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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)

ECONOMYNEXT – Sri Lanka’s state-owned Ceylon Petroleum Corporation (Ceypetco) raised petrol price to a record 420 rupees a litre and auto diesel to an all-time high of 400 rupees on Tuesday (24) in line with a new pricing formula that was approved by the cabinet, energy minister said.

“Fuel Price will be revised from 3 am today. Fuel pricing formula that was approved by the cabinet was applied to revise the prices,” Power and Energy Minister Kanchana Wijesekara said in his twitter platform.

“Price revision includes all costs incurred in importing, unloading, distribution to the stations and taxes.”

The minister requested the transport sector not to disrupt transportation for the candidates sitting for the ongoing GCE ordinary level (O/L) examinations and discuss the revision of rates.

“Cabinet also approved the revision of transportation and other service charges accordingly. The formula will be applied every fortnight or monthly.”

“Public sector workforce will be called to work on the direction of the head of the institute from today. Work from home will be encouraged to minimize the use of fuel and to manage the energy crisis.”

The Ceypetco last raised price on April 19.

The price hike comes as President Gotabaya Rajapaksa government failed to ensure furl supply to the island nation with 22 million people after the economic mismanagement of the government dried all the dollars from the reserves under former finance minister Basil Rajapaksa and central bank governor Ajith Nivard Cabraal.

The latest price hike will see the price of mostly used Octane 92 rising by 24.3 percent or 82 rupees to 420 rupees a litre while auto diesel jumping by 38.4 percent or 111 rupees to 400 rupees. The only competitor Lanka IOC, a subsidiary of Indian Oil Corporation, is yet to announce price revision.

Octance 95 price was increased by 20.6 percent or 77 rupees to 450 rupees, while price of per litre super diesel was raised by 35.2 percent or 116 rupees to 445 rupees.

The move comes after motorists had been complaining about waiting for more than 24 hours near all the fuel stations across the country without fuel. Some queues were as long as more than 4 km in Colombo, Economy Next has witnessed.

Since the central bank on March 7 announced a flexible exchange rate, the rupee has fallen nearly 80 percent to around 360 rupees. The Lanka IOC raised prices thrice since the central bank’s decision to allow flexible exchange rate. With the latest price hike, Ceypetco also has increased the prices thrice since the central bank’s flexible exchange rate regime.

On May 16, newly appointed Prime Minister Ranil Wickremesinghe said the Ceypetco had been losing 84.38 rupees from a litre of Octane 92, 71.19 rupees from Octane 95, 131.55 rupees from auto diesel, 136.31 rupees from super diesel, and 294.50 rupees from kerosene oil.

The government, however, did not increase the price of kerosene which is either not available in the market or sold only a limited quantity.

The Lanka IOC has been raising fuel prices in line with the global market price, but Ceypetco, under pressure from the President Rajapaksa government, was not allowed to raise prices because such move would be make the ruling Sri Lanka Podujana Peramuna (SLPP) unpopular.

However, the SLPP government resigned on May 9 and a new cabinet is being appointed under Prime Minister Wickremesinghe.

Sri Lanka is facing its worst economic crisis since the independence from the British colonial rulers in 1948. The island nation has already defaulted its sovereign debts last week.

The government is facing strong protests from both public and opposition parties for mismanagement of economic policies. A youth-led protesters have spearheaded a campaign, demanding President Rajapaksa and his government to resign due to their failure. His government resigned on May 9 after his elder brother and prime minister Mahinda Rajapaksa resigned following thousands of prime minister’s supporters brutally attacked unarmed protesters

Though many fuel and crude shipments were ordered and arrived into Colombo port, the government could not clear and unload them because it does not have US dollars.

When prices are not raised and losses are financed with bank credit, which in turn is re-financed by the central bank through its 13.5 percent window, inflation goes up. The money printed to finance losses also creates forex shortages.

