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ECONOMYNEXT – Sri Lanka’s main stocks closed firmer, gaining 4.4 percent on Tuesday (17) to hit a six-week high due to hopes of political stability in the crisis-hit nation after violent clashes though concerns remained over the economic crisis, dealers said.

“The market is moving on the positives as there is some sign of political stability. But this momentum will not last for long as interest rates in the market are already high,” a top market analyst said.

The main All Share Price Index (ASPI) closed 4.44 percent or  359.24 points up at 8,457.65 at the close, its highest close since April 6, the official data showed.

The market analyst said that the momentum will only last long if the PM delivers.

Wickramasinghe was appointed as the country’s Prime Minister on Thursday for a record sixth time.

LankaPay was founded two decades ago to clear interbank cheques. In the last decade, the company championed payments infrastructure development, inclusivity and innovation. Here, Chief Executive Channa De Silva speaks to Echelon about LankaPay’s contribution, its milestones and what he thinks about the future of payments.

Platform companies are some of the world’s most valuable businesses because they have a unique approach to creating value, not just for themselves but also for everyone else who is part of an ecosystem. To create technology-based shared value platforms, such organizations must set the rules of engagement to build an ecosystem that brings many types of users and businesses together. Platform companies take many forms, some like Google are well known, while others are reclusive or unknown.

Out of the spotlight, LankaPay has emerged as one of Sri Lanka’s most critical platform companies linking the payments ecosystem, including its commercial and specialized banks, sub-prime lenders and fintechs to tens of thousands of businesses and millions of consumers. In the area of payments and settlements, it has continued to deploy state of the art technology infrastructure.

t wasn’t always this way. Founded two decades ago, in 2002, to take over interbank cheque clearing, which was then a division of the Central Bank, the entity’s main operation for years was focused on modernizing and managing interbank cheque clearance.

LankaPay started interpreting its mandate more broadly several years ago and has since gone on to build infrastructure to connect all ATMs, introduced an interbank electronic fund transfer system, payment systems that can operate on a smartphone, electronic signatures, and infrastructure to issue local cards, to list a few of its recent undertakings.

LankaPay Chief Executive Channa de Silva, who has given leadership to its payments innovations since taking office in 2015, discussed why it was important to bring the payments infrastructure together, LankaPay’s contribution to the economy and its vision for the future.

LankaPay is an organization that is impactful, but invisible. In what areas do you think LankaPay’s impact has been greatest on Sri Lanka’s financial architecture during the last 20 years?

Our main contribution has been providing convenience to citizens and businesses, from cash withdrawals to fund transfers and many other conveniences. The second is the contin – uing efficiency improvement in the payment infrastructure.

We’ve enabled people to transact in ways not possible earlier by electronic means instantly with just a click of a button and also by reducing the number of days from seven to a single working day for cheque clearing, which benefited individuals, businesses and the economy.

Another aspect is reducing the cost burden on the financial sector. If a bank had to handle all these processes individually, it would have been prohibitively costly. Through our investment in common infrastructure, financial sector organizations have the ability to connect to each other. As a result, we’ve become the entity that brings together the payments across the financial sector and the beneficiaries have been the citizens, organizations and businesses everywhere in the country.

Of course, our most significant contribution is inclusiveness. Before our involvement, the financial sector concentrated only in the Western Province, because it lacked the capacity to efficiently reach beyond. But more than 80% of people in Sri Lanka live in rural areas. Our technology has provided the backbone infrastructure, enabling banks to provide financial services to every part of the country. Banks are no longer limited to their customers but can serve customers of other banks as well by sharing resources with each other.

Consider your more recent initiatives and put them into context for us. How have these contributed to the economy?

The market was fragmented and solutions existed in isolation. For instance, apps like Uber and PickMe provide services and accept payment through a smartphone. But a threewheeler entrepreneur receiving digital payments still needs cash when he wants to purchase groceries at the local store. He will have to withdraw cash from an ATM, as there was no other way to spend the money digitally for his daily needs, resulting in the cycle being broken. That may be one reason why we encounter Uber and PickMe drivers who cancel trips when payment is requested to be made via a card. So, we needed to fill that gap and complete the entire digital payments cycle.

