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ECONOMYNEXT – Sri Lanka’s main stock index closed higher on Friday (20), recouping losses made in the previous sessions after the new government under Prime Minister Ranil Wickremesinghe appointed a new cabinet, dealers said.

But concerns over how Sri Lanka is going to come out of the ongoing economic crisis and the sovereign debt default still remained.

The main All Share Price Index (ASPI) closed 1.12 percent or  91.75 points higher at 8,265.61 at the close.

Nine ministers were appointed to the new cabinet on Friday as the new government with the new prime minister Ranil Wickremesinghe was trying to ensure some political stability to to handle a unprecedented economic crisis.

The market was volatile throughout the week as there were positives from the political front and negatives from the economical front were creeping in amid fuel shortage raised concerns over crippling transport and manufacturing sectors.

The day’s turnover was 1.9 billion rupees, less than half of this year’s average daily turnover of 4.2 billion rupees.

Analysts said investors were concerned over possible hard default on Wednesday as the country had no dollars to pay coupon payments for sovereign bondholders and another payment for Asian Development Bank.

Prime Minister Wickremesinghe will announce the economic policy of the new government next week after getting all the statistics on the debt repayment. In his address to the nation on Monday, he said Sri Lanka will go through its worst in the coming few days with the duration of daily power cuts could go as high as 15-hours.

The most liquid index S&P SL20  up 1.75 percent or 47.21 points to close at 2,750.91.

The 84.5 billion economy has already suspended foreign debt payments as it had run out of dollars.

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 rupee in TT dollars has remained around 365 throughout the week while the interbank spot rate was around 359.47 on Friday.

The market has gained 8.4 percent in May so far following a loss of 14.5 percent in March and 23 percent in April.

Overall the market has lost 32.4 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors sold a net 120 million rupees worth of shares. The market has witnessed a total foreign outflow of 1.2 billion rupees so far this year.

Friday’s gain added a market capitalization of 71.9 billion rupees.

Shares in Expolanka gained 8 percent to close at 219.50 rupees a share, LOLC rose 3.8 percent to close at 556.50 rupees a share, while Browns Investment ended 5 percent up at 8.40 rupees a share. (Colombo/May20/2022)

ECONOMYNEXT -Japan has said it will provide 1.5 million dollars (600 million rupees) to Sri Lanka through a the United Nations World Food Programme for essential food rations and school meal programs.

“We are pleased to announce that the Government of Japan will grant 1.5 million dollars emergency assistance through WFP to provide three months’ essential food supplies, including fortified rice, dhal and oil, for approximately 15,000 urban and rural people and 380,000 school children across the island,” Charge d’ Affaires ad interim of Japan to Sri Lanka Katsuki Kotaro said.

“We hope that this humanitarian assistance will help improve food access and nutrition for the people of Sri Lanka amidst the economic crisis.”

Using the contribution, WFP will procure rice for the daily free school meals and also distribute ration packs comprising essential commodities to vulnerable households.

“Getting the right nutrition to those who need it the most will help mitigate the long-term effects of today’s economic downturn,” Abdur Rahim Siddiqui, WFP Representative and Country Director in Sri Lanka said.
The foods will be distributed through WFP in form of daily food meals at schools

(Colombo/May20/2022)

ECONOMYNEXT – Sri Lanka may face higher food prices and shortfalls of foods after authorities banned open account and DA/DP trade, importers warned as the country tried to get out of a currency crisis by raising rates and killing private credit.

Though there were severe forex shortages the country did not face food shortages up to May 2022, due to food importers in the main wholesale market in Colombo somehow keeping the nation Fed.

Out of the about 1.7-1.9 billion US dollars earned every month by the country’s exporters and overseas workers only about 200 million US dollars a month go for food.

With no mechanism to give priority allocation of foreign exchange for food many food importers have channeled Middle Eastern remittance via the Undiyal system to keep the nation fed, sources familiar with the process say.

This is why the country did not face severe food shortages, but medicines which were under price controls went off the shelves, when the rupee fell. The monthly requirement for medicine is estimated at about 25 million US dollars or about half a fuel ship.

Importers who have long term relationships with regional suppliers in particular and they ship goods at a moment’s notice.

Food suppliers have been willing to extend credit to their local counterparties due to the strong relationship spanning generations.

Foods such as onions and potatoes are also perishable, which will rot in containers unless cleared quickly, while importers go from bank to bank searching for dollars, the food traders said.

