Lanka Free Library

ECONOMYNEXT – Sri Lanka’s stock index fell over 1 percent on Wednesday (06) amid rising market interest rates and an economic crisis that has now turned into a political crisis, brokers said.

The main All Share Price Index (ASPI) ended 1.80 percent or 157.15 points at 8,580.93, after recovering over 5.87 percent in the previous session.

“Market did open positively and moved up a lot but we saw heavy selling interest coming because investors are extremely scared than before. So they are not holding on to the stocks,” a top analyst said.

“I feel the market has fallen significantly and it could stabilise at the current levels anywhere between 7,500 to 8,000 points.”

Some analysts expect the newly appointed central bank chief Nandalal Weerasinghe to raise the rates by at least 300 basis points at the next monetary board meeting.

“At the bills auction we saw the rates go up by over 300 basis points. This rate hike is much needed as it will stablise the rupee,” he added.

He also expects a lot of positive news to come from Sri Lanka’s IMF negotiations.

“We have hit the rock-bottom investor sentiment wise. So I think we will gradually have good news coming in to stablise< But the only thing is the money flow will definitely go in to fixed income which may push down the index lower.”

Sri Lanka’s entire cabinet resigned late on Sunday due to mounting pressure by the public protests over President Gotabaya Rajapaksa’s government failing to address an economic crisis that hit the public resulting in a shortage of milk powder, fuel, and cooking gas.

People also had to suffer from extended power cuts due to a severe shortage of dollars to import diesel for power generation.

SL20 of the most liquid stocks fell 2.60 percent or 74.74 points lower to 2,797.52 points.

Questions still remain as to how the country is going to face the mounting debt while the rupee continues to depreciate.

The day’s turnover was 1.9 billion rupees, a quarter of this year’s average daily turnover of 4.8 billion rupees.

Analysts said investors are trying to shift their savings to hedge against the rupee fall and inflation, which is at a record high and more than 5 percent higher than one-year Treasury bill yield. Brokers said investors opt for stocks to hedge against inflation.

Sri Lanka’s rupee has fallen nearly 50 percent since it was allowed flexibility on March 08.

The market has lost 23 percent so far in March after falling 11 percent in the previous month. Overall the market has lost 32 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors bucked the trend and bought a net 146.7 million rupees worth of shares. However, the market has witnessed a total foreign outflow of 1.5 billion rupees so far this year.

LOLC Finance, Royal Ceramics and Hatton National Bank, dragged the index down on Wednesday.

Shares in LOLC Finance slipped 14.2 percent to close at 9.70 rupees a share, Royal Ceramics Lanka down 7.5 percent to close at 38.80 rupees a share while Hatton National Bank slipped 4.1 percent to close at 99.70 rupees a share. (Colombo/April06/2022)

ECONOMYNEXT – Sri Lanka’s rupee has plunged to a record low to become the world’s worst-performing currency,as President Gotabaya Rajapaksa struggles to contain a worsening economic and political crisis, Financial Times, a UK-based newspaper reported.

In a report published Wednesday afternoon Sri Lanka time, the newspaper said the rupee was hovering near 300 per US dollar on Wednesday, down 32 per cent year to date and lagging even Russia’s rouble, after Rajapaksa ended emergency rule just days after it was imposed.

The rupee collapsed from around 200 to 300 to the US dollar after an attempt was made float the currency with a surrender requirement, which made it a peg under severe pressure.

Rajapaksa revoked a public emergency he had declared last Friday (01) following a violent protest outside his private residence the previous night over his government’s handling of Sri Lanka’s worsening economic crisis. The protest sparked a wave of protests islandwide, participated by ordinary citizens with no affiliation to a political party, demanding Rajapaksa’s resignation.

According to the Central Bank of Sri Lanka (CBSL), the selling rate of the US dollar was at 308.4951 while the buying rate was 298.1064 as at 9.30am Wednesday. (Colombo/Apr06/2022)

ECONOMYNEXT – Sri Lanka’s Treasury bills yields rocketed up, with the 3-month bill yield rising 341 basis points to 15.69 percent, data from the state debt office showed, with the short term yield curve starting to slope upwards in a partial correction.