Previously the only way to accept card payments was via a POS (point of sale) terminal. But the lady selling vegetables at the Sunday fair can’t afford a POS terminal which costs over Rs50,000.

We introduced LankaQR to facilitate and complete this cycle of digital payments, where the lady at the Sunday fair can now display a QR code enabling anyone with a smartphone linked to their bank account to scan the QR code and make a payment digitally.

While LankaQR makes payments convenient, the purpose of ‘JustPay’, another product launched a few years ago, was to make remote payments possible.

In the Western Province, supermarket transaction values and volumes are relatively high whereas in small retail stores they are negligible and made in cash. By introducing ‘JustPay’, our purpose was to bring low-value cash transactions into digital payments because for transactions below Rs 250 cards were hardly used. Over the last six months, nearly 50% of the transactions made via JustPay have been below Rs250. Our success is due to the low merchant commission structure and the convenience.

Something we realized is that not everything has worked well in the payments space, for example, cards. They have been around for several decades and yet were primarily used to withdraw cash at ATMs and have never, at scale, served the purpose of a debit card.

From the view of SMEs, the cost of the transaction mattered, because card payments attract a 3 to 3.5% merchant commission that a supermarket may be willing to absorb, but a small retailer with a 5% overall margin cannot afford to part with. For widespread use, we had to reduce card commission to 1% or less.

By introducing these products, we’ve enabled financial inclusivity and provided convenience to consumers not only in the Western Province but across the country.

Payment Exchange Name or PEN is another new product to enable fund transfers conveniently and securely. In the past, we needed to know the recipient’s bank name, account number and branch code etc. to make an online fund transfer. However, with PEN all we now need is her mobile number and a nickname for her bank account.

To move people away from cash, the alternative has to be simpler than using cash. Considering the expectations of the younger generation, we needed a simple one-click solution for payments.

How do you explain LankaPay’s current mission?

Our mission is financial inclusivity, making payment solutions accessible across the country to the common man. The second is to make global payments possible to and from Sri Lanka at a lower cost. This second piece is one we are currently working on to facilitate cross border transactions. By and large, cross border payments still go through money transfer operators and exchange houses. In this area, we need to partner with international networks to remit or send money out at a lower cost and efficiency than possible now.

Let me mention a few more examples of our work to clarify our mission.

There are multiple channels for sending money into Sri Lanka, our product ‘LankaRemit’ combines those channels into a single app allowing a user to see the money transfer operators nearby and the cheapest path available etc. Once a user transfers money via a channel, LankaRemit allows him to track the payment via a tracking number provided by the channel providing them convenience.

We are in the process of connecting to an international payment hub called the Asian Payment Network (APN), which connects 11 countries and 13 payment networks into a single hub across many territories in Asia and Australia. Once we connect to that hub, we will be able to reduce cross border transaction costs significantly. We are also in the process of connecting with the largest payment provider in India, the National Payments Corporation of India (NPCI). Once connected to NPCI, our cards issued in Sri Lanka can be used at a far lower cost in India and vice versa.

We are in the process of propagating the use of digital signatures via our solution LankaSign. Sri Lanka’s law provides recognition to digital signatures in a court of law. We are in the process of obtaining an international certification called ‘WebTrust’, to make LankaSign digital signatures to be accepted internationally.

Our vision, therefore, is to concentrate in and outside Sri Lanka to bring greater value around payments to consumers.

Sri Lanka faces an economic crisis. As a digital payments player, you must be seeing a lot of data on what’s happening? What is that data saying about how this crisis is impacting ordinary people?

Human nature is such that people stick to what they’re comfortable with and in the past, it was cash payments. They had no compelling reason to switch to digital payments besides the inconvenience of withdrawing cash at an ATM and the risks of carrying money. But those were not deal-breakers.

Despite a profusion of digital channels, none found traction at scale as there was very little reason for people to move. But when Covid broke out, they had no choice but to choose digital payments and it worked because the robust infrastructure was readily available.

Now we are seeing some interesting patterns emerging during the current economic crisis. Transaction volumes using other bank ATMs have grown significantly, which is possible as we have linked all ATMs into a single network.