Some foods spiked in the Pettah market Friday, wholesalers said.

Related

Sri Lanka can trigger food shortages as in medicines with new trade controls: Bellwether

Economic analysts had earlier warned that price controls and banning of DA/DP imports was the easiest way authorities could create food shortages.

The import ban came after the central bank raised interest rates in a bid to stop money printing and private credit was starting to fall.

Sri Lanka has a intermediate regime central bank which had created monetary instability and social unrest ever since it was set up in 1950.

The country suffered balance of payments trouble within two years of its creation, an exchange control law was enacted in 1952 and a ‘hartal’ took place in 1953. (Colombo/May20/2022)

In some quarters there is a belief that, in these circumstances that he is the best man for the job. There are the others who are very thankful to the man for accepting the job in this difficult situation.

ECONOMYNEXT – Sri Lanka’s state-run fuel retails Ceylon Petroleum Corporation (CPC) has suspended licenses of four filling stations for hoarding and selling fuel in cans and barrels, the Minister for Power and Energy Kanchana Wijesekara said on Friday (20).

Facing an acute fuel shortage, thousands of Sri Lankan motorists are forced to stay in queues for fuel for days as the island nation is facing its worst-ever foreign exchange crisis amid debt and economic crisis.

Prime Minister Ranil Wickremesinghe has said Sri Lanka has less than 1 million US dollars of usable reserves. The crisis-hit nation paid 53 million US dollars on Thursday to clear a shipment at Colombo port that came weeks earlier.

Hoarding and selling fuel in cans and barrels have been banned as those methods are misused to stock fuel and earn an exorbitant profit after fuel prices increase.

“License of 4 Fuel stations has been suspended by CPC last night for holding stocks without distributing and dispensing to cans and barrels, ignoring the guidelines and regulations, Minister Wijesekara tweeted on Friday.
He also said the steps are being taken to cancel the licenses as the country runs on its last drop of fuel.

License of 4 Fuel stations has been suspended by CPC last night for holding stocks without distributing and dispensing to Cans and Barrels ignoring the guidelines and regulations. Police Fuel station’s temporary permit to sell fuel for other vehicles has also been revoked. pic.twitter.com/Y8G0fbdC78

— Kanchana Wijesekera (@kanchana_wij) May 20, 2022

The banned stations are in Makola South, Naalla, Pethiyagodda and Mirigama.

In April, Sri Lanka banned fuel distribution in cans and barrels as a temporary measure to stop fuel hoarding.
(Colombo/May20/2022)

ECONOMYNEXT – Sri Lanka’s main stock index slipped to near one-week low on Thursday (19) as acute fuel shortage and political instability concerns amid a debt default weighed on investor sentiments, dealers said.

The main All Share Price Index (ASPI) closed 2.89 percent or  243.35 points weaker at 8,173.86, its lowest close since May 13. Thursday’s percentage fall was the worst since April 26.

“Uncertainties; mainly ‘no fuel’ in the country is creeping into investor sentiments,” a top market analyst said.

“Because of the fuel issue even investors are unable to get to work.”

Minister of Power and Energy Kanchana Wijesekara on Wednesday said petrol will not be available in he country for next two days because the country is unable to pay for a petrol shipment that is already anchored in Sri Lankan waters.

On Wednesday, analysts said investors were also concerned over possible hard default as the country had no dollars to pay coupon payments for sovereign bondholders and another payment for Asian Development Bank.

The day’s turnover was 1.5 billion rupees, a third of this year’s average daily turnover of 4.1 billion rupees.

Prime Minister Ranil Wickremesinghe told the parliament on Wednesday that he will announce the economic policy next week after getting all the statistics on the debt repayment. Wickremesinghe addressed the nation on Monday over its economic crisis and said Sri Lanka will go through its worst in the coming few days with power cuts on the cards which could go up to as high as 15-hours.

The most liquid index S&P SL20 too fell 3.29 percent or 91.83 points to close at 2,703.70.

The 84.5 billion economy has already suspended foreign debt payments as it had run out of dollars.

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 7.2 percent in May so far following a loss of 14.5 percent in March and 23 percent in April.

Overall the market has lost 33.1 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors sold a net 8.7 million rupees worth of shares. The market has witnessed a total foreign outflow of 1 billion rupees so far this year.

