percent, fiber products 4.93 percent and coconut shell products 12.9 percent.

Seafood was up 11.8 percent to US$ 16.8 million with fresh fish up (4.9 percent) and Shrimps 90.74 percent.

Electrical & Electronics Components increased by 18.8 percent to US$ 41.8 million

Rubber and Rubber products fell 15.9 percent $76.7 million in May 2022, led by falls in pneumatic & retreaded rubber tyres and tubes (5.41 percent).

Export earnings from tea in May 2022 fell 14.2 percent to US$ 93.7 million. Export of tea packets fell 9.75 percent and bulk tea decreased 18.83 percent. (Colombo/June27/2022)

ECONOMYNEXT – Foreign banks are refusing to confirm letters of credit issued by Sri Lanka state banks, and oil suppliers are also rejecting them, Power and Energy Minister Kanchana Wijesekera said as the country reels from the worst currency crisis in the history of the central bank.

A supplier who was given an order for petrol had rejected a letter of credit issued by a state bank.

At first efforts were made with Bank of Ceylon to issue a Letter of Credit and later People’s Bank agreed to issue a letter of credit.

Minister Wijesekera said efforts were made to get Standard Chartered Bank and some Indian banks to confirm the Letter of Credit but they had declined.

The supplier then tried to get the trade credit approved by a financial institution affiliated to them, but a few days later the agency had also refused.

The ship had then been diverted to an Indian port, he said and CPC could not confirm when the next petrol ship would come.

State run Ceylon Petroleum Corporation owes US$326mn to traditional suppliers through the Bank of Ceylon and would owe US$371mn to suppliers by June and July when the terms expire through letters of credit opened by People’s Bank, he said.

The LCs related to fuel imports made in November, December, January, February, March and April 2022.

Some suppliers like Petro China used to give Sri Lanka 180 days of credit through LCs, Minister Wijesekera said.

Sri Lanka is operating probably the most deadly monetary regime cooked up mainly by US neo-Mercantilists and peddled to third world nations called flexible inflation targeting where a unstable reserve collecting peg (flexible exchange rate) is bombarded with liquidity injections via open market operation (flexible inflation targeting) until it collapses.

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

However efforts were underway to develop a payment plan to settle them, he said.

Sri Lanka was not getting responses for recent oil tenders he said. Except for a solitary tender for Jet-A1 which was too expensive at around 70 million US dollars when the normal price was around 50 million dollars, there were no responses for regular tenders, he said.

With old suppliers in arrears the CPC had evaluated proposals from a number of new suppliers who had made proposals and given letters of awards.

Several of the new awardees had also moved out, he said.

“Two suppliers told me that their banks when they went to their banks, their suppliers refused to supply after a further downgrade a few days ago they cannot agree to LCs with these banks or tripartite agreements,” Wijesekera said.

The new supplier had asked for pre-payment but there was no provision in the agreement to do that.

However the CPC was now looking at paying upfront and getting oil, he said. (Colombo/June27/2022)

ECONOMYNEXT – Sri Lanka’s private bus operators need an overall fare hike to account for currency depreciation and the rise in a consumer price index, Lanka Private Bus Owner’s Association (LPBOA) President Gemunu Wijeratne said after the latest diesel price hike.

“We will have to go for the Annual Revision based on several different factors, including the Colombo Consumers Price Index and the dollar rate,” said Wijeratne, told EconomyNext on June 26.

Recent price hikes were only based on the fuel price hikes said, he said.

Inflation and currency depreciation is caused by the central bank of Sri Lanka.

The agency was set up in 1950 with the power to create balance of payments trouble and high inflation by printing money in the process of giving ‘monetary policy independence’ to a group of persons called the Monetary Board at the expense of the welfare of nation.

Global fuel and food prices have also moved up due to so-called Powell Bubble triggered by the Federal Reserve Chairman Jerome Powell.

“I can’t say how much the price will increase, because that is up to the National Transport Commission,” Wijeratne said, referring to the regulator who approves price hikes based on a formula.

Wijeratne said price hikes would be ‘hard to bear’ for passengers and blamed politicians for the inflation.

“It’s already unbearable, and it’s unfair on them,” he said. “It’s a pitiful situation, but we have no choice. We have to pay for the sins of loss making organizations like the Ceylon Petroleum Corporation, we have no choice.

“Politicians have to take responsibility for these hardships.”