A possible reason for the increase could be that people who previously made larger cash withdrawals are now making multiple smaller withdrawals. A crisis, logically, should lead to a lower number of transactions because people don’t have money, but we are seeing the opposite.

Other reasons could be more people are using the common infrastructure for convenience or their behaviours have changed from difficulties faced during the Covid-19 pandemic. Online payments have also increased, but we can’t exactly assume we are achieving financial inclusivity because it is difficult to track the origins of such digital transactions.

You can see the data on transactions. Can you see any pattern in transactions?

Mobile payment volumes are increasing, but we can’t exactly track the location. One idea is that more and more people could be using trilingual payment apps.

Our ATM data shows that 65% use Sinhala and Tamil menus. Clearly, people are comfortable in their own language. Hence, it’s crucial that we enable smartphone apps and internet banking interfaces to be available in their own language.

What do you think about the payments infrastructure that we currently have? What needs to change for digital payments to become more the norm than it is today?

I think the next phase is to bring the entire payments ecosystem together. The fintechs, banks, finance and microfinance companies all have a role to play. For example, banks may be less interested in low value transactions or catering to rural customers. Finance and microfinance companies, on the other hand, will be more interested in lending to subprime customers. Fintechs too will be keen on payments services that have scale.

We also need others who provide non-financial services to consumers, through which financial transactions will flow. For instance, Uber and PickMe are not financial apps but there is a requirement for payment and we need to bring all these entrepreneurs into one ecosystem for payments to seamlessly work and grow.

According to the latest statistics, Sri Lanka has nearly nine million active social media users, a majority of whom use a smartphone to access social media platforms and the internet. The profusion of smartphones provides Sri Lanka with a good base for digital payments to prosper.

Consider this. Bank cards have been commonplace for several decades, but the entire transport sector still operates on cash. Some time ago, there was an attempt to introduce a prepaid card, but it failed because the solutions didn’t work across all transport modes.

At present bus conductors issue a ticket, a receipt really, when you pay cash. That ticket machine is actually a POS terminal. We are introducing a card with ‘tap and go’ capability, where like in other countries you can top it up, tap to pay and obtain a receipt. This solution, currently under trial, will be soon available to everybody and in most rural parts of the country because a majority use public transport – buses and railways. Something we’ve witnessed in other markets is that people first adopt the tap and go payments for public transport and then move into other digital payments.

We are reliant on global payments companies to connect to the outside world and also within Sri Lanka for local transactions. Is it part of a vision that we can create payments infrastructure that is entirely local for Sri Lanka?

Absolutely, it’s already available via our National Card Scheme. It was founded for two fundamental reasons. One is national autonomy. For example, imagine what happened recently in Russia when all the international card operators pulled out. Fortunately, they had a local payment network. Had they not operated a local payment network, card transactions would have completely ceased within the country.

In 2015, we partnered with an international player to facilitate this National Card Scheme, which was to enable the same card to be used internationally as well.

The second reason is related to foreign exchange outflow. Currently, we face a massive foreign exchange crisis. As most of our cards are connected through international players, all interbank transactions are processed through their infrastructure. If your card is issued by one local bank and the merchant is from another local bank, it’s immaterial whether it’s a Rs100 or Rs100,000 transaction, a fee in dollars has to be paid to these players.

Due to the economic crisis banks have seen a sudden increase in this outflow ranging from Rs300 million to Rs1 billion as payments to these global payment companies annually. Our bigger vision is to save foreign exchange outflow for the country by routing more payments within the local infrastructure.

If the transaction is between two local entities within Sri Lanka, these payments should be processed locally. For example, Australia is introducing something smart called least cost routing. If you transact at a POS terminal in Australia, a merchant can incur a lower commission, by pressing a button to route the transaction locally.

We focused on LankaPay’s position today and how you got here. If you were to reflect on what big leaps lie ahead of you, what would those leaps be?

One big leap would be facilitating international transactions and the second would be to witness the widespread use of digital signatures.

If all government departments start accepting digital signatures, then submitting hard copies of documents won’t be necessary resulting in a massive cost saving for paper, ink, filing and all related costs, and efficiency across the board would also increase.

We would like to see increased traction via the LankaPay Government Payment Platform, which facilitates online payments from a bank account of a customer to the respective government organizations’ accounts directly.

