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ECONOMYNEXT – Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21) though turnover hit a 16-month low amid political ad economic concerns, brokers said.

The main All Share Price Index (ASPI) closed 1% or 77.7 points higher at 7,502.28, gaining from its near eight-week low.

“The market was desperately looking for some positive news and the IMF meeting with the Prime Minister was seen as a positive move,” a market analyst said.

“If you see the turnover levels, they are low in the last few days, This shows the selling pressure is bottoming out and the market is waiting for some positive news to react.

Tuesday’s turnover recorded a 16-month low of 760 million rupees, its lowest since March 22, 2021. This is less than a quarter of this year’s daily average of 3.5 billion rupees.

Analysts said the market moved on positive sentiments as investors were hopeful on an IMF deal as the discussions began in Colombo on June 20.

A 10-member IMF team arrived in Sri Lanka and began discussions on policy corrections with Prime Minister Ranil Wickremesinghe on Monday

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 gained 1.51% or 35.65 points to 2,400.57

Foreign investors sold a net of 9.5 million rupees worth of shares on Tuesday. The market has witnessed a total foreign outflow of more than 1 billion rupees so far this year.

The market has so far lost 7.3% in June after gaining 6% in May. It lost 23% in April followed by 14.5% fall in March.

The market has lost 38.6% 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.

All Share Price Index was mainly pushed up by Expolanka, which lost 4.2% to 168.25 rupees a share.

Dialog Axiata was up 5.2% to 10.10 rupees a share, while DFCC Bank gained 6.5% to 37.90 rupees a share. (Colombo/June21/2022)

ECONOMYNEXT – Sri Lanka’s health sector priority is to make drugs available than making them at affordable price, Health Minister Keheliya Rambukwella said as the island nation’s economic crisis has hit the availability of drugs including some key essential and life-saving medicines.

The US dollar shortage has resulted in lower drug imports and President Gotabaya Rajapaksa’s government has requested from bilateral donors and multilateral finding agencies to help the island nation from a possible looming drug shortage.

Rambukwella says many organizations have pledged around 500 million US dollars for medicines, though the island nation’s only has received part of the total pledges.

According to Rambukwella, the pledges include 73 million US dollars from the World Bank, 66 million from from the Asian Development Bank, 100 million US dollars from Asia Infrastructure Investment Bank (AIIB) and 200 million US dollars from the ongoing Indian credit line.

However, many people have complained of expensive drugs after the rupee currency was allowed to depreciate by around 75 percent.

“We all are experiencing the impacts of forex issue. So it is not limited to a particular group of people or sector,” Rambukwella told a media briefing on Tuesday.

“As of now we have to move with that. I guess is a 10-15 percent of the population could turn into state health sector from the private sector due to forex issues.”

“Right now it is a question of availability. Having said that we will have look into some price controls subsequently. Right now the priority is given for availability than the affordability.”

Many individual hospitals and Government Medical Officers’ Association, a health sector trade union have complained of unavailability of some essential and life saving drugs.

Rambukwella said there could be some instances of drug shortages, but overall most of the drugs are available.

Many hospitals, however, have maintained and told patients that some drugs are not available as they were earlier. (Colombo/June 21/2022)

ECONOMYNEXT – Sri Lanka Minister of Justice Wijeyadasa Rajapakshe has called for wide support for his version of a 21st amendment to the constitution after the Supreme Court determined that the provisions of a competing draft by the main opposition required a referendum.

Rajapakshe told parliament on Tuesday June 21 that the Supreme Court had determined that virtually none of the provisions in the main opposition Samagi Jana Balavegaya’s draft 21st amendment could be passed in parliament without a referendum.

“The people of this country irrespective of party differences accept the need for the 21st amendment we proposed,” he said.

The SJB’s 21st amendment concentrated heavily on abolishing Sri Lanka’s all-powerful executive presidency and, according to a determination by the Supreme Court, many of its provisions require a two thirds majority in parliament along with a people’s referendum.

Related:

Sri Lanka Supreme Court determines major provisions of SJB’s draft 21A needs referendum

The exact contents of Rajapakshe’s draft 21st amendment are not out in the public domain at present, but according to the minister, it will largely be a restoration of the 19th amendment which will see some of the powers conferred on the president by the controversial 20th amendment will be repealed.

“The opposition has to accept that not one word of their draft can be passed in parliament in any practical way. We have brought forward something that can actually be done,” he said.

“We have included everything that can be passed without a referendum,” he added.

Pending Supreme Court perusal of the draft, it is the duty of the opposition and every citizen to support the amendment, the minister said.

Rajapakshe also expressed support for Prime Minister Ranil Wickremesinghe and criticised the SJB for not taking up the premiership when offered by President Gotabaya Rajapaksa after then Prime Minister Mahinda Rajapaksa was compelled to step down amid widespread violence on May 09.