The 3-month yield went up 120 basis points to 14.12 percent.

The 6-month yield went up 311 basis points to 12.25 percent.

The increase of the highest one day gains in gilt yields seen.

The debt office offered 40 billion rupees of 3-month bills and sold 64 billion.

20 billion rupees of 6-month bills were offered and 4.2 billion was sold.

20 billion rupees of 12-month bills were offered at 4.3 billion was sold.

The central bank printed money for two years under Modern Monetary Theory, for stimulus and has triggered the biggest economic crisis in its history.

Sri Lanka’s rupee fell 200 to 300 to the US dollar after a float failed due to a surrender requirement and low policy rates.

The central banks long term policy of printing money to keep rates down, triggering currency crisis and raising rates to very high levels to stabilize the economy has been labelled ‘rawulath ne kendath ne’ by analysts.

There have been calls to tightly control the agency’s, ability to conduct open market operations, manipulate interest rates artificially down and create economic instability.

For 72 years Mercantilists have printed money created forex shortages and blamed it on imports and imposed trade controls on the people, without reforming or closing the central bank. (Colombo/Apr06/2022)

ECONOMYNEXT – Any International Monetary Fund (IMF) loan deal with Sri Lanka should be attached with addressing human rights and corruptions in loans, a New York-based international rights group urged the global lender.

Sri Lanka finally decided to seek IMF assistance last month to face an unprecedented economic crisis amid severe dollar shortage, import restrictions, and government’s failure to provide essentials like fuel, cooking gas, and milk powder amid an extended power cut.

Spiraling inflation resulted by the central bank’s excess money printing and over 50 percent depreciation in the rupee have led to a desperate hardship for millions of people.

The island nation has a grim past in handling the past IMF programmes with austerity measures including tax hikes and government spending cut have had adverse impacts on the most vulnerable people, analysts have said.

Any future IMF program in Sri Lanka should protect the human rights of low-income people, and address corruption and entrenched obstacles to the rule of law, the Human Rights Watch said in a letter to the IMF.

The latest request from the HRW comes as thousands of people protest in Sri Lanka on a daily basis demanding President Gotabaya Rakapaksa, who was earlier accused of a war criminal in the past by the HRW.

“The protests roiling Sri Lanka are a clear message about many people’s economic situation,” said Sarah Saadoun, senior researcher focusing on poverty and inequality at Human Rights Watch.

“The IMF and the Sri Lankan government should come to an agreement that supports people’s ability to afford life necessities and addresses the problems underlying the current crisis.”

The IMF on March 31 confirmed it will soon begin talks with Sri Lanka about a potential loan program. Major economic problems in the country have led in recent weeks to growing protests in Colombo, the capital, and across the country, highlighting the critical need for IMF support.

President Gotabaya Rajapaksa declared a state of emergency on April 1, then imposed a 36-hour curfew and blocked social media in an attempt to curb protests, in which scores have been arrested.

“The government should respond to the protests in accordance with international human rights standards, which prohibit the use of unnecessary or excessive force,” the HRW said in a statetment.

In February, the IMF issued an Article IV report, which includes policy advice for significant fiscal consolidation, achieved in part by increasing income and value-added tax rates, removing energy subsidies, and “rationalizing” the public wage bill.

The IMF report recognized that these adjustments would have adverse impacts on low-income people and said that the government should mitigate the impact by strengthening social safety nets “by increasing spending [and] widening coverage.”

Severe Economic Hardship 

“The IMF and the government should give priority to ensuring adequate investment in social protection programs before making any adjustments that would raise the cost of living,” Human Rights Watch said.

While inflation reached over 18 percent in March, severely exacerbating economic hardship, the value of the Sri Lankan rupee has rapidly declined, making imported necessities, including medicines, sanitary products, food, and fuel, scarce or unaffordable for many people.

In recent years, the IMF has given increasing importance to combating corruption, the HRW said.