To automate further, we need certain regulations and support from the government to propagate digital payments and digital signatures. Banks must start accepting digital signatures; enabling digital transactions is pointless if you have to submit hard copies of documents to obtain facilities. Automating existing processes would reduce costs such as transport, courier, storage and filing.

Our vision is to bring everybody together into a bigger ecosystem so that at the end of the day, people everywhere in this country would benefit.

ECONOMYNEXT – Sri Lanka’s women and girls will be given dignity and maternity kits after money printing led to the collapse of the country’s unstable soft-peg with the US dollar has triggered shortages of medicines and other goods.

“The current socio-economic crisis is having far-reaching implications on the ability of women and girls to live in dignity as rising inflation, power cuts, scarcity of food, fuel, and other essential items such as medicines have made meeting basic needs a daily challenge,” the UNFPA said.

“Evidence suggests such socio-economic challenges and its after-effects will have serious repercussions and exacerbate existing inequalities for women, girls and other marginalized groups; reducing their ability to access personal care including essential items for postnatal maternal health and sanitary items.

“Given the drop in the level of disposable incomes in households, personal care will not be prioritized. As such women and girls may revert to using unhygienic practices that could impact their health and wellbeing.”

The UNFPA said 1,300 dignity and 130 maternity kits worth 35,230 dollars were given to the Family Health Bureau of the Ministry of Health.

“The Dignity and Maternity kits provided contain personal hygiene & safety items, explicitly tailored to the needs of women & girls of reproductive age including those in the postnatal period in local communities,” the UNFPA said.

“The aim of this initiative is to provide the simplest amenities that have the greatest impact on a woman’s comfort, mobility and physical and psychological health.”

The current currency crisis is the worst triggered by the country’s intermediate regime central bank in its 70-year history.

There have been calls to set up a single anchor consistent regime monetary authority with a clean floating regime or a hard peg to block interventionist economists from depreciating the currency in the future and give a chance for the poor. (Colombo/May19/2022)

ECONOMYNEXT – Sri Lanka’s Prime Minister Ranil Wickremesinghe said he had to with “great unwillingness” give permission to print money to pay state salaries, despite the move putting further pressure on the rupee to depreciate.

“With great unwillingness (dhadi ukker-math-th-en) I have to give permission to print money,” Prime Minister Wickremesinghe said in a televised address.

“That is to pay the salaries of state workers to pay for essential goods and services.

“However we have to keep in mind that printing money will depreciate the rupee.”

Related

Sri Lanka money printing in 2022 reaches Rs588bn in first quarter

When people use printed money to buy goods on the shelves or petrol to travel, there are no dollars in the forex market to for importers to buy using the newly printed money, leading to an outflow of dollars that exceed the inflows of dollars and breaking a soft-peg.

Sri Lanka’s central bank which was created by dismantling a currency board which had kept economy stable through two world wars and a great depreciation had busted the rupee from 4.77 to the US dollar to around 380 to the dollar so far since 1950.

Despite double digit growth in exports and a surge of tourists in the winter season, Sri Lanka was still unable to buy dollars for big ticket import bills like fuel and tourists who paid dollars, had to face power cuts.

Data showed that 588 billion rupees had been printed in the first quarter including for debt repayment.

Prime Minister Wickremesinghe said the Treasury was unable to find 5 million US dollar to pay for LP Gas imports.

If there is no monetary instability and there is credible peg or a working floating exchange rate the Treasury or the central bank does not have to give any dollars to import fuel and dollars are bought for rupees in the open market.

LP Gas companies instead of depending on subsidies in the form of dollars or rupees from the Treasury pays taxes to the government.

However when money is printed, dollars cannot be bought to pay for oil or settle loans, leading to more borrowings. Prime Minister Wickremesinghe is now looking for 3 to 4 billion US dollars in ‘bridging finance’ amid monetary instability.

Similar borrowings in forex shortages created in 2015/2016 and 2018 led to a steep foreign borrowings and eventual default during the 2020-2022 crisis, the worst in the history of the soft-pegged central bank.

Most private citizens are net savers and import less than they earn.

