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ECONOMYNEXT – Sri Lanka’s stock index edged down on Wednesday (23) after gaining in three previous sessions amid concerns over the island nation’s economy and mixed sentiment over possible IMF deal, brokers said.

The main All Share Price Index (ASPI) gained 0.31 percent or 32.93 points to close at 10,457.81.

President Gotabaya Rajapaksa has said the country will seek IMF help to face the debt crisis though some of the government officials have raised concerns over adverse impacts of conditions by global lender in the past.

An All Party Conference held on Wednesday assessed the ongoing economic crisis after the rupee has fallen around 45 percent since March 8 while the market saw yields in government’s treasury bills rising to around 12 percent.

Market analysts have said selling pressure is seen in the market due to the rupee deprecation amid rise in the returning rate of government securities.

The day’s turnover was 1.4 billion rupees, nearly a quarter of this year’s average daily turnover of 5.2 billion rupees.

Analysts predict some investors to move into fixed assets with the return on risk free government bonds expected to move above 13 percent and while 5-year maturities expected to rise above 15-percent.

Sri Lanka’s rupee has fallen nearly 40 percent since the devaluation on March 08.

All commodity prices in Sri Lanka are on the rise due to the currency fall. Currency dealers expect more depreciation in the coming days as the central bank has .

S&P SL20 of the most liquid stocks edged up 0.09 percent or 3.38 points to 3,596.69 points.

Rising oil prices, policy rate hikes, a slowing economy, and shortage of dollars, fuel, and cooking gas along with extended power cuts continues to dampen the sentiment.

The market has lost 8 percent so far in March after falling 11 percent in the previous month. Overall the market has lost 14.2 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors bucked the trend and bought a net of 21.0 million rupees worth of shares. However, the market has witnessed a total foreign outflow of 2.4 billion rupees so far this year.

Ceylon Tobacco Company, Aitken Spence and LOLC Holdings dragged the main index on Wednesday.

Shares in Ceylon Tobacco Company slipped 2.8 percent to close at 727.75 rupees a share, Aitken Spence ended 3.1 percent lower at 82.40 rupees a share while LOLC Holdings slipped 0.8 percent to close at 785.00 rupees a share. (Colombo/March23/2022)

ECONOMYNEXT – Sri Lanka’s livestock including cattle and chicken are facing malnutrition due to the lack of feed, vitamins and rising costs, the island’s state veterinarians said as the forex crisis driven by money printing hits imports.

“We have been monitoring the crisis for sometimes and have informed the relevantauthorizes on how to protect the lives of these animals, but we have been ignored,” Nuwan Hewagamage Secretary of the State Veterinary Surgeons Association told reporters in Colombo.

“This has created a crisis in the industry.”

The association is calling for subsidies to help the livestock but the government is running a large budget deficit after hiring 50,000 unemployed graduates and giving a billion US dollar relief package for humans in January on top of an existing budget deficit.

There are shortages of maize, rice polish and soyabean, while prices are rising.

“Animals can’t be kept hungry like humans,” Hewagamage said. “Farmers are moving away from the industry and culling layer chicken for meat.”

Officials said cattle are also facing shortages of feed concentrate while prices are soaring.

The Veterinarians said some animals are falling sick and there was a shortage of antibiotics, anesthetics and medicine needed for operations.

There were signs that milk output was falling.

Officials say it is unfortunate that domestic milk production is falling while imported milk is also reducing due to forex shortages while the rupee collapse has driven up prices, making dairy products and meats unaffordable to many.

ECONOMYNEXT – Sri Lanka’s Treasuries yields rose across maturities at Wednesday’s auction with the 3-month yield up 75 basis points to12.10 percent, data from the state debt office showed as the effects of two years of money printing began to be felt by the country.

The debt office offered 56 billion rupees of bills and sold 54.8 billion rupees in 3-month bills.

The 6-month yield went up 93 basis points to 11.98 percent, with 503 million rupees being sold.

The 12-month yield went up 85 basis points with 1,165 million rupees being raised.

Sri Lanka is facing a severe currency crisis due to money printed through crippled bond auctions to keep interest rates down, undermining an exchange rate peg.

The rupee has now fallen to around 285 to the US dollar from around 185 when money printing began and interest rates are also rising.