“It is especially urgent for the IMF to include reforms to address corruption in Sri Lanka. The Rajapaksa administration, which took office in 2019, has repeatedly acted to block financial transparency and accountability by weakening independent institutions and by intervening to prevent investigations and prosecutions in high-profile cases,” the HRW said.

The HRW urged the IMF to assess the expected direct and indirect impacts of any adjustments on low-income people  in Sri Lanka, include a social spending floor as performance criteria, implement progressive tax measures that do not further burden people living in poverty, and urge the government to put in place policies to increase women’s access to employment by reducing barriers.

The rights organization also urged to include reforms to restore the independence of institutions, including the judiciary, auditor general, attorney general, and the Commission to Investigate Allegations of Bribery or Corruption, and require the Sri Lankan government to restore independent investigations into corruption allegations and prosecute those found responsible.

“Sri Lanka needs economic help, but to be effective the IMF program needs to be robustly negotiated and properly carried out,” Saadoun said.

“Reforms should ease people’s economic hardship, not exacerbate it.” (Colombo/April 06/2022)

ECONOMYNEXT – Sri Lanka is facing the worst economic crisis in know history but it is just the beginning, parliamentary speaker Mahinda Yapa Abeywardena said commencing a debate on current status of the nation.

“I would like to say that this is the beginning of the worst economic crisis in the known history of our country,” speaker Abeywardene said.

“I am saying this is the start because, as I understand it many economists are warning that it can become much worse.

“In addition to the gas and fuel shortage there are fears that a severe food crisis may emerge.

“Whether it happens like that or we can avert it to some extent will depend on how we act in the next week.”

Sri Lanka’s printed money for two years using an intermediate regime central bank which has triggered the worst forex crisis in its since it was set up in 1950.

Sri Lanka’s economists had used the central bank to print money, create currency crisis pursuing a ‘competitive exchange rate’ monetary debasement for 72 years busting the rupee from 4.77 to the rupee when it was set up to over 300 to the US dollar by 2022.

Economists in the country have so far resisted calls to tighten its laws so that open market operations are curtail so that forex shortages can external default.

However analysts say at time legislators can revamp the law to end the discretionary ‘flexible exchange rate’ or soft-peg and end currency crises.

The monetary meltdown and external default long predicted by analysts and economists as ‘stimulus’ policy became more activist has now turned into a political crisis. (Colombo/Apr06/2022)

ECONOMYNEXT – Frustrated with the Sri Lanka’s ruling family for the government’s failure to address the economic crisis, young protesters took into Wikipedia and edited and distorted contents with humorous statements in one of the family members.

Hundreds of youth have been protesting since early last month in isolated locations, demanding the resignation of President Gotabaya Rajapaksa after the incumbent government’s economic mismanagement resulted in shortage of milk powder, cooking gas, and fuel amid extended power cuts due to lack of dollars to import diesel.

A March 31 protest turned into violence near President Rajapaksa’s private residence. Since then protests have intensified. People across the country defied Rajapaksa’s 36-hour curfew law on Sunday (03) and protested despite a State of Emergency and social media ban were in place.

Some technical savvy youth have edited some of the Wikipedia pages of Rajapaksa family members and resigned Central Bank Governor Ajith Nivard Cabraal expressing their protests.

One of the member of youth protesters said youth whose parents do not allow to take part in protests try to express their displeasure through such editing.

“I see some are lashing it out on Twitter and then I also saw others editing on Wikipedia,:” the protester said asking not to be named.

Wikipedia allows the general public to edit information to make content reliable and up to date.

However due to the heavy load of editing on certain pages, Wikipedia has taken a swift initiative to lock those pages including some political figures such as President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa, due to vandalism, edit warring and disruptive edits.

The edits consisted of changing names to the political figures and including past and present controversial statements and behavior of the politicians.

The edits are shared and circulated amongst many platforms of social media, seen as humorous content and of jovial matter by the majority.

However, ardent supporters of the Rajapaksa have claimed that such measures are of low quality and childish behavior.

