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ECONOMYNEXT – Sri Lanka’s central bank has advertised for a gym instructor to continue health benefits to its staff, an official said, amid an economic crisis that is expected to prolong for years,

The central bank published a tender document in print media, calling for tender “for selecting a suitable service provider for obtaining the service of an Instructor to the Gymnasium of Central Bank of Sri Lanka (CBSL) on outsourced basis”.

“We have the gym for about 15 years in the central bank and it is for the befit of the employees,” an official at Central Bank’s Security Services Department told Economy Next.

“The last gym instructor we had for a long time retired recently and that is why we have opened the vacancy for that position. This is something the central bank had for a long time. This is not something new.”

Most of tough and innovative monetary policy decisions are expected to be formulated by the central bank., which expects the crisis to continue for years.

The move came under criticism citing that the central bank was not following austerity measures, which it has been preaching since it along with the finance ministry announced that they were suspending all the foreign debt repayment from April 12. (Colombo/May25/2022)

ECONOMYNEXT – Sri Lankan Airlines has started refuelling its aircraft from Chennai, Dubai, and Singapore due to a shortage of jet fuel in Colombo amid a foreign currency scarcity, sources said.

The shortage also has led the Airport and Aviation Services (Sri Lanka) (Private) Limited (AASL) to inform foreign flights to take necessary steps in refuelling.

“There is less jet fuel in Colombo. So we have been using Chennai, Dubai, and Singapore to refuel Sri Lankan Airlines’ flights,” a source from the state-run SriLankan Airlines under anonymity confirmed to Economy Next.

The island’s main Bandaranaike International Airport has a 7.8 million liter capacity fuel tank while Mattala International airport has a 3 million liter fuel tank.

However, Sri Lanka’s economic crisis with a severe shortage of dollars has led to a scarcity of fuel as the Indian Ocean island nation has no dollars to import oil.  Sri Lanka has been sourcing fuel from an Indian credit line.

“We informed the (foreign) airlines 10-days ago that the airport is running on limited fuel, so to take necessary measures,” another source from Sri Lanka’s airports said.

“We do have fuel for emergency purposes but this matter is entirely handled by CPC (Ceylon Petroleum Corporation). They are the ones who supply the fuel to the airports.”

Officials from CPC were not immediately available for comments.

Experts say there is a possibility of air carriers cancelling their flights to Sri Lanka as using an alternative route just to refuel is an added cost to the airlines unless the is adequate traffic.

AASL Officials told Economy Next late in April that their daily consumption was around 1.3 million liters amid a drop in air traffic to the country with the onset of the off tourism season and the Ukraine-Russia war. (Colombo/May25/2022)

ECONOMYNEXT – Prime Minister Ranil Wickremesinghe’s appointment as crisis-hit Sri Lanka’s finance minister has raised some hopes locally for longer-term economic policies, but international donors are still wary because of the past experiences.

Since Wickremesinghe was appointed as prime minister on May 12, the intensity of the main protest near presidential secretariat has declined and the number of participants has drastically come down.

But the key issues which led to the youth-led protests – extended power cuts, long queues for fuel and cooking gas, and lack of medicines – still remain and have gotten worse in the last two weeks.

Political analysts see Wickremesnighe as a credible political leader among many corrupt Sri Lankan politicians given his personal track record, the  the black mark from the infamous central bank bond scam notwithstanding.

“However, this time, his personal credibility may not help him get international assistance to come out of the economic crisis,” a political analyst who was close to the last government told EconomyNext asking not to be named.

“Every time the international community supported Wickremesinghe and he improved the economy, the opposition toppled his government and derailed economic policy gains. So, this time, the international community is not ready for such a derailment.”

“They want a policy commitment that’s sustainable over a long period of time whether Wickremesinghe is there or not. If Sri Lanka needs to come out of this economic crisis and prevent another crisis, the country needs a sound economic policy, and that is what the international community expects from Sri Lanka this time.”

Some Sri Lanka Podujana Peramuna (SLPP) lawmakers told EconomyNext that the international community has delayed financial assistance plans to the country because of the concerns over Rajapaksas still remaining in power.