The private sector as a whole saves over 20 percent of gross domestic product, making it easy for a central bank to accumulate reserves and maintain a stable exchange rate unless it tries to keep interest rates down artificially by printing money and triggering excess import demand.

The central bank has recently raised rates which is expected to reduce domestic private credit, investment, drive more savings into the budget and reduce pressure on the rupee.

However if money is printed, forex shortages would persist for a longer period making it difficult to import fuel and gas.

Sri Lanka’s economic troubles started shortly after the creation of a Latin America style central bank in 1950 by a US money doctor and economists used the agency to suppress interest rates, finance deficit after expanding the state, creating monetary instability.

Classical economists have called for a currency board to stop monetary instability, impose rules on both the central bank and Treasury (a hard budget constraint) which will allow Sri Lanka to grow like East Asia and protect the poor from interventionists. (Colombo/May17/2022)

COLOMBO (News 1st); Sri Lanka’s Opposition Leader Sajith Premadasa said that the opposition will constructively and progressively support proposals that are put forth for alleviating the suffering of the masses of the motherland. Speaking to India’s NDTV, the Opposition Leader “We will support these proposals while being in the opposition because we have always requested ‘Support for people-friendly policies is unconditional’ – Sajith Premadasa

ECONOMYNEXT – Sri Lanka’s bank credit surged in March 2022 after a collapse of a soft-peg and the value dollar books of banks from inflated in domestic currency as an intermediate regime central bank attempted to regain control of reserve money through a float.

Intermediate regimes (central banks with foreign reserves that also engage in aggressive open market operations to print money and keep interest rates down) are the most dangerous monetary regime invented by mercantilists.

In March 2022 the rupee fell from 201 to the US dollar to 299 based on official data, inflating the rupee value of dollar loans, in the biggest economic crisis triggered by the Latin America style central bank in its 72 year history.

Total credit from the banking system to the government, state enterprises and private firm jumped 1.2 trillion rupees in March, up from 128 billion rupees a a month earlier as dollar books inflated.

Commercial bank credit to government grew 209 billion rupees with 137 billion rupees coming from dollar book inflation.

Credit to state enterprises also grew 310 billion rupees with 77 billion rupees coming from overseas banking units.

Private credit grew 694 billion rupees in rupee terms, with 221 billion rupees coming from overseas banking unit. It is not clear whether domestic units also have dollar borrowings.

Central bank credit also grew 240 billion rupees in March.

Sri Lanka runs from currency crisis to currency crisis due to the intermediate regime central bank which has anchor conflicts in line with the so-called ‘impossible trinity’ of monetary policy objectives triggering exchange and trade controls when money is printed suppress interest rates.

The country’s Latin America style central bank was set up in 1950 and it had gone to the International Monetary Fund 16 times with as the soft-peg came under pressure from low interest rates maintained by money printing.

The lack of any appreciation about the value of monetary stability (sound money) as a foundation for economic growth is found among both third world economists and also in Western prescriptions for the third world, who favour unstable intermediate regimes which place discretion above rules under the guise of central bank independence, critics say.

Sri Lanka itself was following flexible inflation targeting (discretionary domestic anchor) while operating a flexible exchange rate (discretionary external anchor) which led to three currency crises in 2015/16, 2018 and also 2020/2021/2022 which is still under way.

Both legislators and interventionist economists have opposed single anchor monetary regimes (currency board or a clean float), while paying lip service the impossible trinity of monetary policy objectives.

While dollar credit inflated in March, rupee borrowings of private firms also tend to rise as the currency collapse inflates prices and working capital needs grow, analysts have warned earlier when discretionary flexible inflation targeting and output gap targeting became official policy.

Distress borrowings also tend to grow in such countries unless the exchange rate is stabilized.

Analysts have faulted the International Monetary Fund for giving technical assistance to calculate an output gap, which was targeted with liquidity injections, ultimately de-stabilizing a country at peace through a series of currency crises.

Related

How to fix Sri Lanka’s debt crisis, unstable peg, avoid sudden stop event: Bellwether

Sri Lanka is not Greece, it is a Latin America style soft-peg: Bellwether

“The days are gone in which most persons in authority considered stability of foreign exchange rates to be an advantage,” commented Ludwig von Mises, a classical economist.

