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ECONOMYNEXT – Sri Lanka’s ex-Prime Minister Ranil Wickremesinghe who failed to privatize state-run Sri Lankan Airlines during almost five years in office has quoted a parliamentary oversight official as saying the airline should be sold.

SriLankan Airlines drew fire from the opposition when it called for proposals to lease 20 aircraft at a time when the country is facing a forex crisis due to money printing by economists who favour an unstable soft-pegged exchange rate regime which collapses suddenly.

“On the other day Chairman, Committee on Public Enterprise Charitha Herath said, all finances are being controlled,” ex-PM Wickremesinghe said in parliament.

“If you have control, how can the Air Lines lease 21 aircraft? He said this organization is making losses and needs to be sold.”

However Wickemesighe who headed an administration which critics say was suffering from policy fright, failed to privatize the airline during his term of office from 2015 to 2019, despite being a structural benchmark in an International Monetary Fund program.

During Wickremesinghe’s time the economists who ran the central bank printed money and created two forex crises, driving the rupee down from 131 to 182 to the US dollar.

The central government borrowed sovereign bonds heavily and the Ceylon Petroleum Corporation which had no dollar revenues was also made to borrow from state banks like SriLankan.

Wickremesinghe also set up the National Medical Regulatory Authority which created shortages with price controls and was also charged by critics of helping create monopolies by restricting competition.

State Minister of Aviation and Export Zones Development, D.V.Chanka, however, said the proposal is not to lease aircrafts immediately as it takes time and it had to replace 8 aircraft on which leases were expiring in the ndxt xx year.

The airline has said it made a profit in the quarter.

“Sri Lankan Airlines do not use government money to sustain themselves. When the new government came into power there were 27 aircrafts in the airline’s fleet,” Chanka said.

“We have returned 3 aircrafts out of that within this one and a half year due to the end of lease period and we have reduced 25 million US dollars, approximately 8,250 million rupees after discussion with financial institutions who provided us the lease,”

He said, within the next three years the airline has to return 12 aircraft after the lease period ends and one of them is due to end by the end of this year.

“Out of 12 Wide body aircrafts we have to return 8 and also 4 narrow body aircraft,” Chanaka said.

“We are not talking about getting them at this moment. According to the procurement processes it takes about 1.5 years and we are not using government money for these leases.”

The airline has been given tax breaks and also gets credit from the Ceylon Petroleum Corporation.

“For the first time we are paying Ceylon Petroleum corporation beforehand when purchasing fuel for the aircrafts and for the last 8 months we are not sustaining with the government money,” Chanka said.

The airline has asked for proposals to lease-up 21 aircraft aiming to increase its fleet from the current 24 to 35 aircraft by 2025 while replacing equipment on which leases were expiring.

SriLankan said on April 18 said it had made a profit of 1.7 million US dollars in the March 2022 quarter, which was the first quarterly profit reported since 2006.

The airline said during 2021-22 financial year it had cut staff costs and overheads; renegotiated supplier contracts; increasing cargo revenue and grew traffic to meet pent up demand.

Sri Lankan said passenger revenues had reached 75 percent of what it had in the fourth quarter of 2019-2020 after which the country closed airports due to the Coronavirus pandemic. (Colombo/May01/2022)

ECONOMYNEXT – Facing a severer shortage of essential drugs due to lack of dollars to import them, Sri Lanka raised commonly used drug prices by 40 percent as it sees its worst economic crisis since its independence.

Health Minister Channa Jayasumana issuing a gazette notification announced the new prices for 60 commonly used drugs following an acute shortage for drugs. For details: Maximum retail prices of medicines

The government is unable to import drugs as it has run out of dollars in its reserves while private sector firms have said they are unable to bring the drugs into the country as they are deprived of opening letter of credit amid dollar shortage in private banks.

The 84.5 billion economy has already suspended paying 51 billion US dollar foreign debts from April 12 after it had no reserves.

Already medical practitioners individually and collectively have appealed from donors and Sri Lankan expatriates to send essential medicines amid reports that hospitals are struggling to cater the public demand for drugs.

Sri Lanka maintains a free healthcare system and most of the medicines are given free of charge at state-run hospitals. However, patients are forced to buy essential drugs for cash in private pharmacies as state-run hospitals have run out of drugs.

The price hike also comes after nearly 75 percent depreciation in the rupee currency. The island nation imports most of its medicines. (Colombo/April30/2022)

ECONOMYNEXT – Sri Lanka’s rupee has started to slow the pace of its fall and will stabilize and start to appreciate in the year future based on policy action being taken, Central Bank Governor Nandalal Weerasinghe said.

“When we float the currency, there is an overshoot. But now the pace of the fall is less,” Governor Weerasinghe said.

“At some level it will stabilize. I agree that it has not completely stabilized.”