Wijeratne stated that only around 10 percent of buses were currently in operation due to the unavailability of fuel.

The Power and Energy Ministry has said private buses were allowed to refuel at state-run Sri Lanka Transport Board depots, but Wijeratne said many buses were on fuel queues.

Related

Sri Lanka facing virtual standstill after fuel shipment delay

“A lot of bus drivers are on strike. They don’t have fuel and can’t run,” said Wijeratne.

Sri Lanka’s schools, which were closed due to the fuel crisis will reopen for three days next week, even as the crisis continues. (Colombo/Jun26/2022)

ECONOMYNEXT – Sri Lanka’s Consumer Affairs Authority (CAA) has prohibited the use of paddy or rice in the manufacture of animal feed.

An extraordinary gazette issued by the CAA dated June 24 states that no  importer,  manufacturer, trader or distributor shall import, sell, expose or offer for sale, store, transport, distribute or buy or purchase any rice or paddy directly for the manufacture of animal feed or otherwise as an ingredient for the manufacture of animal feed.

The directive came into effect as of Friday June 24.

Sri Lanka is going through its worst ever forex crisis, and the government has warned of possible food shortages in the months ahead, triggered by an ill-advised chemical (inorganic) fertilizer ban coupled with a crippling shortage in US dollars. (Colombo/Jun25/2022)

ECONOMYNEXT – Sri Lanka’s soft-pegged central bank said it is tightening legal tender framework limiting the possession of foreign currency notes to 10,000 US dollars from 15,000 amid the worst currency crisis in the history of the institution.

However holders can deposit foreign currency in a bank and escape the monetary expropriation through depreciation. the deposited money is only returned to bank customers in domestic currency.

People trying to protect their earnings against depreciation were given two weeks from June 16 to convert the dollars or deposit them in a dollar account.

“At the end of the said amnesty period, the Central Bank of Sri Lanka has the right to initiate actions against persons who hold foreign currency in possession by violating the Order, in terms of the provisions of the Foreign Exchange Act,” the agency warned the people hit by depreciation and high inflation.

Since the Central bank was set up in 1950, Sri Lanka’s legislators has given the agency increasingly draconian powers to restrict the economic freedoms of citizens without enacting a strict laws to limits its independence to mis-target interest rates and trigger currency crises.

“The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges,” explained classical economist Friederich Hayek.

“Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference.

“Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty.

“It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape‐​not merely for the rich but for everybody.”

The rupee has fallen from 4.70 to 360 to the US dollar since the agency was set up abolishing a currency board that had taken the country through a Great Depression and two World Wars.

The full statement is reproduced below:

Department of Foreign Exchange
25.06.2022

AMENDING LIMITS AND TERMS AND CONDITIONS ON POSSESSION OF FOREIGN CURRENCY

With the intention of attracting foreign currency in the hands of the public into the formal banking system, the Minister of Finance has issued an Order under Section 8 of the Foreign Exchange Act No. 12 of 2017 as follows:

(1) Reducing the amount of foreign currency retained in possession by a person in, or resident in, Sri Lanka from USD 15,000 to USD 10,000 or its equivalent in other foreign currencies.

(2) Granting an amnesty period of 14 working days effective from the date of the Order (16 June 2022) for persons in, or resident in, Sri Lanka who hold foreign currency notes in possession for the following:

i. To deposit into a Personal Foreign Currency Account or into a Business Foreign Currency Account as specified in the Order, or

ii. To sell to an Authorized Dealer (A Licensed Commercial Bank or National Savings Bank) a. Contact any Licensed Commercial Bank or National Savings Bank.

b. Refer the Order under Section 8 of the Foreign Exchange Act published in the Gazette (Extraordinary) Notification No. 2284/34 dated 16 June 2022 via the official website of the Department of Foreign Exchange, www.dfe.lk.

c. Contact the Department of Foreign Exchange through 011-2477255, 011-2398511 and [email protected].

At the end of the said amnesty period, the Central Bank of Sri Lanka has the right to initiate actions against persons who hold foreign currency in possession by violating the Order, in terms of the provisions of the Foreign Exchange Act.

ECONOMYNEXT – A delegation of top US Treasury and State Department is visiting Sri Lanka as the country reels from a collapse of a soft-peg (flexible exchange rate) backed by conflicting monetary policy.

Members of the delegation include Robert Kaproth, Deputy Assistant Secretary of Treasury for Asia, and Ambassador Kelly Keiderling, Deputy Assistant Secretary of State for South and Central Asia.