“Some international partners have said they will not help as long as the Rajapaksas are in power,” a former cabinet minister told EconomyNext.

“This is one of the reasons that compelled former prime minister Mahinda Rajapaksa to vacate his post and this is why no Rajapaksas are in the cabinet now,” he said.

“Even President Gotabaya Rajapaksa’s presidency is seen as an impediment to foreign financial assistance.”

Tough policy actions 

New Finance Minister Ranil Wickremesinghe has already explained the reality of the island nation’s crisis-hit economy to the nation.

Unlike the former ruling SLPP ministers, Wickremesinghe told the truth to the public. In a televised address, he mentioned that there is no reserves to pay for any imports. He warned of an impending food shortage in August. He spoke of economic conditions worsening further, of longer power cuts, and more money printing for public sector salaries at the expense of rupee depreciation.

Already, the country’s policy interest rates have been doubled to a higher level, private sector imports are curbed to a minimum and government capital expenditures are slashed, fuel prices are raised to record levels, and the rupee is trading around a record low level after flexibility was allowed in the exchange rate.

However, the key reforms have yet to be even discussed.

Economist say these key reforms may be extremely painful. Among them are: raising taxes, downsizing a bloated public sector, job losses, increase in electricity and water prices, possible privatisation of loss-making state-owned enterprises (SOEs) such as SriLankan Airlines, the Ceylon Petroleum Corporation (CPC), and the Ceylon Electricity Board (CEB).

Central Bank Governor Nandalal Weerasinghe this week said more hardships are expected when the economy worsens further.

“We will see the worst contraction this year than any other years in history. There is no other choice,” Weerasinghe told a forum this week.

Many economists warn that the next few months will be “scary”, until stability returns.

Meanwhile, Wickremesinghe is expected to navigate Sri Lanka through these troubled times as finance minister with a new budget and a new economic policy regime.

But for the international community, implementation of such economic policy under Wickremesinghe is not going to be enough. Sri Lanka’s international partners want a credible policy to sustain the country’s economic recovery from the current crisis.

“It is not about them supporting Sri Lanka to come out of this crisis, but about sustaining the economic recovery,” the political analyst said.

“So, whether Rajapaksa coming back or a fresh Rajapaksa coming to power is immaterial to them. What the international community needs is credibility and sustainable and sound economic policies despite whoever is in charge.”

Contraction to positive growth

Sri Lanka was saved from the brink of similar economic collapse when Wickremesinghe served as prime minister in 2001-2004 and 2015-2019 with Sri Lanka’s international partners backing his governments for economic policy reforms including fiscal adjustments to reduce the budget deficit.

However, he could not complete his reforms on either occasion and the country’s gain in economic policies was eroded soon after the next government took over.

During 2001-2004 tenure, Wickremesinghe with the support of international community, focused on economic policies under a policy package titled “Regaining Sri Lanka” amid an internationally brokered ceasefire agreement between the government and the Liberation Tigers of Tamil Eelam (LTTE) who fought for an independent state for ethnic minority Tamils.

He took over an ailing economy that had seen its worst growth in history by then. The complete destruction of Sri Lanka’s only airport by the LTTE brought Sri Lanka’s economy to its knees and Sri Lanka hardly got any international support because most of the money was pumped to fight the war.

Wickremesinghe reined in government expenditure by stopping state sector recruitment while boosting revenue by encouraging private sector investments. He also ensured 4.5 billion US dollars in financial aid at the Tokyo donor meeting with the support of Sri Lanka’s friends abroad.

However, the then opposition led by Mahinda Rajapaksa started to agitate against the Wickremesinghe government’s policies. Rajapaksa along with his then close allies Wimal Weerawansa and former finance minister, late Mangala Samaraweera spearheaded the anti-government campaign against Wickremesinghe and his policies.

The allegations were: Wickremesinghe was selling the country, he was succumbing to international pressure, he was more lenient with the LTTE, he was a traitor because he did not care about the military and LTTE leader Veluppilla Prabakaran would get what we wanted, a separate Elam.