“Devaluation of a country’s currency has now become a regular means of restricting imports and expropriating foreign capital.

“It is one of the methods of economic nationalism. Few people now wish stable foreign exchange rates for their own countries. their own country, as they see it, is fighting the trade barriers of other nations and the progressive devaluation of other nations’ currency systems.

“Stability of foreign exchange rates was in their eyes a mischief, not a blessing. Such is the essence of the monetary teachings of Lord Keynes. The Keynesian school passionately advocates instability of foreign exchange rates.”

Ironically, East Asia including China until 2005 had some of the strongest exchange rates in the world either orthodox nutral policy currency boards or regimes which are tighter than currency boards where foreign reserves exceed reserve money. (Colombo/May16/2022)

ECONOMYNEXT – A proposed 21st amendment to Sri Lanka’s constitution will be taken up for discussion at a cabinet meeting on Monday (16), Prime Minister Ranil Wickremesinghe’s office said.

It will then be presented to the cabinet of ministers for approval, the PM’s office said in a statement.

Several parties have proposed different versions of a 21st amendment, with at least one of them containing provisions to abolish the executive presidency. It wasn’t immediately clear which draft the cabinet would be taking up on Monday.

Wickremesinghe also met representatives of the World Bank and the Asian Development Bank on Sunday (15) for discussions on Sri Lanka’s prevailing economic crisis and possible assistance in the supply of medicine, food and fertiliser.

The newly appointed Prime Minister also met foreign envoys on Saturday (15) where regarding the formation of an international consortium on aid to Sri Lanka.

Related:

Sri Lanka’s new “diplomatic” PM starts foreign aid talks amid political stability concerns

“While explaining that discussions have been positive, the Prime Minister stated that the government is facing the immediate challenge of securing funds to pay for the fuel requirement for this coming week. Due to the dollar shortages in the banks, the government is now exploring other options of securing the necessary funding,” the statement said.

Wickremesinghe is expected to provide a full explanation of the financial crisis in the country on Monday, his office said. (Colombo/May15/2022)

COLOMBO (News 1st); Prime Minister Ranil Wickremesinghe says that the 21st Amendment to the Constitution will be discussed on Monday (16), and will be produced to Cabinet for approval. Prime Minister Ranil Wickremesinghe held discussions with representatives of the World Bank and the Asian Development Bank on the current economic crisis in the country, and 21A to be discussed on Monday (16)

ECONOMYNEXT – Sri Lanka’s President Gotabaya Rajapaksa has called for legislators to work together to get the country out of the latest currency crisis triggered by the intermediate regime central bank in a Vesak day message, marking the birth, enlightenment and death of Lord Buddha.

“The Dhamma states, “That deed is well done if one has not to repent for having done it, and if one is delightful and happy with the result of that deed,” the message from the President said.

“Therefore, resilience is essential in difficult situations. At this juncture when the country is in dire straits, all the people’s representatives must work together immediately for a solution on behalf of all citizens.

“The true goal should be to reach the desired target without deviating from the primary goal.

“We must be mindful of the current situation and unite around a programme that can deliver a fair determination to all. That is the Buddhist policy. On this noble day of Vesak, I urge you to use the concept of Licchavi for this purpose and to work together to alleviate the crisis.”

Sri Lanka’s rupee which collapsed from 4.77 to 182 to the US dollar from multiple currency crises triggered by the central bank by printing money to keep interest rates down artificially since it was set up in 1951.

It has collapsed to 380 to the US dollar from 182 in the latest printing bout. Corrective policies in the form of higher interest rates have been made.

After the end of a 30-year war, monetary policy deteriorated with output gap targeting (printing money to boost growth) becoming part of official policy from around 2015, leading to excessive foreign borrowings each time the peg broke and forex shortages emerged.

Sri Lanka is now trying to get 3 to 4 billion US dollars in ‘bridging finance’ under the same policy.

The full statement of President Rajapaksa is reproduced below.