The rupee fell from 203 to the Us dollar to around 360 to the US dollar over the past month after a non-credible peg (an exchange rate held without the monetary policy to back it) was allowed to fall from March.

Governor Weerasinghe hiked the policy rate from 7.50 percent to 14.50 percent as soon as he took office and also allowed Treasury bill yields to go up.

The high rates will reduce money printing, drive more private savings to the deficit, and also reduce private credit and private investment curtailing imports.

Weerasinghe also slashed a surrender requirement where the central bank was buying dollars from banks by force to 25 percent of receipts to 25 percent.

Analysts have said that a float is a suspension of convertibility (the central bank stops intervening in either direction and stops altering bank rupee reserves through international transaction fixing reserve money) but the surrender requirement made it a peg.

To restore the lost credibility of a peg higher interest rates are needed than required to restore monetary stability through a clean float, analysts have said.

This week newly appointed Treasury Secretary Mahinda Siriwardene also ordered capital expenditure cuts which will also reduce the deficit financing needs, pressure to print money and imports.

“I am cannot give guarantees that it go to this price or the other,” Weerainghe told reporters calmly.

“I can tell clearly that the exchange rate will stabilize and turn (appreciate). nI my 10 years of experience in managing the exchange rate I know it will happen. We are taking the action necessary to make it happen.”

Sri Lanka has an intermediate regime central bank (a soft-peg) where economists print money to boost growth (output gap targeting) and trigger currency crisis.

It is the worst central bank is South Asia after Pakistan. Monetary instability has worsened in recent years under flexible inflation targeting with output gap targeting triggering three currency crises in seven years and default in 2022. (Colombo/Apr30/2022)

ECONOMYNEXT – Sri Lanka’s 2022 economic growth estimate has been revised down sharply to 1 percent, its annual report released on Friday showed, from as high as 5.5 percent in January this year.

Former central bank governor Ajith Nivard Cabraal, who resigned early this month in line with the resignation of the Cabinet, had predicted the island nation’s troubled economy to grow at around 5.5 percent this year, with a recovery in tourism also helping. Cabraal has been blamed for the economic mismanagement by the opposition and analysts.

However, since he resigned, New Central Bank Governor Nandalal Weerasnighe has raised the key monetary policy rates to almost doubled and allowed the interest free one-year government treasury bill rates to be increased to over  24 percent in a move to ease the pressure on the rupee and curb record high inflation.

“Sri Lanka’s economy is envisaged to grow modestly in the near term as the economy is to reset with a debt restructuring programme and long overdue structural reforms alongside an economic adjustment programme to be supported by the IMF, which is expected to facilitate the economy to gather momentum over the medium term,” the central bank said in its annual report.

“The build-up of macroeconomic instability in the economy, stemming from the heightened vulnerabilities on both the external and fiscal fronts, rising social unrest and political instability, effects of the pandemic, the domestic energy crisis, and elevated commodity prices both globally and domestically are expected to significantly dampen the growth prospects in 2022 and have lingering effects in the immediate future leading to a slowdown in growth.:

“Also, economic activity is likely to further slowdown amidst the announcement of a suspension of external debt servicing by the Government for an interim period and commitment to a debt restructuring programme.”

The island nation has already announced it was suspending all the repayment of foreign debts as it had run out reserves.

Sri Lanka is facing an unprecedented economic crisis with people are deprived of essentials like medicines, food, and fuel as the central bank’s usable foreign currency reserves are already depleted to near zero level.

The absence of fuel also has led to extended power cuts that has hit manufacturing sector while over 75 percent depreciation of the rupee has hit the economy across the sectors.

The 84.5 billion dollar economy has already started talks with the IMF to seek assistance to come out of the debt and balance of payment crisis. (Colombo/April30/2022)

ECONOMYNEXT – Sri Lanka’s rupee traded at 367 to the US dollar in the interbank market Friday market participants said, while banks were quoting 360 for telegraphic transfers for small transactions.

Some importers said they were getting dollars at higher rates.

Sri Lanka is facing the worst currency crisis in its history after two years of money printing to keep rates down.

In order to keep an exchange rate stable, a central bank has to be subject to strict rules and its ability to print money through open market operations curtailed.

The central bank on Friday said the government will soon issue a regulation banning open account imports to reduce Undiyal/Hawala premiums.

This week the kerb market ended around 392.50/395.00 to the US dollar.

People pay high premiums to get money out due to exchange controls and lack of dollars in the formal banking system due to money printing. (Colombo/April29/2022)

ECONOMYNEXT – Sri Lanka plans to remove a forced conversion rule of services exports as part of plans to gradually relax controls imposed in recent months, Central Bank Governor Nandalal Weerasinghe said.

The central bank imposed a series of controls on forcing exporters of goods and services to convert dollars by force and also imposed outward exchange controls as money was printed to keep rates down over the past two years driving up credit and excess demand creating forex exchange shortages.