The fall eroded market capitalization of 130 billion rupees.

Expolanka, Royal Ceramics, and LOLC dragged ASPI on Thursday.Shares in Expolanka fell 7.4 percent to close at 203.25 rupees a share, Royal Ceramics fell 8.3 percent to close at 30.00 rupees a share, while LOLC ended 3.6 percent down at 536.25 rupees a share. (Colombo/May19/2022)

ECONOMYNEXT – Sri Lanka and the International Monetary Fund has discussed the macro-fiscal framework for the next two years and but a Finance Minister is needed to sign-off on key policy measures, Central Bank Governor Nandalal Weerasinghe said.

An IMF mission has been talking with Sri Lanka’s Central Bank and Finance Ministry on policy adjustments needed to arrest the worst balance of payment crisis triggered by intermediate regime monetary authority in is 72 year history.

The soft-peg has taken the country to the IMF 16 times before.

“This is the last part of the first and second week discussions,” Governor Weerasinghe said. “This is where they look at the overall macro fiscal framework for the next couple of years.

“We have shared all the information including the fiscal and monetary policies. Also what are our intended policy reforms in the next 6-12 months in this situation.”

Sri Lanka needs Finance Minister soon to sign off on a policy package, Governor Weerasinghe said.

“I would like to see a Finance Minister appointed,” he said. “On IMF negotiations, the Finance Minister is the one who has the authority to sign off the policies.”

Sri Lanka is without a Finance Minister after ex-Prime Minister Mahinda Rajapaksa resigned leading to an automatic dissolution of ministers and the country’s temporary secretaries.

Sri Lanka does not have permanent secretaries after under the island’s controversial constitution which has led to a collapse of the public service, over three decades according to critics.

The Treasury secretary, a seconded central bank official was re-appointed by the President.

There has been speculation that Prime Minister Ranil Wickremesinghe may take up the post, after ex-Finance Minister Ali Sabry reportedly declined.

The sudden vacancy of the Finance Minister derailed the process of appointing debt advisors to start negotiations with creditors.

Sri Lanka defaulted on its foreign debt in April 2022 after three currency crises in seven years under discretionary flexible inflation targeting cum output gap targeting.

Governor Weerasinghe said the cabinet was expected to appoint the debt advisors in the next few days.

Prime Minister Ranil Wickremesinghe told parliament Wednesday that the even if a full cabinet is not appointed, the current five member team would be able to approve the selected legal and financial advisors to kick off negotiations with creditors.

The IMF mission will next do a debt sustainability analysis based on the discussed policy frame work.

“They will assess what are the adjustments that are needed to bring debt sustainability and what kind of a contribution that can be made by the creditors for that,” Governor Weerasinghe said.

“Our staff and IMF staff are working very closely on that.”

The IMF decided in its last Article IV consultations that Sri Lanka’s debt was unsustainable after the country cut taxes to boost growth (stimulus) saying there was a ‘persistent output gap’.

A debt restructuring will at a minimum involve maturity extensions of debt, but can also involve interest rate reductions and slashing of the principle (hair cuts).

Debt is judged unsustainable by the IMF when policy adjustments such as interest rate and tax hikes alone are not deemed sufficient to fix the economic crisis and some relief is sought by restructuring debt.

Analysts who saw default coming as money was printed despite severe fiscal corrections made after the 2015/16 soft-peg crisis have faulted the IMF for teaching the central bank to calculate an output gap giving incentives for the country’s interventionist ecnomists to print money and trigger currency crises which then lead to output shocks.

Related

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The post-2020 output gap or stimulus exercise is expected to lead to an economic contraction in 2022 as efforts are made to stabilize the soft-pegged exchange rate regime now called a flexible exchange rate.

Classical economists and analysts have called for legal curbs on the central bank’s flexible policies so that the agency is held accountable and committed to deliver economic and price stability under section 5 a of its constitution. (Colombo/May19/2022)

ECONOMYNEXT – Sri Lanka’s main stock index slipped om Wednesday from six-week high hit on the previous session and fell for the first time in five straight session due to profit-taking amid concerns over debt default also weighed on the sentiments, dealers said.

The day’s turnover was 3.5 billion rupees, its highest since March 30 and more than half of this year’s average daily turnover of 4.2 billion rupees.

The main All Share Price Index (ASPI) surrendered its early gains and closed 0.48 percent or  40.44 points weaker at 8,417.21 at the close. It ended at its highest since April 6 on the previous session.