Analysts call the phenomenon, “rawulath ne kendeth ne” based on a folk saying, or that neither the soup (exchange rate) nor the beard (interest rate) were saved by artificially keeping interest rates down. (Colombo/Mar22/2022)

COLOMBO (News 1st); SLPP MP (Dr.) Wijeyadasa Rajapakshe, PC has made a proposal to introduce the 21st Amendment to the Constitution. The proposal by Dr. Rajapakshe calls for the transferring of executive powers of the President to the Cabinet of Ministers by way of urgent constitutional reform to make the President answerable to Parliament and 21A from Wijeyadasa to transfer Executive Powers to Cabinet

ECONOMYNEXT – Sri Lanka central bank has lifted a ban on foreign forward trading and allowed banks to sell forward to importers, in a new direction issued to banks, ending one of several cascading policy errors that led to an economic crisis.

The central bank has lifted a restriction on banks providing forward cover to importers from March 22 according to a circular issued to banks.

On April 25, 2021 the central bank limited forward transactions and swaps only to within banks. Banks were only allowed to sell dollars to customers only up to spot. Banks were allowed to buy forward from exporters.

The central bank in March 20202 ended 203 to the US dollar peg which was not credible due money printed to enforce a too low policy rate compared to a wide budget deficit, which was worsened by a so-called ‘relief package’.

Related

Sri Lanka firms with billions in trade credits exposed as rupee falls

The rupee has fallen to around 285 to the US dollar so far leaving imports exposed to billions in losses as they were not allowed to cover forward.

However there is also an anomaly in the forward market which is discouraging forward sales.

Due to high dollar yields and low rupee yields, there are forward discounts instead of premiums. According the central bank’s own data as of March 18, the indicative rate for one month dollars was 263.26 rupees and the three month rate was 258.06 rupees.

It implies that the dollar yield in the market is higher than the rupee yield.

In the interbank swap market there was a discount of around 2.58 cents per day for three month deals, market participants say.

It implies a dollar yield of around 15 percent when compared to a 3-month Treasuries yield of 11.35 percent, discouraging forward sales by exporters.

To make the float work a steep policy rate hike is needed, economists have said.

Sri Lanka’s inflation has also topped 15 percent after two years of money printing which has boosted broad money by 40 percent.

In another Zimbabwe style cascading policy error the central bank also imposed mandatory conversion rules on exporters and dollar earners, promoting import spending by the recipients of the rupees with low interest rates discouraging savings in both rupees and dollars.

Analysts have said a more serious policy error is a surrender requirement imposed on banks to sell dollars to the central bank which creates new money, though there is a liquidity short in the banking system.

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Sri Lanka central bank explains forex repatriation, Zimbabwe style surrender rules

The surrender requirement undermines the establishment of a float of the rupee and making the regime a peg where its credibility is shattered at every new level it falls to.

Classical economists and analysts have blamed Keynesianism (a type of Mercantilism) for the country’s monetary troubles which began in 1950 with the setting up a soft-pegged central bank which was allowed to print money.

Until August 22, 1950 money printing (purchasing domestic assets) was banned under an earlier currency board law and the country had 11 months of foreign reserves.

Analysts have warned that unless the float takes hold, the rupee will continue to fall and spontaneous dollarization may occur. The International Monetary Fund has also warned of a possibility of an economic implosion unless money printing is halted. (Colombo/Mar22/2022)

ECONOMYNEXT – Power cuts of 5 hours for some areas in Sri Lanka and 2 hours and 40 minutes for other areas were approved in two blocks for March 23 Wednesday, Public Utilities Commission Chairman Janaka Ratnayake said as a forex crisis creates power shortages in the dry season.

Areas ABCDEFGHIJKL will have power cuts of 3 hours and 20 minutes from 800am to 600pm and 1 hour and 40 minutes from 600pm to 1100pm.

Areas PQRSTUVW will have power cuts of one hour from 1030am to 0430pm and 1 hour and 40 minutes from 0430pm to 0930pm.

Download the power cut schedule for March 23 from 23-03-2022-Power-cut-schedule

Sri Lanka’s power regulator is considering a hike in electricity prices.

Also read: Sri Lanka to hike electricity tariff after rupee fall

Sri Lanka is facing forex shortages due to money printed to keep interest rates low and the country has run out of reserves and the currency has been floated.

However, the float has not yet taken place and the rupee has fallen from 203 to 275 to the dollar and prices are getting validated at that level. (Colombo/March 23/2022)

ECONOMYNEXT – Power cuts of 5 hours minutes for some areas in Sri Lanka and 4 hours and 30 minutes for other areas were approved in two blocks for March 22 Tuesday, Public Utilities Commission Chairman Janaka Ratnayake said as a forex crisis creates power shortages in the dry season.

Areas ABCDEFGHIJKL will have power cuts of 3 hours and 20 minutes from 800am to 600pm and 1 hour and 40 minutes from 600pm to 1100pm.