“The PM is for massive political reforms in this country, and that was why I took the justice ministry,” he said.

Sri Laka is going through its worst ever forex crisis, with a severe lack of dollars leading to long queues for fuel and other essentials as the country grids to a virtual standstill.

The SJB and the opposition National People’s Power (NPP) walked out of the chamber Tuesday morning, announcing a boycott of parliament this week in protest of what they said was government inaction in the face of Sri Lanka’s worsening crisis.

Related:

Sri Lanka opposition parties boycott parliament in protest

Minister Rajapakshe said the international community and the International Monetary Fund (IMF) have asked Sri Lanka to get its house in order in order to continue supporting the country through the crisis.

“The EU, the US, and others are asking ‘where is your country’s democracy and rule of law?’ They ask that these be established,” he claimed. (Colombo/Jun21/2022)

COLOMBO (News 1st); The Committee on Public Accounts (COPA) recommended that all Ministries should unite and set up a Cabinet Sub-Committee on Food Security to address the food crisis in the country. The members of the committee pointed out that it is important to set up this committee to bring all the agencies responsible for COPA wants Sub Committee for Food Security

ECONOMYNEXT – Sri Lanka central bank’s own Treasuries holding has topped 2.0 trillion rupees with 48 billion rupees in permanent money injected after the latest Treasury bill auction, official data shows.

The central bank’s Treasury bill and bond stock reached 2,045 billion rupees on June 17 from 1,997 billion rupees a day earlier.

The central bank had additionally injected 746 billion rupees against Treasury securities overnight into money markets allowing banks to give loans without raising deposits and trigger balance of payments deficits and forex shortages.

The overnight bill stock fell to 694 billion rupees as the permanent money was injected.

Some banks, including state banks are short of liquidity having financed credit to the government or state enterprises funded by central bank credit or window borrowings.

The central bank has bought 71 billion rupees of bills outright so far in June.

The central bank started the current currency crisis around August 2019 injecting money by buying back bonds from banks for new money, losing the ability to run balance of payments surpluses (sterilize inflows).

Currency crises are problem associated with intermediate regime central banks (non-credible pegs) which intervenes in forex markets to collect reserves and also prints money to mis-target interest rates.

The central bank is continuing to intervene in forex market using mostly borrowed dollars from India and is also putting downward pressure on a peg down with a surrender rule.

A non-credible peg called a ‘guidance rate’ has been imposed. (Colombo/June21/2022)

ECONOMYNEX – Sri Lanka’s main opposition Samagi Jana Balavegaya (SJB) and the opposition National People’s Power (NPP) will boycott parliament this week, opposition leader Sajith Premadasa said and NPP leader Anura Kumara Dissanayake said before proceeding to walk out of the chamber.

The government has turned parliament into a talk shop and time spent in parliament is a waste of time and offers no solution to the people suffering outside, Premadasa told parliament on Tuesday June 21.

“We will boycott this parliament,” thundered Premadasa.

Janatha Vimukthi Peramuna (JVP)-led National People’s Power (NPP) leader Anura Kumara Dissanyaake echoing Premadasa’s statement said no useful solutions have come out of parliament so far.

Sri Lanka is going through its worst economic crisis in its post-Inedependence history, with long queues for essentials seen around the country.

Dissanayake said the government must present to parliament a short term plan or a roadmap with proposals for a way out of the crisis.

President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesnghe are in two camps and conflict is brewing between them, claimed Dissanayake.

“There is no point debating here if no roadmap or plan is presented to parliament,” he said.

Sri Lanka Freedom Party (SLFP) general secretary Dayasiri Jayasekara also demanded a plan on solutions to Sri Lanka’s lengthening fuel queues.

Government MP Nimal Lanza said opposition parties including the NPP was uninterested in forming an all party government when overtures were first made.

“Don’t speak empty words and mislead the people. If you have a plan, we will raise both hands and extend our support,” he said.

National Freedom Front (NFF) leader Wimal Weerawansa claimed that some SLFP MPs and MPs from Lanza’s group had secretly proposed to President Rajapaksa that Wickremesinghe be appointed Prime Minister.

Refuting this claim, Lanza said: “Don’t get me started [on others].”

“However, there needs to be a government. We’re not going to attack a new government just for the sake of it. But a Prime Minister needs to have a plan. It doesn’t look like they even have an answer to the crisis.

“It was implied that Wickremesinghe would be able to pull billions of dollars out of his pocket soon after his appointment, given his supposed international connections. That hasn’t happened,” said Weerawansa. (Colombo/Jun21/2022)

ECONOMYNEXT – Sri Lanka has expanded state workers 11 percent from 2014 to 2021 after cost cutting was abandoned in 2015 under ‘revenue based fiscal consolidation’ while government spending as a share of also expanded by 3.7 percent of gross domestic product.