“The market was pulled down solely on profit-taking as the overall market has gained in the last few days,” a top market analyst said. The index had risen over 13 percent in the last four sessions through Tuesday, official data showed.

Other analysts said investors were concerned over possible hard default on Wednesday as the country had no dollars to pay coupon payments for sovereign bond holders and another payment for Asian Development Bank.

Prime Minister Ranil Wickremesinge told the parliament that he will announce the economic policy next week after getting all the statistics on the debt repayment.

ASPI gained in the last few session on positive sentiments after the appointment of the Prime Minister Wickremesinghe which was expected to end the political deadlock amid prolonged street protests demanding both the president and then prime minister to resign.

Wickremsighe addressed the nation on Monday over its economic crisis and said Sri Lanka will go through its worst in the coming few days with power cuts on the cards which could go up to as high as 15-hours.

The curfew imposed last few days was lifted on Tuesday. The curfew was imposed after  violence erupted island wide following ex-prime minister Mahinda Rajapaksa’s supporters brutally attacked unharmed anti-government protesters on May 9. Rajapaksa resigned after his supporters brutally attacked peaceful protesters.

The attacks took place despite a ‘state of emergency in the country in the presence of police.

The most liquid index S&P SL20 too fell 0.51 percent or 14.28 points to close at 2,795.53.

The 84.5 billion economy has already suspended foreign debt payments as it had run out of dollars.

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. On Tuesday the rupee was quoted at around 365 against US dollar, up from 360 on Friday.

The market has gained 10.4 percent in May so far following a loss of 14.5 percent in March and 23 percent in April.

Overall the market has lost 31.2 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 8.5 million rupees worth of shares. The market has witnessed a total foreign outflow of 1 billion rupees so far this year.

Today’s slip eroded market capitalization loss of 8 billion rupees.

Royal Ceramics, Melstacorp and Richard Pieris dragged ASPI on Wednesday.

Analysts cited that a common reason for these three stocks to come down could be margin calls.

Shares in Royal Ceramics fell 4.7 percent to close at 32.70 rupees a share, Melstacorp slipped 3.5 percent to close at 41.50 rupees a share, while Richard Pieris ended 4.8 percent down at 14.00 rupees a share. (Colombo/May18/2022)

ECONOMYNEXT – Sri Lanka’s state-owned Litro Gas Lanka Ltd. will start distribution 80,000 cylinders per day from Thursday (19) after unloading two cooking gas shipment of 3,700 metric tonnes each from Oman, officials said on Wednesday (18).

People have started street protests on a daily basis by blocking roads demanding cooking gas after waiting in queues for days. Litro has stopped distribution as it did not have dollars to import cooking gas.

A ship from Oman carrying 3700 metric tonnes of cooking gas arrived in the Sri Lankan waters on Tuesday and another with similar capacity is expected to arrive on Wednesday.

“We will be able to supply at least 7-8 days using these two consignments,” Vijitha Herath, the Chairman of Litro told Economy
Next.

The two ships are out of four consignments signed with Oman Trading Company under a 15 million US dollar agreement for 15,000 metric tonnes of gas.

The Tuesday’s shipment is the first of the four consignment.

“These shipment costs 15 million dollars and for both consignments, we will be paying 7 million dollars,” Herath said.

Sri Lanka average daily cooking gas demand is 80,000 cylinders and 27 percent of the households in the
country only relies on gas for cooking.

Herath said Litro will have to make a payment of another 7 million dollars to get two more shipments. The Litro was expected to start distribution on Wednesday, but rough seas has delayed unloading and pushed the start of distribution to Thursday.

People were seen in long queues on Wednesday in a Colombo distribution center with some household
leaving five or more cylinders tied together and leaving them at the distribution centers.

People Struggle 

Kumari, a 40-year old seamstress from Maradana had come all the way to the Flower road
filling station in Colombo 03 at 3 am on May 18 to get fuel after it was announced on news that cylinder
distribution will begin on Wednesday.

“My husband is a three-wheel driver. We both came here at 3 am to get fuel and cylinder because we
have not eaten properly in over two-weeks,” she said.

“When we came here, there were people already standing. We have no means to use a firewood stove
as our house is very small and smoke fills up. So I tried using rice cookers but that took so much time.”