Accepting her party members’ demand, then president Chandrika Bandaranaike Kumaratunga dissolved parliament in February 2004 leading to the defeat of Wickremesinghe’s center-right United National Party (UNP), which continued to languish in the opposition for 11 years.

The new government led by president Kumaratunga and Prime Minister Mahinda Rajapaksa in 2004 started to provide jobs for over 50,000 unemployed graduates in the public sector. The move eroded all economic policy gains under Wickremesinghe that was backed by Sri Lanka’s international partners led by Japan.

When Rajapaksa became president in 2005, the country gradually prepared and proceed to finish the war. Rajapaksa provided the political leadership to end the war, but failed the country economically despite the International Monetary Fund (IMF) and other international partners helping the country build up the war ravaged nation. His government also failed at reconciliation efforts that the internationally community had expected.

Rajapaksa’s sins haunt policy credibility

Wickremesinghe also got a rare opportunity to put the country into a strong economic footing when he was a powerful prime minister in the last government under former president Maithripala Sirisena.

However, the government which gave priority to good governance had to compromise on many tough economic policy decisions because of the unlikely coalition between the center-right UNP headed by Wickremesinghe and center-left Sri Lanka Freedom Party (SLFP) headed by  Sirisena.

The central bank bond scam also put a dent in Wickremesimghe’s credibility and his “Mr Clean” image despite him being proven innocent.

However, his economic policy framework with higher taxes, fuel price formula, reduced government expenditure, leasing Hambantota Port to China, a joint venture to operate the East Container Terminal (ECT), the Trincomalee oil tank farm deal with India, and a 480 million US dollar grant from the US-based Millennium Challenge Corporation (MCC) were criticised in creative but often dishonest ways by the Rajapaksa-led opposition.

Rajapaksa using his immense popularity tried to prove that Wickremesinghe could not stabilise the economy. For this, he used many tactics which are now history.

When there was a fuel shortage in November 2017, Rajapaksa along with his MP son Namal travelled to parliament by bicycle to protest the shortage.

Every time he got a microphone to speak, Rajapaksa would ask sarcastically “den sepeda’ (“feeling better now?”) or “obata sathutudha den?” (“are you happy now?”). His biting commentary about price increases of essentials, shortage of cooking gas, and about the fuel formula, though intellectually dishonest, struck a chord with voters.

His party members told the public that the IMF was the main curse on the country and Wickremesinghe had been working with the IMF to bring the economy to a standstill.

At a press conference, when Rajapaksa said the rupee had been depreciating, a journalist asked him how would he stabilise the rupee. There was no answer from Rajapaksa, but his close ally Weerawansa said their party had done it before under Rajapaksa and they knew how to make the rupee stable.

Rajapaksa, true to form, built up his political power by ridiculing Wickremesinghe’s economic policies which were expected to bring some stability to the country.

The 2019 Easter Sunday attack followed by anti-Muslim riots were the final nail on the Wickremesinghe-Sirisena’s government and the 73-year-old current finance minister’s economic development drive.

Rajapaksa’s tactics worked and Wickremesnghe’s UNP could not even win a single seat at the August 2020 parliamentary election. Wickremesinghe who had been in parliament for 43 consecutive years could not win back his own seat in the Colombo district.

That was the end of Wickremesinghe’s second chapter of sustainable economic policy reforms.

The last chance?

Now, he has been given another chance to prove himself as a majority of people do not want to see Rajapaksas serve as ministers and decision makers anymore. Protests have erupted islandwide against the once beloved dynasty.

However, critics are still doubtful that  Wickremesinge will pull it off. He had failed every time he held a parliamentary majority and now he does not have a single UNP lawmaker to back him.

With past experiences of eroded policy credibility, many donors do not want to burn their hands this time by helping Sri Lanka get out of the mess, a Western diplomat told EconomyNext.

“What the international community is looking for is long-term policy credibility and sustainability. Every time there were policy changes for the better, we saw political upheaval and policy reversal. That is the key reason for the current economic crisis,” the diplomat said.