Wiki pages of a few identities such as Gotabaya Rajapaksa, Mahinda Rajapaksa and Namal Rajapaksa were immediately  corrected while others were reedited even after correction by Wikipedia, a technical savvy man who monitors the Wikipedia page said.

The entire cabinet of Sri Lanka has resigned on Sunday, but President Rajapaksa appointed 4 ministers to the new cabinet on Monday, but the newly appointed finance minister resigned on Tuesday.

The Wikipidia page of former Central Bank Governor Ajith Nivard Cabraal, who resigned on Monday, saw ridiculing of his qualifications and the role he played on the economy when was the  Governor. (Colombo/April 5/2022)

ECONOMYNEXT – Sri Lanka’s stock index recovered to close 5,9  percent firmer on Tuesday (05) recouping some losses investors suffered in the previous sessions amid the ongoing economic and political crisis, brokers said.

The main All Share Price Index (ASPI) ended 5.86 percent or 482.77 points at 8,727, recovering from its lowest close since August 15.

“There was bargain hunting because the market has come down sharply,” an analyst said.

“But the market will come off after the central bank raises interest rates.”

Some analysts expect the newly appointed central bank chief Nandalal Weerasinghe to raise the rates by at least 300 basis points at the next monetary board meeting which is unscheduled yet.

Analysts previously said that the main index bottoming out around 8,000 points was a positive sign and it would move up on speculation.

Sri Lanka’s entire cabinet resigned late on Sunday due to mounting pressure by the public protests over President Gotabaya Rajapaksa’s government failing to address an economic crisis that hit the public resulting in a shortage of milk powder, fuel, and cooking gas.

People also had to suffer from extended power cuts due to a severe shortage of dollars to import diesel for power generation.

Although the government called on all parties to join them to form an interim government, oppositions by now have rejected the offer and in return called for the executive 20th Amendment to be abolished.

SL20 of the most liquid stocks gained 6.99 percent or 187.58 points higher to 2,872.40 points.

Questions still remain as to how the country is going to face the mounting debt while the rupee continues to depreciate.

The day’s turnover was 1.1 billion rupees, less than a quarter of this year’s average daily turnover of 4.8 billion rupees.

Analysts said investors are trying to shift their savings to hedge against the rupee fall and inflation, which is at a record high and more than 5 percent higher than one-year Treasury bill yield. Brokers said investors opt for stocks to hedge against inflation.

Sri Lanka’s rupee has fallen nearly 50 percent since it was allowed flexibility on March 08.

The market has lost 23 percent so far in March after falling 11 percent in the previous month. Overall the market has lost 32 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors bucked the trend and bought a net 102.7 million rupees worth of shares. However, the market has witnessed a total foreign outflow of 1.7 billion rupees so far this year.

Sampath Bank, LOLC Holdings and Royal Ceramics, moved the index up on Tuesday.

Shares in Sampath Bank gained 9.2 percent to close at 42.90 rupees a share, LOLC Holdings up 13.2 percent to close at 460.00 rupees a share while Royal Ceramics Lanka up 18.5 percent to close at 39.80 rupees a share. (Colombo/April05/2022)

ECONOMYNEXT – Sri Lanka’s secondary market closed inactive with zero transactions on Tuesday (05) market participants said while the rupee was quoted at 310 rupees against US dollar in commercial banks.

Commercial Banks were offering to sell dollars for telegraphic transfers at 310 rupees and buy between 295-300 rupees on Tuesday.

Dealers said the market did not have a proper two-way spot quote on Tuesday.

The central bank indicative spot rate was 307.78 rupees on Tuesday, down from 310.85 rupees in the previous day.

Central Bank’s telegraphic transfer dollar rate was at 293.2/303.5 on Tuesday, down from 289.7/299.9 on Monday.

Sri Lanka’s rupee has been made more flexible but a clean float has not yet been established.

In the secondary market, there were no active bond rates.

“There was not even a single transaction in the market today,” a market dealer said.

Market participants said investors were waiting for some form of stability.