“I borrowed the rice cooker from my neighbor and I had to spend all my day cooking in it, I am a
seamstress and I can’t afford to spend my whole day in the kitchen.”

From a 1 billion US dollars Indian credit facility, Sri Lanka has renegotiated to allocate 160 million dollars for cooking gas imports.

Herath said Litro wants to start floating tenders to procure LP gas from India and expects to get the bids from Indian
suppliers within a week. The company, which accounts for the 80 percent of the cooking gas market share, needs up to 35 million dollars’ worth of cooking gas supply and the Indian credit line would suffice for about four to five months, he said.

Sri Lanka has a shortage of 30,000 metric tons of cooking gas gas at the moment and Litro says it fills about 1,000 metric tons per day.

If the Indian procurement works as planned, Litro expects to buy cooking gas from India by the second week
of June, Herath said.

He also said the World Bank also has promised a 80 million facility to buy LP gas which would be ready by
the end of June.

“So from that also we will able to sorted out the dollar requirement,” he added.

“Hopefully we will be able to settle the gas issue in one month time. That’s our target. But for all these,
we need to do the procurement on time as well as the tender. If everything goes according to plan we
will be able to solve this in maximum one or two months.”

Sri Lanka has opted for a soft-default and is not in a position to pay off any of it debts.
Emphasizing the country’s economic crisis, Prime Minister Ranil Wickremesinghe on Monday said the treasury is unable to raise even 1 million dollars. (Colombo/May18/2022)

ECONOMYNEXT – Sri Lanka has missed a payment to Manila-based Asian Development Bank blocking fresh funds Prime Minister Ranil Wickremesinghe said amid warnings that the currency crisis hit country could be locked out of multilateral funding in a new blow.

The Asian Development Bank and the World Bank also continued to fund Sri Lanka re-purposing loans after the country was cut off from capital markets when it was downgraded to CCC.

The ADB World Bank had just promised around 160 million each to Sri Lanka, Wickremesinghe said but the loan from the Manila-based lender was blocked.

“But because we could not repay three million US dollars last month it is stuck,” Wickremesinghe said.

“We are finding money for that.”

Multilateral Warning

Sri Lanka now faced the prospect of being locked out of multilaterals, if their repayments are not maintained.

“If we do not pay the IMF (International Monetary Fund), World Bank that money will also not come,” ex-Finace Minister Ali Sabry said.

“That is the problem. As the Prime Minister said there are some payments due to ADB. It is a very big problem.”

Sri Lanka has already suspended repayments for international sovereign bonds, commercial bank loans, exim bank loans and bi-lateral loans.

But multilateral lenders, as senior creditors are excluded.

“We decided to on April 12, that we would not pay ISBs and everyone else except multilaterals,” Sabry said.

“We did that because we had no option. By the 18th (of April) we had to pay 78 million dollars and we had to pay 105 million US dollars to a Chinese bank. We announced and defaulted.”

Sri Lanka is now negotiating a loan with the IMF. In 2022 Sri Lanka had to pay 106.34 million US dollars by April 12.4 million US dollars had been paid.

“Whether the payment is a billion or 10 billion we do not have a million to pay,” Wickremesinghe said promising to provide statistics to the parliament soon.

Sri Lanka had to 7,139 million US dollars in the year from March 2022. In April 250 million US dollars made up of 145 million US dollars of principle and 106 million in interest.

Opposition legislator Harsha de Silva said there were from now on there was about 5.5 billion dollars to be paid in the coming 12 months, and 2.5 billion was suspended, leaving about 3.0 billion to be repaid.

Sri Lanka’s central bank is also deep in debt owing money to the IMF, Reserve Bank of India and swap counter parties.

Sri Lanka was hit chronic monetary instability from 2015 to 2022 as money was printed to keep interest rates down under ‘flexible inflation targeting’ and ‘output gap targeting’ triggering three currency crises, excessive foreign borrowings and eventual default.

Sri Lanka is now facing the worst currency crisis created by its 72 year old soft-pegged central bank.

An attempt to shift to a floating exchange rate has so far not succeeded due to a surrender rule though interest rates have been raised to slow domestic credit and halt or reduce money printing.

With monetary stability yet to be restored authorities are now chasing after 3-4 billion US dollars of ‘bridging finance’.

Money will have to be printed to pay salaries of state workers, Prime Minister Wickremesinghe said which will likely to trigger more forex shortages. (Colombo/May18/2022)