The Buddhists in Sri Lanka, together with fellow Buddhist brethren the world over, perform charitable activities including AmisaPooja and PrathipaththiPooja to celebrate the Vesak, the most important day in Buddhist Calendar.
The Dhamma preached by Gautama Buddha with great compassion for all human beings continued for over two thousand five hundred years. The Bodhisattva practiced toward enlightenment over a period of countless kalpas. It is complete with AmisaPooja and PrathipaththiPooja. Enriched with DasaParami (Ten Perfections) qualities in order to save human beings from the misery of life.
Those who sought refuge in The Buddha, recall the unbounded qualities of the Great Teacher with utmost devotion.Evidences about the virtue of Buddhist teachings, that had not being shaken by the AtaloDahama, depict in Buddhist literature and throughout the character of the Buddha. It is not uncommon for us Buddhists to be shaped by the teachings of those who have worked hard and come up with the most appropriate solutions.

ThanchaKammanKathan Sadhu – Yam KathvaNanuthappathi

YassaPathithoSumano – VipakamPatisevathi

The Dhamma states, “That deed is well done if one has not to repent for having done it, and if one is delightful and happy with the result of that deed.”

Therefore, resilience is essential in difficult situations. At this juncture when the country is in dire straits, all the people’s representatives must work together immediately for a solution on behalf of all citizens. The true goal should be to reach the desired target without deviating from the primary goal.

We must be mindful of the current situation and unite around a programme that can deliver a fair determination to all. That is the Buddhist policy. On this noble day of Vesak, I urge you to use the concept of Licchavi for this purpose and to work together to alleviate the crisis.

May the common goal of all be to build a resilient, consensus and religious society based on principles! I wish you a Happy VesakPoyaDay!

ECONOMYNEXT – Sri Lanka has got a ‘good response’ from envoys of friendly countries for financial help, but it may take up to three months to finalize deals, Prime Minister Ranil Wickremesinghe said as a broken soft-peg created forex shortages disrupting imports.

“I spoke with envoys of several countries yesterday and today,” Prime Minister Wickremesinghe said in a video statement.

“The responses are good. But we have to tell them our situation and enter into agreements. It may take two to three months to finish this.”

Sri Lanka’s exports are soaring and imports are also going up but a broken soft-peg is creating forex shortages making it difficult to pay big ticket import bills like petroleum bills.

Sri Lanka imports hit 1.8 billion US dollar in February with exports growing to 1.1 billion US dollars, official remittances a 205 million US dollars and a similar or bigger amount coming through Hawala which is used to pay mostly for food, which is coming through open account imports.

Sri Lanka’s economists broke the unstable peg with two years of money printing to keep rates down and an attempt was made to float the currency in March, but it had not yet succeeded and forex shortages persist.

A float is a complete suspension of convertibility, which stops money printing (sterilized interventions) after reserve sales for imports and reserve money become fixed.

However the float has failed to take hold partly due a surrender requirement which make the regime a peg and pushes the currency down analysts have warned.

India also may be unwittingly contributing to the forex shortage by allowing the use of ACU payments for interventions. Interventions are usually accompanied by money printing to offset a contraction in reserve money adding to the crisis, though rates have been hiked to slow credit.

Earlier in the year in a bizarre move many economists and business chambers advocated the central bank to use reserves for imports (peg) and simultaneously criticized pegging and called for currency to be devalued.

The rupee has since fallen from 203 to 380 and forex shortages persist. Pegs break when money is printed to keep rates down, triggering conflict in money and exchange policies.

However Wickremesinghe blamed fuel shortages on lack of planning, not on monetary instability.

“Yesterday and today reviews were done on the fuel and fertilizer. It shows that because we were not prepared,” he claimed. “We will have to face shortages and problems.”

“In the next few weeks we will face the most difficult time. I think together we can overcome this economic crisis.”

“After that our medium term and long term future can become better. With the IMF also we have talked.”

Unless the float takes hold, high interest rates will persist for longer than necessary with negative impact on businesses and banks, analysts say.

A free floating exchange rate as used in all developed nations does not require any foreign reserves and the entire reserve money is backed by domestic assets. Inflows and outflows of foreign exchange are matched outside the reserve money, with no reserve pass-through.

Sri Lanka faces currency crises, after currency crisis over 72 years due to economists in the country stubbornly refusing to move to a single anchor monetary regime such as a clean float of hard peg (currency board) despite going to the IMf 17 times with broken pegs. (Colombo/May14/2022)