The dollar shortage has led to a lack of fuel and extended power cuts, crippling many industries related to manufacturing and transport, and disrupting the country’s economic activities. (Colombo/May 24/2022)

ECONOMYNEXT – Sri Lanka will see the worst economic contraction in its history, Central Bank Governor Nandalal Weerasinge said as the country reeled for a currency collapse from 200 to 370 to the US dollar and interest rates corrected to 25 percent.

Sri Lanka is going through severe fuel shortages and power cuts after the credibility of a soft-peg was broken by mis-targeted interest rates in the course of targeting an output gap (printing money to boost growth).

“In our expectations the economy will contract at the highest rate than in any other year in history,” Governor Weerasinghe said in Colombo addressing the Press Club of the Sri Lanka Press Insitute.

“We cannot make normal imports fo the next three to six months. Industries are saying there are no raw material.”

Sri Lanka’s economy contracted 3.6 percent in 2020 amid a Coronavirus crisis and it also contracted 1.5 percent in 2001, after a currency crisis.

The rupees’ unstable peg with the US dollar failed after the central bank printed over two trillion rupees over two years to mis-target interest rates leading to a steep collapse of the currency and a correction of the interest rates back to around 20 to 25 percent.

The economic crisis has also spilled into a political crisis and social unrest he said.

The rupee fell to 380 to the US dollar from 200 to the dollar in the worst currency crisis created by the soft-pegged central bank in its history.

The money printing central bank created its first economic crisis and output shock in 1953 bringing down growth to 0.7 percent after triggering a now famous ‘hartal’.

The output shock came after an exchange control law was enacted in 1952 as forex shortages emerged from the money printing bout and foreign reserves well.

The unstable central bank was set up by US money doctor in 1950 abolishing a currency board that had kept the country stable through two world wars and a great depression.

Among the worst recorded crises in the country include the 1948 uprising against the then colonial adminsitration which took place after the British railway bubble burst, commodity prices fell and the then Colonial government upped taxes.

Sri Lanka’s citizens burnt the houses and property of the elected ruling class on May 09, after the the peg collapsed in a botched float where interest rates were not raised before and a surrender rule pushed the rupee down.

Interest rates were raised by Governor Weerasinghe and the economy is now slowing. (Colombo/May23/2022)

ECONOMYNEXT – Sri Lanka’s tea traders have called for quick action to solve the country’s economic crisis saying the current environment is making operations difficult on top of state interventions made earlier.

Future actions should follow expert consultation, the industry said.

“The current environment does not augur well for the smooth functioning of commercial activities, and the tea trade is no exception,” the Colombo Tea Traders’ Association said.

“The CTTA firmly believes that the government must give a hearing to the justifiable cries of the people. If these pleas are not heeded, the whole country, including the industries, will come to a standstill resulting in the country losing much-needed revenue.

“This outcome will have a further dampening effect on the already ailing economy of Sri Lanka.”

The tea sector has been hit by several state intervention which banned agricultural inputs and fertilizer.

“Despite the many appeals made, the Tea industry was never heeded by the government of the day when making decisions to ban the use of specific essential agriculture inputs, including fertilizer,” the CCTA said.

“These actions have cost the country billions of US dollars,driving away loyal tea consumers to other tea-producing countries.

“The recent decision to ban the use of inorganic or chemical fertilizer has resulted in a drastic drop in production from the latter part of last year to date.

The government should take action to solve the crisis but also listen to expert advice the tea industry said.

“All sectors of the tea industry are committed to ensuring uninterrupted supplies to all tea importing countries as it has done over the last one and a half centuries,” the CTTA said.

“For this, the support and facilitation of the government are of utmost importance. However, it is necessary that the policymakers do not make the mistake of not listening to the experts in the industry.

“Some of the population’s grievances are a result of the incorrect decisions taken by successive governments,mainly on agriculture which has brought about the current grave situation in the country.

“These actions have led to the food shortages experienced at present.