“In the case of services exports like IT and tourism, we will remove the mandatory conversion requirement,” Central Bank Governor Nandalal Weerasinghe said.

“Goods imports are made through customs. We have no way to track these services. We have been told that some person are not bringing these money in at all because of the forced conversion rule.”

“We want to progressively remove this also.”

The central bank was also planning to relax a rule that required tourists to pay hotels in dollars only.

Governor Weerasinghe immediately slashed a surrender requirement which made banks transfer 50 percent of export and remittances to the central bank for new money, to 25 percent.

Analysts and economists have pointed out that the steep depreciation of the rupee during an attempted float (suspension of convertibility) was due to the surrender requirement which made the regime a peg with ‘strong side convertibility’, a rule that should be use when the exchange rate was appreciating.

Central bank purchases of dollars pushes a peg down.

When a third world intermediate regime central bank prints money, the controls imposed rapidly worsen the crisis. Analysts had pointed at the time that the conversion rules were similar to those imposed by Zimbabwe which was printing excess RTG dollars.

It is not clear to what extend the existing controls fall foul of International Monetary Fund rules on capital flow measures and multiple currency practices.

“We want to progressively remove control step by step,” Governor Weerasinghe said. “For the time being these have been done to stabilize the foreign exchange rate market.”

Governor Weerasinghe said the exchange rate was not being controlled and expatriate workers and other were getting a fair rate now.

Under Governor Weerasinghe policy rates were raised to 14.50 percent from 7.50 in a bid to end the fundamental cause of the currency crisis which is money printed to keep interest rates artificially low.

Treasuries yields have also been allowed to go up, which will drive private savings to the budget deficit instead of to areas like construction and capital goods imports, creating forex shortages for items like medicines.

There have been no major food shortage due to the use of Undiyal payments through open account imports.

Newly appointed Treasury Secretary has also ordered a temporary halt in capital expenditure which will also reduce the deficit, the need for money printing and high rates and construction related imports. (Colombo/Apr30/2022)

ECONOMYNEXT – China will be treated equal to all other external creditors and will not be given any preferential treatment when Sri Lanka carries out its debt restructuring, the island nation’s Central Bank Governor Nandalal Weerasinghe said on Friday (29).

Sri Lanka on April 12 announced that it was suspending all foreign debt repayments as it had run out of foreign currency reserves and it will be restructuring all its external debts.

A Sri Lankan delegation led by Finance Minister Ali Sabry including Weerasinghe held talks with the International Monetary Fund (IMF) on its plans for debt sustainability while requesting an IMF funding to overcome the financial crisis.

China was in discussion with Sri Lanka on lending a 1 billion US dollar to repay existing Chinese loans due in July and another 1.5 billion US dollar credit line to purchase goods.

Chinese Ambassador to Colombo this week said the discussions have been temporarily halted as Beijing was waiting to see the outcome of the IMF talks on debt restructuring.

China has openly told Sri Lanka that it is not in favour of debt restructuring as it will have to do the same to other debtors, Colombo government officials have said.

“All the external creditor will be treated equally. There is no question about that. India, China, Paris Club, Non Paris Club all will be treated on the same basis,” Weerasinghe told reporters in Colombo. 

“It is unfair by others if we are going to treat somebody with preferential treatment and others won’t come on board,” he said.

“We do not repay any loans now. We will be starting repaying only once we reach consensus on the debt repayments. If one party delays, then we won’t be able to start repayment.”

China has lent over 5 billion US dollars to Sri Lanka mainly for infrastructure projects amid allegations by the West and India that China has dragged Sri Lanka into a debt trap by financing big infrastructure projects which do not generate revenue.

However, Sri Lanka President Gotabaya Rajapaksa has said China has never created a debt trap while Beijing has maintained its lending to Colombo accounts for around 10 percent of the total external debt.    

Cabinet Spokesman Nalaka Godahewa this week said Sri Lanka will discuss with China on the issue and hopeful that Beijing would consider the current crisis as a special circumstance. 

Weerasinghe said once the restructuring is announced with the basis of equal treatment, creditors can negotiate with Sri Lanka if they have concerns. 

“Once we announce that we are going to treat them equally, then our part is done. The creditors will have to negotiate with us on that basis,” he said.

“We have made it very clear. If we offer a concession to one creditor, then we have to give the same concession to all the creditors. Otherwise it won’t happen.” (Colombo/April29/2022)

COLOMBO (News 1st); 96.2% of Sri Lankans believe that all politicians should be audited and all their unaccounted wealth should be confiscated by the state, a recent poll has found. According to this poll by the Center for Policy Alternatives, nine out of ten Sri Lankans hold the opinion that Prime Minister Mahinda Rajapaksa should CPA Poll: 96% Sri Lankans want all Politicians Audited

ECONOMYNEXT – Sri Lanka’s officials who handled the economic policy misled President Gotabaya Rajapaksa by painting a “rosy picture” and that led to the current economic crisis, Media Minister and Government Spokesman Nalaka Godahewa said on Thursday.