In line with the diplomat’s comment, the World Bank on Tuesday said it had no plans to help Sri Lanka until there was an adequate macroeconomic policy framework outlined.

“We are concerned for the people of Sri Lanka and are working in coordination with the IMF and other development partners in advising on appropriate policies to restore economic stability and broad-based growth,” the World bank said in a statement.

“Until an adequate macroeconomic policy framework is in place, the World Bank does not plan to offer new financing to Sri Lanka.

“We are currently repurposing resources from previously approved projects to help the government with some essential medicines, temporary cash transfers for poor and vulnerable households, school meals for children of vulnerable families, and support for farmers and small businesses,” the Bank said. (Colombo/May25/2022)

ECONOMYNEXT – The World Bank said it cannot give new loans to Sri Lanka until a proper economic plan is in place though it is re-directing money from un-disbursed loans for immediate humanitarian needs of the poor, the sick and school children.

Sri Lanka is suffering the worst currency crisis in the history of its 72 year-old intermediate regime central bank with rupee collapsing from 200 to 380 to the US dollar and inflation soaring to around 30 percent by April.

“We are concerned for the people of Sri Lanka and are working in coordination with the IMF and other development partners in advising on appropriate policies to restore economic stability and broad-based growth,” the World Bank said

“Until an adequate macroeconomic policy framework is in place, the World Bank does not plan to offer new financing to Sri Lanka.”

The World Bank is only re-purposing already approved loans, the agency said saying reports about a new ‘bridge financing’ is not correct.

The International Monetary Fund has said Sri Lanka’s debt is unsustainable and has to be restructured and a new fiscal and monetary program is being developed.

Other multilateral lenders also require a macro-fiscal sign off to make sure that the new loans are able to be repaid and does not further put the country into a debt crisis. (Colombo/May25/2022)

ECONOMYNEXT – Sri Lanka stock market slipped nearly 1 percent on Tuesday (24) following a fuel hike and the comments by the central bank governor, who said the island nation will see the worst ever contraction this year, dealers said.

“The sharp increase in fuel price hike is a deterrent for the growth of manufacturing and service sector with the electricity price is also expected to rise,” a market analyst said.

“The central bank governor comment also was negative for the sentiment.”

Central Bank Governor Nandalal Weerasinghe late on Monday said the country’s growth could see its worst ever contraction this year due to the economic crisis.

The main All Share Price Index (ASPI) fell 81.02 points or 0.96 percent to close at 8,393.47.

Amidst the already skyrocketing prices on the island, the state-owned Ceylon Petroleum Corporation (Ceypetco) under a new price formula raised the fuel prices to a record high.

Following this many transport sector entities too announced price hikes.

However the country’s Power and Energy Minister said under the price formula, other than petrol, all the other fuel were still making a loss.

The most liquid index S&P SL20 fell 1.38 percent or 39.35 points to 2,805.62.

The day’s turnover was 2.3 billion rupees, more than half of this year’s average daily turnover of 4.1 billion rupees.

Sri Lanka’s sovereign default has already led it to restricted/selective default rating by rating agencies. The 84.5 billion economy has already suspended foreign debt payments as it had run out of dollars.

The Prime Minister has promised to announce the country’s economic policy this week after getting the statistics on the debt repayment.

Investors are also concerned over the steep fall in the rupee, which has fallen over 80 percent since it was allowed flexibility on March 7.

The market has gained 10 percent in May so far following a loss of 23 percent in April and 14.5 percent in March.

The market has lost 31 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors bought a net 21.6 million rupees worth of shares. The market has witnessed a total foreign outflow of 1.2 billion rupees so far this year.

Tuesday’s fell wiped out the market capitalization by 46.4 billion rupees.

ASPI was dragged down mainly by Expolanka, Melstacorp and LOLC.