The full statement is reproduced below:

STATEMENT FROM THE COLOMBO TEA TRADERS’ ASSOCIATION (CTTA)

The Colombo Tea Traders’ Association (CTTA), which comprises all tea industry stakeholders, namely the growers, manufacturers, Plantation company estates, brokers, and exporters, views with deep concern the prevailing situation facing the nation. The recent events which took place in the aftermath of the island-wide protests have only aggravated the position with disruptions to the normal life of the people and businesses.

The current environment does not augur well for the smooth functioning of commercial activities, and the tea trade is no exception.

The CTTA firmly believes that the government must give a hearing to the justifiable cries of the people. If these pleas are not heeded, the whole country, including the industries, will come to a standstill resulting in the country losing much-needed revenue. This outcome will have a further dampening effect on the already ailing economy of Sri Lanka.

The Tea industry, which employs approx. 10% of the total population in all sectors of the value chain contributes around USD 1.3 Billion annually by way of foreign revenue to the country’s coffers. It is pertinent to state that in the turbulent 2020 and 2021 when Sri Lanka was not spared from the Covid-19 pandemic, the tea industry functioned uninterruptedly to ensure the nearly 500,000 smallholder families received their incomesand a similar number of tea workers in the plantations their wages.

The 155-year-old tea industry has been remarkably resilient over the past decades, having overcome many challenges, including natural calamities and insurrections.

It is pertinent to state that even during the 30-year-old civil war that ended 13 years ago, the Sri Lankan tea industry continued to supply the international markets, thus signifying the reliability of “Ceylon Tea”.

All sectors of the tea industry are committed to ensuring uninterrupted supplies to all tea importing countries as it has done over the last one and a half centuries. For this, the support and facilitation of the government are of utmost importance.

However, it is necessary that the policymakers do not make the mistake of not listening to the experts in the industry. Some of the population’s grievances are a result of the incorrect decisions taken by successive governments,mainly on agriculture which has brought about the current grave situation in the country. These actions have led to the food shortages experienced at present.

Despite the many appeals made, the Tea industry was never heeded by the government of the day when making decisions to ban the use of specific essential agriculture inputs, including fertilizer. These actions have cost the country billions of US dollars, driving away loyal tea consumers to other tea-producing countries. The recent decision to ban the use of inorganic or chemical fertilizer has resulted in a drastic drop in production from the latter part of last year to date. Furthermore, it is needless to overemphasize the foreign exchange loss to the country due to a shortfall such as this.

The CTTA humbly urges the government to take swift action to resolve the current situation in the country by making favourable decisions and applying creative solutions to revive Sri Lanka’s economy and improve the standard of living of its citizens. We firmly believe that if practical steps are taken immediately to transform the current situation, as a nation, we can collectively contribute towards rebuilding the economy and putting Sri Lanka back on the world map, not only as being the home of Ceylon Tea but as a paradisiacal haven for tourists and locals alike. We request all Sri Lankans to remain strong and patient during this difficult time and be resilient as we have done in the past when faced with war, disasters, and the 2020 pandemic.

ECONOMYNEXT – A Sri Lankan court extended travel ban on former central bank governor Ajith Nivard Cabraal until July 25 as he failed to appear in the court on Monday when his alleged misappropriation case was taken, a lawyer said.

The Colombo Magistrate Court extended the travel ban that was originally issued on April 7, preventing Cabraal from leaving the country until July 25.

The travel ban was initially issued after political activist Ranjith Keerthi Tennakoon filed the case citing Cabraal’s failure to disclose his relationship to some primary bond market stakeholders when he was the central bank governor in his first tenure from 2006-2015.

“He did not appear today as well. We told the court that he was acting as if he is above the law. So the next case hearing was fixed for July 25 and we did not object it as his travel ban also was extended until that day,” Maithri Gunaratne, a lawyer appeared on behalf of the petitioner told Economy Next.