The island nation on April 12 announced it was suspending all foreign debt repayment as it did not have adequate foreign currencies which also has resulted in shortage for fuel, medicines, cooking gas, and milk powder amid extended power cuts.

Since President Rajapaksa was elected in November 2019, the key economic decisions were taken by former presidential secretary P.B. Jayasundera, former Treasury Secretary Sajith Attygala recently resigned central bank governor Ajith Nivard Cabraal and his predecessor W D Lakshman.

“I think what happened was for whatever the reason, ignorance or deliberate, they didn’t pass that information to the president. He was comfortable with his advisors who were painting a rosy picture,” Godahewa told a meeting with Foreign Correspondents Association (FCA).

“Because he is not an economist, he has to be advised. When you keep telling the President nothing to worry, things will get sorted out, probably in the initial days when his focus was elsewhere, he was excited about implementing the manifesto.”

The President slashed value added tax to 8 percent from 15 percent in one month after he was elected to provide some relief to the public citing they had been under pressure of higher taxes imposed by the previous government.

Disaster Recipe

Godahewa, a management accountant and a telecom engineer by profession, said he was against the sharp tax cut as he anticipated the current economic crisis when President Rajapaksa took office.

“I saw this crisis, even before the President came to power. I told the President that the tax reductions proposed by Dr. Jayasundara is going to put us in trouble. I told this many times openly,” he said at his new office at the Media Ministry.

“I didn’t agree with the tax reductions. That was proposed by Dr Jayasundara who was going to come in as Treasury secretary. At that time, the President was convinced by him.”

“I always recommended tax reductions because the previous government has increased taxes significantly. Double virtually, from 9 percent of the GDP to 13-14 percent of the GDP within one year.

“So I said we must reduce taxes, and we must simplify.”

“But when Dr. Jayasundara came up with that list, I immediately thought it was not going to work. I didn’t calculate at the time, but I told the President looking at it, it’s going to be a disaster.”

The tax cut was followed by a double digit fiscal deficit in 2020.

To prevent the extra money in the hands of private players coming back to the budget through bond auctions, ceiling rates were place on them to prevent their sale to the public under the powers available to the central bank creating new money as they were bought by the central bank.

Though the price controls were lifted after a change in the leadership of the central bank and bond rates started to go up, policy rates were kept low with overnight injections.

Reserves lost as the peg was defended against the new money and growing domestic credit with economic activity recovering, putting more pressure on the balance of payments with growing imports.

“Not Telling the Truth”

“So those officers are very much responsible for not telling the truth to the people in the public, and not taking proper action,” Godahewa, who was appointed as the cabinet minister on April 18 said.

However, Godahewa claimed crisis had been brewing since 2009 as the country started to borrow annually around 2 billion US dollar commercial loans at a higher rate.

“Nobody can say they (officials) only created this crisis. They aggravated and they couldn’t prevent it. They’re responsible for that. But the crisis is history,” he said.

“We did not put in place a system to generate adequate money to pay back. They built infrastructure which is necessary.”

The crisis has already hit the road with thousands of people having been protesting for nearly three weeks near the Presidential Secretariat demanding the resignation of President Rajapaksa.

Under heavy criticism, Cabraal, Attygala, and his own finance minister brother Basil Rajapaksa resigned.

They were replaced with – retired senior deputy central bank deputy governor Nandalal Weerasinghe as the new Governor, another deputy governor Mahinda Siriwardena as the Treasury Secretary, and Justice Minister Ali Sabry, a lawyer as the new Finance Minister.

A delegation including the three top officials had initial discussion with the International Monetary Fund (IMF) for a loan. Since Weerasinghe’s appointment, the central bank has almost doubled the key policy rates and raised the risk-free treasury bill yields to over 24 percent, more than inflation.

Godahewa said now the President is well informed on economic policy matters.

“Today he is involved in economics. That is why he’s changing the system and he is bringing new people, he is asking the questions now. He knows details. If you ask now, today, he knows exact details,” Godahewa said.

Officials have said they were carrying out government policy.

One of them asking not to be named said the government was now looking for scapegoats to wash their hands off from the failure.

“This is not true. But this blame game is unproductive. It was a government policy and we worked as per the guidance and direction of the president and the government,” the official said. (Colombo/April 29/2022)

COLOMBO (News 1st); Sri Lanka Railways said that the train services that were disrupted following a trade union action on Thursday (28) is being restored. The Railways Control Room said several office trains that were scheduled for early morning on Friday (29) commenced operations. Railway workers decided to join a trade union action on Thursday Railway services to return to normalcy after Thursday’s (28) nation wide protest campaign