Expolanka was down 2.8 percent to 232.75 rupees a share, Melstacorp fell 3.6 percent to 40.00 rupees a share while down 1.5 percent to 607.00 rupees a share. (Colombo/May24/2022)

COLOMBO (News 1st); The Administrator of USAID Samantha Power has held a call with Prime Minister of Sri Lanka, Ranil Wickremesinghe to discuss how USAID is responding to the country’s political and economic crises. Administrator Power expressed her sympathy for those Sri Lankans who were killed or injured in the political unrest earlier this month. Moreover, USAID committed to help Sri Lanka: Samantha Power

By Donald Chandraratna Foreword As an Australian Sri Lankan I have followed the triumph over terrorism with mixed feelings. It was a delight to see the...

ECONOMYNEXT – State-run SriLankan Airlines should be privatized as part of an overall reform program as the country tries to recover from a currency crisis, Advocata Institute, a Colombo-based think tank has said.

The national carrier has racked up losses of 372 billion rupees since management control was taken from Emirates in 2009.

The airline has, on numerous occasions, required treasury guaranteed loans to stay afloat, and has amassed over Rs. 53.6 billion in guarantees as of August 2021,” Advocata said.

“Many of its loans are Us dollar loans – an even more unsustainable burden to the existing sovereign debt crisis…”

“Sri Lankans of all walks of life ultimately have had to bear this burden and these massive losses have crowded out other more beneficial spending such as on social welfare.

Though SriLankan is doing better at the moment, it owes money to state enterprises and banks.

Benefits of privatization could be from avoidance of further losses, avoiding future equity infusions from public money and possibility of taxes under private management.

“This is a better alternative than continuing to burden the country’s banking sector which is already under severe stress,” Advocata said.

SriLankan received over 194 billion rupees in public guaranteed debt from 2017-21, it is the recipient of the sixth largest amount of public-guaranteed debt.

Privatising Sri Lankan Airlines is a necessary immediate move that signals the country is serious about fiscal reform.

An independent and open bidding process should be used to carry out the privatisation.

“We need to eliminate this massive hole in our budget, and we need to do it now,” Malathy Knight, an economist who has worked on state enterprise reform was quoted as saying in the statement.

“Sri Lankan Airlines must come off the books, and the structuring and sequencing of the sale along with the bidding process must be aligned towards this goal.” (Colombo/May24/20220

ECONOMYNEXT –As Sri Lanka’s economy free-falls and thousands wait in queues for increasingly scarce cooking gas, enterprising Sri Lankans have found an innovative shortcut to make wood-fire cooking easier: by using a computer cooling fan to fan the flame.

Shanaka Perera, a 48-year-old entrepreneur who was fed up with waiting in line for gas cylinder, decided to take matters into his own hands. With a little help from YouTube, the Kesbewa resident built a do-it-yourself (DIY) contraption using a flower pot.

“With no gas, cooking has has become a science project. We’re forced to find alternatives to get food on the table,” said Perera, who had to close down his plastic recycling company due to expansive raw materials.

He and his family of four are now dependent on his past saving.

“I watched some YouTube videos and made a cooker that uses a computer cooling fan to fan the flame when lighting the firewood,” he explained.

Perera inherits his tech-savviness from his father who was a marine engineer.

“This idea came to me when I was trying to find an alternative to avoid spending long queues and waste my time. Finally I ended up with this innovation,” he said.

He bore into a hexagon shape of a flower pot and first used an electric blower to provide air to fuel the fire on charcoal and firewood. But soon he found that the blower was too strong and ash was coming out of the new burner when he started to cook. He had to find something that blow the air slower. He found that a computer fan was the perfect solution.

The project cost Perera only 1,500 rupees (4.2 US dollars), cheaper than kerosene cookers and hot plates which are now sold between 8,000 to 10,000 rupees due to higher demand as Sri Lanka’s economic crisis worsens.

Thousands of Sri Lankans wait in queues for days for cooking gas and kerosene. Many are compelled to eat out at restaurants and street food stalls.

Last week, people protested, blocked roads to let out their frustration, and shouted slogans against President Gotabaya Rajapaksa and his government demanding gas, but to no avail. The government-controlled cooking gas retailer Litro Gas supplies filled cylinders only when it collects enough US dollars to pay gas shipments which have been waiting outside Colombo harbour for weeks.