“The secondary market yield curve remained broadly unchanged as the market participants opted to be on the sidelines amidst the prevailing political uncertainty,” First Capital said in its market note.

Over the weekend Sri Lanka saw anti-government protests spread across the country demanding the ruling government to step down for its mismanagement as the economic crisis throttled the common man.

Many government officials including the central bank governor Ajith Nivard Cabraal and ministers have tendered their resignation.

Following Cabral’s resignation, a monetary policy meeting that was scheduled to take place on April 05 was postponed.

Analysts say this was an important meeting in which rates were expected to be hiked further after inflation hit 18.7 percent in March.

The rate hike would have reduced money printing and domestic private credit.

Analysts had warned of triple defaults unless urgent action is taken to tighten monetary policy and restore a working exchange rate regime.

Nandalal Weerasinghe, the former Deputy Governor of the central bank is said to take over the governorship on April 07. (Colombo/Apr5/2022

ECONOMYNEXT – Sri Lanka’s secondary market remains inactive on Tuesday (05) as investors wait for stability amid the growing anti-government protests in the country, market participants said while the rupee was quoted at 310 against the US dollar with no offers.

Commercial Banks were offering to sell dollars for telegraphic transfers at 310 rupees and buy between 295-300 rupees on Tuesday.

Dealers said the market did not have a proper rupee quote on Monday.

The central bank indicative spot rate was 307.78 rupees on Tuesday, down from 310.85 rupees in the previous day.

Sri Lanka’s rupee has been made more flexible but a clean float has not yet been established.

In the secondary market, there were no active bond rates.

Market participants said investors were waiting for some form of stability.

Over the weekend Sri Lanka saw anti-government protests spread across the country demanding the ruling government to step down for its mismanagement as the economic crisis throttled the common man.

Many government officials including the central bank governor Ajith Nivard Cabraal and ministers have tendered their resignation.

Following Cabral’s resignation, a monetary policy meeting that was scheduled to take place on April 05 was postponed.

Analysts say this was an important meeting in which rates were expected to be hiked further after inflation hit 18.7 percent in March.

The rate hike would have reduced money printing and domestic private credit.

Analysts had warned of triple defaults unless urgent action is taken to tighten monetary policy and restore a working exchange rate regime.

Nandalal Weerasinghe, the Deputy Governor of the central bank is said to take over the role of Cabraal. (Colombo/Apr5/2022

ECONOMYNEXT – Nandalal Weerasinghe, a retired central banker Governor will take over as its chief this week, a media report said as Sri Lanka reels under an unprecedented currency crisis and political turmoil.

Bloomberg Newswires reported that Weerasinghe, a former Deputy Central Bank Governor will take-over from March 07.

A monetary policy meeting where policy rates were widely expected to be raised, scheduled for Monday was postponed as Nivard Cabraal resigned with a political crisis spiralling and the cabinet resigning en masse.

Sri Lanka’s rupee and the economy has been badly hit from two years of money printing which created balance of payments deficits as outflows exceeded imports and reserves were used up to redeem new money and maintain the currency peg.

A float attempted in March to balance inflows by ending sterilized interventions failed due to a surrender required that made it a peg and pushed it down (a strong side convertibility undertaking imposed on peg which was already on its weak side), analysts have said.

The rupee fell below 300 to the US dollar. The central bank on Monday published an indicative spot rate of 310 rupees. Market participants said transaction were settled around 325 rupees.

Sri Lanka has to pay about 5,880 million dollars of foreign currency denominated debt in the rest of the 2022.

Weerasinghe is taking over as the monetary authority has also borrowed through central bank and interbank swaps and has over 3.0 billion US dollars of net debt and there are problems with dollar debt of banks.

Analysts have warned that Sri Lanka is facing defaults on multiple fronts as inflation has started to gallop.

Related

Sri Lanka has to work fast to contain multiple defaults as Tanzi bites: Bellwether

India has also deferred hundreds of millions of dollars of payments due under the Asian Clearing Union due from the central bank for imports made from the country. (Colombo/Apr05/2022)