Sri Lanka went on an unusual strategy of abandoning ‘spending based fiscal consolidation’ which usually involve cutting costs and re-directing people’s taxes for best uses and instead taxing the people to maintain a bloated public service from 2015, under a strategy backed by the International Monetary Fund.

After the Greenspan-Bernanke bubble burst, Washington has come under grip of the anti-austerity brigade where spending was glorified, critics say.

Classical economists have called revenue based fiscal consolidation the ‘statistical’ method of balancing budgets which fails in democratic countries.

Statistical vs Economic Method

In 1966, when the central bank was printing money to create currency crises despite having revenues of 23 percent of GDP, classical economist B R Shenoy in a report to the Ceylon government said the “statistical alternative of balancing the Budget is to step up Revenue collections sufficiently and produce a large enough Revenue surplus to cover overall Budget deficits.”

“This alternative is beset with pitfalls,” Shenoy explained. ” Past experience in Ceylon, which is in line with experience in virtually all parts of the world, is that in a democratic set up political and other pressures are heavily on the side of more and more spending by the government.

“When Revenues increase, under the weight of these pressures, expenditures too increase to meet, or even exceed, Revenue collections.”

True to form, total government spending which was 17.3 percent of gross domestic product grew to 18.8 percent by 2018.

Monetary Instability

Meanwhile monetary instability ratcheted up even without a war as central bank policies became increasingly more aggressive under ‘flexible’ inflation targeting without floating exchange rate.

A high unstable reserve collecting peg (flexible exchange rate) was bombarded with increasingly aggressive monetary policy and quantity easing style activity (call money rate targeting, operations twists, jettisoning bills only policy in favour of yield curve targeting) creating currency crises in rapid succession.

Money was also printed to target an output gap (monetary stimulus). The IMF itself taught Sri Lanka, which was supposedly engaging in inflation targeting to calculate an output gap which was then invitingly dangling to target.

After two currency crises in 2016 and 2018 busted the currency from 131 to the US dollars to 182 to the US dollar as interest rates were mis-targeted with open market operations, growth slowed.

As the efforts were made to stabilize the economy after money printing to trigger currency crises, both growth and revenue slowed falling to 11.6 percent by 2019.

Tax cut to close output gap

After two currency crises in 2019 December taxes were cut by interventionist economists saying that there was a ‘persistent output gap’ and Treasury bond auctions were crippled with price controls triggering the biggest currency crisis in the history of the 72 year old central bank.

Taxation as a share of GDP which was 10.1 percent of GDP in 2014 (when the country was recovering from a 2012 currency crisis), fell to 7.7 percent of GDP in 2021.

Meanwhile consistent with ‘revenue based fiscal consolidation’ of expanding the state, the public service was bumped up 11 percent from 1.345 million workers in 2014 to 1.46 million in 2019 and 1.49 million in 2021 according to central bank survey data.

In 2022 then Finance Minister Basil Rajapaksa raised state salaries in a ‘relief package’ and raised the retirement age of state workers to 65.

In 2012 after two years of extraordinary money printing, Sri Lanka defaulted after running out of reserves.

Sri Lanka is now printing money to pay state worker salaries, despite forex shortages and attempting to operate a peg at 360 to the US dollar with dollars borrowed from India.

Sri Lanka now has to raise taxes steeply in a bid to stop money printing and further collapses of the currency and also squeeze private credit and re-direct money to the deficit. (Colombo/June21/2022)

ECONOMYNEXT – Sri Lanka stocks closed weaker on Monday (20) for the fifth consecutive session on weak sentiments as the country is going through its worst economic crisis as a dollar shortage wiped out the country’s fuel supply resulting in a standstill, dealers said.

The main All Share Price Index (ASPI) closed 0.6% or 47.83 points lower at 7,424.56, its lowest close since April 27.

The index plunged over 1.5 percent during the day, but recovered in the latter part of the trading.

“It was a volatile market and the trading opened with the usual negative sentiments, but recovered on the news of IMF discussions in Colombo,” a top market analyst said.

“Otherwise there was nothing much in the market today.”

An 10-member IMF team arrived in Sri Lanka and began discussions on policy corrections with Prime Minister Ranil Wickremesinghe.

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 with the the island nation was frantically looking for dollars to purchase fuel.

The public sector and the schools have moved to online for two weeks on 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 fell 0.16% or 3.73 points to 2,364.92

The day’s turnover was 822 million rupees, less than a quarter of  this year’s daily average of 3.6 billion rupees.

Foreign investors sold a net of 39.9 million rupees worth of shares on Monday. The market has witnessed a total foreign outflow of more than 1 billion rupees so far this year.