“The visitors will meet with a wide range of political representatives, economists, and international organizations,” the US embassy in Colombo said in a statement.

“In all their meetings, they will explore the most effective ways for the U.S. to support Sri Lankans in need, Sri Lankans working to resolve the current economic crisis, and Sri Lankans planning for a sustainable and inclusive economy for the future.”

Sri Lanka which has a Latin America style pegged central bank with extensive sterilization powers and open market operations, has entered its first default cycle in April 2022 and is casting about for foreign aid after the currency collapsed from 200 to 360 to the US dollar.

Sri Lanka which has a Latin America style pegged central bank with extensive sterilization powers and open market operations, has entered its first default cycle in April 2022 and is casting about for foreign aid after the currency collapsed from 200 to 360 to the US dollar.

“This visit underscores our ongoing commitment to the security and prosperity of the Sri Lankan people,””.S. Ambassador to Sri Lanka, Julie Chung said in a statement.

“As Sri Lankans endure some of the greatest economic challenges in their history, our efforts to support economic growth and strengthen democratic institutions have never been more critical.”

U.S. has announced120 million in new financing for Sri Lankan small and medium-sized businesses, a 27 million dollars contribution to Sri Lanka’s dairy industry and 5.75 million in humanitarian assistance to help those hit hardest by the flexible exchange rate.

The flexible exchange rate has pushed up food prices beyond the reach of the less affluent classes.

“In the coming months, the U.S. will continue to support Sri Lankans as they revive their economy, combat food insecurity, and promote public health and education,” the embassy said.

“The United States also strongly supports Sri Lanka’s decision to seek assistance from the International Monetary Fund, which can provide the most durable resolution to the present crisis.”

Sri Lanka has gone to the IMF 16 times but has not been able to end currency crises.

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Though the IMF can help stabilize the exchange rate temporarily by smashing the domestic private sector the central bank is encouraged to return to aggressive liquidity injections (in as little as two years under flexible inflation targeting) and triggers another currency crisis.

The phenomenon is known among classical economists as recidivism.

Under an IMF program there is no hope for a single anchor money regime such as inflation targeting, due to the obligation to target the exchange rate, operate a reserve collecting peg to pay back the loan to the Fund. (Colombo/June24/2022)

ECONOMYNEXT – Sri Lanka’s President Gotabaya Rajapaksa has met a team from the International Monetary Fund who are in the island to negotiate a bailout involving tighter monetary and fiscal policies and a debt re-structuring.

The IMF mission was led Deputy Director of IMF’s Asia Pacific Department Anne-Marie Gulde. The IMF has also appointed senior mission chief Peter Breuer, who is Chief of the Debt Capital Markets Division, Monetary and Capital Market Department of the IMF.

IMF’s Mission Chief for Sri Lanka Masahiro Nozaki, Resident Representative for Sri Lanka Tubagus Feridhanusetyawan had also met President Rajapaksa.

“IMF representatives briefed the President regarding the preliminary round of discussions heldwith the Prime Minister, the Ministry of Finance, the Central Bank and other economic authorities and experts as well as regarding the current situation,” his office said in a statement.

“The delegation reaffirmed their commitment to support Sri Lanka at this difficult time, in line with the IMF’s policies.

“The President elaborated on the current economic situation and expressed his gratitude to the delegation for their support to Sri Lanka during difficult times.”

The IMF was invited to Sri Lanka at the request of President Gotabaya Rajapaksa at a time when state economists were still supporting ‘stimulus’.

Stimulus or money pritning became a fad during the Coronavirus crisis and was endorsed by the IMF and major reserve currency central banks also engaged in the practice creating a ‘hangover’ in the form of high inflation.

After the Fed fired a massive commodity bubble food prices are high around the world and Mercantilists are now claiming there is a ‘food crisis’ s just as they claimed at the height of the Greenspan-Bernanke bubble in 2008.

Sri Lanka defaulted on the its foreign debt after 7 years of aggressive monetary stimulus, involving call money rate targeting, real effective exchange rate targeting and output gap targeting, including with fiscal stimulus (tax cuts) which led to monetary instability and higher foreign borrowings.

The country is now trying to re-structure its foreign debt but is also attempting to borrow a whopping 6.0 billion dollars in 2022 amid enhanced monetary instability. (Colombo/June24/2022)