Among six charges filed by Tennakoon against Cabraal was that Cabraal had incurred a 10.04 to 10.06 billion rupee loss to the government during his 2006-2015 tenure as the governor of the central bank.

Cabraal was not immediately available for comment.

He was reappointed as central bank governor in mid-September last year when the signs of an economic crisis first appeared.

Cabraal strongly opposed calls to seek International Monetary Fund (IMF) assistance in addressing the financial crisis, and kept interest rates artificially low and controlled the exchange rate against US dollars amid excess money printing.

The policy failure later created a severe shortage of dollars and the rupee has fallen nearly 80 percent since the currency was floated on March 07.

Cabraal resigned from the post on April 04 after the ruling Sri Lanka Podujana Peremuna (SLPP) government’s entire cabinet resigned the previous day. (Colombo/May 23/2022)

ECONOMYNEXT – Sri Lanka’s exports hit an all-time high for April 2022 of 915.3 million US dollars up 11.87 percent from a year earlier, official data showed as the country grappled with the worst currency crisis triggered by the island’s soft-pegged central bank.

The all time high for April 2022 topped the previous high of 799 million US dollars, the Sri Lanka Export Development Board said.

The forex shortages coming from money printed by the central bank and an as yet unsuccessful attempt to float the rupee had started to disrupt energy supplies to export firms.

“It must also be highlighted that, efficient facilitation of the supply of fuel and energy to our exporters is imperative to keep this momentum going while appealing for an expedited solution to the current crisis,” Export Development Board Chairman Suresh de Mel said in a statement.

In the four months to April 2022, merchandise exports had increased 9.6 percent 4,165.2 million US dollars.

Major product sectors except Tea and Spices &Concentrates; Apparel & Textiles, Coconut based products, Rubber-based products,Electronics & Electronic Components, Food & Beverages, Seafood and Ornamental fish as shown in the table below, recorded increased exports.

Exports of apparel and textiles increased by 22.12 percent in April to 445.79 million US dollars.

Export earnings from tea in April 2022 which made up 12 pecent of merchandise exports, increased by 1.49 percent to 80.44 million. Export of bulk tea increased by 9.52 percent.

Export earnings from rubber and rubber products increased by 10.09 percent to 71.27 million dollars.

Exports to the US was up 23 percent to 84.1 million US dollars, exports to Germany was up 27 percent to 66.5 million US dollars and exports to India was up 10 percent to 59.4 million US dollars. (Colombo/May22/2022)

ECONOMYNEXT – Sri Lanka ‘s essential food importers have sought exemption from newly imposed trade restrictions amid fears that banks will not be able to give dollars fast enough to clear perishables, an industry association said.

Sri Lanka banned open account and DA/DP term imports from May 20 in an attempt to reduce Unidyal style gross-settlements being made for what officials called ‘non-essential’ imports.

Officials prefer for imports to be paid through the banking system rather than through unofficial channels. Vehicle spare parts and similar items are believed to be coming from unofficial payments.

A large majority of Sri Lanka’s foods are imported through DA/DP terms due to long relationships with suppliers, who are ready to give credit, despite the currency crisis.

“Some of the goods are perishable,” an industry official said. “If we have to run from bank to bank to find dollars items like potatoes and onions will perish.”

“Usually we clear the good and settle slowly. So we have asked authorities to exempt food from ban.”

Meanwhile food importers have started to get some dollars from an Indian credit line, helping the situation, the person said.

Sri Lanka is estimated to need about 200 to 250 million US dollar a month for food imports according to industry officials.

Sri Lanka is now going through the worst currency crisis triggered by the islands 72 year old central bank which printed money for two years to maintain artificially low interest rates and lost the ability to maintain its soft-dollar peg.

Sri Lanka’s central bank raised policy rates and market interest rates have moved up, which is expected to curb domestic credit and slow investment and consumption.

The gap between officials rates and the unofficial rates had narrowed by the beginning of May but concerns have emerged as money is still being printed to pay state worker salaries. (Colombo/May20/2022)