The market has so far lost 8.3% in June after gaining 6% in May. It lost 23% in April followed by 14.5% fall in March.

The market has lost 39.3% 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.

All Share Price Index was mainly dragged down by John Keells Holdings, which lost 0.8% to 120.00 rupees a share.

Dipped Products fell 5.4% to 26.30 rupees a share, while Central Finance slipped 4.3% to 55.80 rupees a share. (Colombo/June20/2022)

ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa’s office on Monday said Chinese ambassador to Colombo has revealed that Beijing will operate three flights to Sri Lanka from this week while local carrier SriLankan also will reciprocate by increasing flights to Beijing.

It was not immediately clear why both countries want to boost the number of flights when there is no demand for air travels in the two countries. Most Sri Lankans are unable to go on business trips as earlier because dollar shortages while Chinese visitors, who who were the top in tourist arrival list cannot come because the Chinese government has not lifted a travel ban.

“It has been decided to increase the number of flights between China and Sri Lanka,” President’s Media Division (PMD) said in a statement,

“Accordingly, China will operate three flights to Sri Lanka from this week. SriLankan Airlines too offers
frequent flights to China,” it said.

“This was revealed by the Chinese Ambassador to Sri Lanka Qi Zhenhong when he paid a courtesy
call on President Gotabaya Rajapaksa at the President’s House in Colombo.”

The PMD said the Chinese Ambassador briefed the President on the economic and humanitarian assistance provided and
expected to be provided by the Chinese Government to Sri Lanka.

“Measures have been taken to provide opportunities for Sri Lankan medical students to return to China to continue their studies.
Further development of bilateral trade and economic activities were discussed at length,” the PMD said.

“President Rajapaksa commended China for its support to Sri Lanka as a friendly country during this
current economic crisis.”

Chinese Embassy in Colombo did not comment on the meeting. But on Thursday, the embassy in its official twitter page said Ambassador Qi Zhenhong went to the Presidential Palace and delivered the birthday congratulatory letter from President Xi Jinping to President Gotabaya Rajapaksa.

“The two sides also conducted friendly exchanges on China’s aid to Sri Lanka and the promotion of major economic cooperation projects.”

China, the largest bilateral commercial loan lender of Sri Lanka, has pledged 2.5 billion US dollars to overcome Colombo’s ongoing economic crisis. However, the loans have been delayed as Beijing has said it will wait until there are clarity on the IMF negotiations and debt restructuring.

Beijing has not been in favour of any debt restructuring. However, it has agreed to lend Sri Lanka further loan to repay its own past loans. (Colombo/June 20/2022)

ECONOMYNEXT – Sri Lanka Prime Minister Ranil Wickremesinghe met Australia’s Minister of Home Affairs Clare O’Neil in Colombo after her government assured 50 million US dollars in food and medicine aid, with O’Neil offering further assistance in restructuring the Customs Department.

At the meeting held Monday afternoon, O’Neil had offered Australia’s assistance in developing the Department of Customs, a statement from the Prime Minister’s office said on Monday June 20.

Earlier Monday, Australia said it will provide 50 million US dollars in official aid for Sri Lanka which is reeling from the worst currency crisis in its 72-year-old history of intermediate regime central bank.

“We will contribute an immediate $22 million to the World Food Programme for emergency food assistance to help three million people in Sri Lanka meet their daily nutritional needs,” Minister for Foreign Affairs Penny Wong said in a statement.

“Australia will also provide $23 million in development assistance to Sri Lanka in 2022-23.”

Related:

Australia gives Sri Lanka US$50mn in food, medicine aid

Minister O’Neil expressed Australia’s continued support for Sri Lanka and the Sri Lankan government’s efforts to stabilise the economy, Wickremesinghe’s office said.

“The Prime Minister explained that Sri Lanka was focussed on developing an export oriented economy which would be opened up to investments from overseas,” the statement said.

Minister O’Neil, meanwhile, had said that the Australian government was interested in promoting Australian investments in Sri Lanka, while also continuing to drive up Australian tourism to the island nation.

O’Neil had also explained her administration’s policy regarding maritime security and human smuggling, the PM’s office said.

Sri Lanka has seen a spike in attempts to flee the country by boat, as its economic crisis worsens.

Helping migrants leave, now called human-smuggling has become a booming business once again as many Sri Lankans want to leave the country due to a gloomy economic and political outlook, political analysts say.

Police sources said most of the desperate migrants Sri Lankan migrants are aiming to make it to Australia.

Related:

Sri Lanka sees more boat people events as economic crisis worsens

The Prime Minister stated that the Sri Lankan Government and its security forces remained committed to ensuring a halt to human smuggling, the statement said. (Colombo/Jun20/2022)