Areas PQRSTUVW will have power cuts of 2 hours and 40 minutes from 900am to 500pm and 1 hour and 50 minutes from 500pm to 1030pm.

Download the power cut schedule for March 22 Tuesday from 22-03-2022-Power-cut-schedule

Sri Lanka is facing forex shortages due to money printed to keep interest rates low and the country has run out of reserves and the currency has been floated.

However the float has not yet taken place and the rupee has fallen from 203 to 275 to the dollar and prices are getting validated at that level. (Colombo/March 20/2022)

ECONOMYNEXT – China is considering 2.5 billion US dollars in a loan and buyers credit to Sri Lanka Beijing’s Ambassador to Colombo Qi Zhenhong as the country is trying hard to repay foreign debt amid a forex crisis triggered by money printed to enforce low interest rates on top of tax cuts.

“We are considering 2.5 billion – 1 billion dollar loan, 1.5 billion dollars buyers credit,” Ambassador Qi told reporters in Colombo.

A buyer’s credit is usually a loan given by Exim Bank of China to purchase goods and services from the People’s Republic and has been used to finance infrastructure in the island in the past.

Sri Lanka President Gotabaya Rajapaksa last year requested debt re-structuring from China as the country was downgraded by credit ratings agencies to CC and foreign reserves ran low as money was printed.

“Sri Lanka and China have started close negotiations on bilateral relations,” Ambassador Qi told reporters responding to question on the request by President Rajapaksa to re-structure debt.

“As a true friend we will support Sri Lanka. Sri Lanka has a reputation of paying its debts.”

China from around 2018 has given budget support loans to Sri Lanka to more than repay installments falling due.

China is also pushing Sri Lanka to resume talks on a free trade deal which is required to make investments work.

Sri Lanka has said it is expecting a new loan from China to repay debts falling due following President Rajapaksa’s request to re-schedule debt.

Ambassador Qi said Sri Lanka had requested 1.5 billion US dollar facility from China. China has also given a 1.5 billion US dollar equivalent Reniminbi loan to the central bank which was drawn down to boost reserves.

Multilateral lenders including the Asian Development Bank and World Bank halted budget support loans several years ago over the reluctance of the country to do growth generating reforms.

Multilateral lenders including the Asian Development Bank and World Bank halted budget support loans several years ago over the reluctance of the country to do growth generating reforms.

Sri Lanka has also sought International Monetary Fund support and has floated the rupee but economists have called for a rate hike to make the float work.

The IMF has said Sri Lanka’s debt is unsustainable.

ECONOMYNEXT – China has pushed Sri Lanka to complete a Free Trade Agreement saying the deal “would immensely benefit” the island as India is strategically wrapping up energy deals while offering credit lines to the nations strapped for dollars due to money printed to keep rates low.

Free trade talks between China and Sri Lanka hit a hurdle in 2018 under the last administration because Beijing disagreed with Colombo’s demand for a review of the FTA after 10 years according to officials familiar with the issue.

Qi Zhenhong, the Chinese Ambassador to Sri Lanka has discussed the ongoing FTA negotiations when he met Foreign Minister G L Peiris a statement said.

“Ambassador Qi while stating that China had signed over 26 FTAs, expressed that finalising the proposed FTA between Sri Lanka and China would immensely benefit the Sri Lankan local market and products,” Sri Lanka’s Foreign Ministry said in a statement on Sunday (20).

“He also urged the Sri Lankan authorities to resume the 7th round of FTA negotiations at the earliest.”

“Minister Peiris highlighted that the 7th round of FTA negotiations will soon commence with the support of the respective line agencies in Sri Lanka.”

China has invested billions of dollars building ports, airports, roads and power stations in the Indian Ocean island nation just off the southern toe of India as part of its Belt and Road Initiative (BRI) to increase its trade and other connections across Asia and beyond.

However, since the last quarter of 2021, Sri Lanka has strengthened its diplomatic relations with neighbor India, which has strategic investment and security interests in the island nation.

Sri Lanka is facing severe shortage of foreign currency and risks of sovereign debt default due to low interest rates enforced by money printing.

Sri Lanka Borrows, Signs Deals

As a result, the President Gotabaya Rajapaksa’s administration was compelled to ask for loans and swaps to prevent a sovereign debt default and a growing shortage of fuel, food, medicines, and other essential items.

India has agreed to extend a billion dollar credit line to import food, medicines, and other essential items, a 500 million US dollar credit line to import fuel, a 400-million-dollar swap, and deferment of around 912 million US dollars until May.