Some bought electric burners, but they are soon discouraged by higher electricity costs and extended power cuts, as well as the lack of fuel in the absence of dollars.

Creativity, however, was not in short supply.

Some innovators even used scrap metal to cook their meals.

“I have made a cooker with scrap metal, a rice cooker, computer cooling fan and a clay pot, G U P Malavige, who collects scrap metal for a living at the commercial heart of Colombo, told EconomyNext.

“The total investment for the project was 2000 rupees. It cooks three curries in 45 minutes and takes up only a little bit of electricity.”

Suddenly computer fans are in high demand in Sri Lanka and, as a result, prices have almost doubled.

Suresh Jayathilaka, the owner of Ace Technology, which sells computer fans said many come into this store looking for them to make cookers with.

“Many customers are coming in asking for cooling fans to make cookers and stoves. In my stock, I had 20 fans and I’ve sold all of them and now I have nothing to offer until the supplier sends me my order. People are finding alternatives from all over,” said Jayathilaka.

As Sri Lanka’s ongoing forex crisis affects making payments for shipments of gas and fuel through Letters of Credit (LCs) amid payment delays by banks, citizens are forced to stand in line for hours to meet their daily needs.

Alarmingly, the death toll whilst waiting in queues has shot up to eight, pushing people more towards alternatives.

Related:

Eighth Sri Lankan dies after waiting in line for fuel

Sri Lanka’s Litro raises LP gas price to record high

Some people use alternatives like polythnene and plastic instead of firewood as rains have left firewood too wet. The kerosene shortages aren’t helping matters.

“The problem is there is no kerosene in the market. So to start the fire we cut out a small piece of polythene and stick in between the wood,” said Lakshika Danthasinha who was forced to cook using firewood due to the shortage of cooking gas.

“We don’t buy firewood. We use whatever we have. We use dried coconut shells, dried palm leaves, and the husk of the coconut. This works because after we cook we use the ash as a fertilizer for our plants. It is almost like a zero-waste method that can be used in our own backyard,” Sarath Ariyratne, a 52 year old a professional fish breeder in Pilyandala said. (Colombo/May16/2022)

ECONOMYNEXT – Sri Lanka has daily state revenues of 5.6 billion rupees but revenues are only 9.6 billion rupees only creating a 4.0 billion rupee shortfall creating massive crisis in government finances, Cabinet spokesman and Minister Bandula Gunewardene said.

Prime Minister Ranil Wickremesinghe had appraised the cabinet that the country was facing a crisis is state finances as well as a foreign exchange crisis.

“The Prime Minister explained that both are interlinked,” Minister Gunewardene said.

Sri Lanka’s state economists in 2019 cut taxes saying there was a ‘persistent output gap’ after two currency crises in 2015/16 and 2018 reduced growth as the rupee collapsed from 131 to 151 and 152 to 182 to the US dollar as money was printed to boost growth (close output gap).

RelatedSri Lanka fiscal stimulus to close output gap

In 2020 coupled with tax cuts, more more money was printed, making it impossible to maintain a stable exchange rate.

Sri Lanka’s state finances got interlinked with the people money from 1950 after a central bank was created to print money and manipulate interest rates down.

Before that Sri Lanka had a currency board, which allowed the rupee to be fixed for 75 years and the economists at the Finance Minister could not print money and depreciate the curency.

Currencies of third world countries which set up central bank in a fit of ‘independene’ depreciated rapidly partly due to a Western Keyensian idea that printing money and depreciating currencies woudl boost exports or growth (stimulus).

Ironically however the strongest export powerhouses including Germany, Japan and key East Asian nations had some of the strongest currencies, lowest inflation which allowed businesses and people to flourish.

Sri Lanka’s suffered a series of currency crises from 2015 onwards and the now the country is in the grip of the Great Output Gap/Flexible Inflation targeting crisis. (Colombo/May24/2022)