In return, Sri Lanka finalized nearly two-decade dragged oil tank farm deal in its Eastern port district of Trincomalee, agreed on a government-to-government deal to build a 100 MW solar power plant in Trincomalee’s Sampur area.

Power plants are also expected with India’s Adani group.

India’s leap on lending and inking the deal within shorter period comes as it along with the United States and Japan had raised concerns over increasing Chinese influence in Sri Lanka.

Sri Lanka’s Foreign Ministry said “both parties expressed great satisfaction over strong bilateral relations, including government to government contacts, people to people contacts as well as Party to Party contacts between the Chinese Communist Party and the island nation’s ruling Sri Lanka Podujana Peramuna (SLPP).

Sri Lanka consumers and businesses import more goods from China than it at the moment, some of which are inputs for exports to third countries and also products made for the domestic market.

China has already overtaken India as the top importer since 2019, the official data showed.

Sri Lanka imported $3.5 billion worth of Chinese goods in 2020 which is 22 percent of the total imports, mostly raw materials for garments, machines and electronics, metals, transport equipment and chemicals, followed by India which accounted for 19.2 percent of the total imports in the same year.

No FTA Talks in 5 Years

Ministerial level discussions about an FTA agreement have not been held since March 2017 while lower-level discussions between officials have made little progress after the deadlock over a 10-year review, Colombo officials have said.

Free trade benefits the poor and makes the country export efficient, but can hurt the profits and revenues of companies run by so-called import substation oligarchs and other firms which overcharge the public under tariff protection.

The review clause that Sri Lanka requested in 2017 would allow it to change some of the deal terms if firms that were overcharging the public faced more competition.

So-called ‘sunset clauses’ can increase uncertainty and put businesses that invest on the basis of a free trade deal at risk.

China in January signaled the desire to resume the stalled FTA talks to boost exports and come out of an economic crisis during a visit of Foreign Minister Wang Yi.

Officials from the last government had said that China wanted zero tariffs on 90 percent of goods the two countries sold to each other as soon as the FTA is signed while Sri Lanka wanted it to start with zero tariffs on only half of the products concerned and expand gradually over 20 years.

China’s push for free trade pacts with the Maldives in 2017 drew criticism from opposition political groups who said it had been rushed through parliament with less than an hour of debate.

Oligarch Power

Sri Lanka in 2018 has wanted more time to negotiate the deal as it was not sure about the economic impact of a rushed deal on its economy.

Though a leader in free trade in the region at one time, Sri Lanka has seen import tariffs go up over the last 15 or so years with protectionist oligarchs gaining more political clout, critics say.

India has tried to expand its existing FTA to a comprehensive economic partnership for more than a decade.

However, it has met with resistance from the protectionists who want to charge higher than world prices from consumers.

Exports to India under the free trade deal has grown making the country the third highest buyer of Sri Lanka goods after the US and EU.

Sri Lanka’s imports from India, some of which such as cars are heavily taxed, have also grown, as Indian products are cheaper for consumers than European or Japanese products, leaving more disposable income in the hands of consumers.

Money saved by the purchase of cheaper Indian or Chinese goods, can be spent on domestic services such as education, domestic tourism, or other products, raising living standards, expanding jobs, gross domestic product and tax revenues, analysts say.

An FTA with Singapore by the last administration was strongly resisted by the current ruling SLPP when it was in the opposition with doctors in particular making claims.

Government officials have said that some political parties resist such agreements without any knowledge but just to make sure it is not implemented under their rival government. (Colombo/March21/2022)

ECONOMYNEXT – Power cuts of 5 hours minutes for some areas in Sri Lanka and 4 hours and 3 minutes for other areas were approved in two blocks for March 21 Monday, the Public Utilities Commission Chairman Janaka Ratnayake said as a forex crisis creates power shortages in the dry season.

Areas ABCDEFGHIJKL will have power cuts of 3 hours and 20 minutes from 800am to 600pm and 1 hour and 40 minutes from 600pm to 1100pm.

Areas PQRSTUVW will have power cuts of 2 hours and 40 minutes from 900am to 500pm and 1 hour and 50 minutes from 500pm to 1030pm.

Download the power cut schedule for March 21 Monday from 21-03-22-Power-Interruption-schedule

Sri Lanka is facing forex shortages due to money printed to keep interest rates low and the country has run out of reserves and the currency has been floated.

However the float has not yet taken place and the rupee has fallen from 203 to 275 to the dollar and prices are getting validated at that level. (Colombo/March 20/2022)