Lanka Free Library

ECONOMYNEXT – Sri Lanka’s main opposition has questioned in parliament whether a state bank has delayed payment on a contract as the country struggles with foreign exchange crisis triggered by money printed to maintain low interest rates.

“With great sadness we are saying this,” Samagi Jana Balawegaya legislator Harsha de Silva told parliament.

“We have heard that a state bank has defaulted. Please look into this immediately. ”

Sri Lanka banks have faced counterparty limit cuts since a downgrade of the sovereign credit which have tightened in recent times making it harder to roll-over contracts.

De Silva said a few months ago he warned in parliament about state banks borrowing dollars a high rates through swaps where premiums were negative.

Authorities have also forced dollars coming into the country to be converted to rupees, further hurting dollar deposit building.

State banks have funded dollar loans to the Ceylon Petroleum Corporation in particular.

De Silva said the Monetary Board of the central bank has been asked to come to the committee on state accounts at the parliament this week but they have not turned up. (Colombo/Mar24/2022)

ECONOMYNEXT – Sri Lanka’s poultry sector is in crisis with feed shortages worsening and prices going up, an industry official warned as the rupee collapsed under the pressure of money printed to keep interest rates.

Broiler meat prices have reached 800 to 900 rupees a kilogram and eggs went over 30 rupees threatening the availability of protein from around 450 to 500 rupees last year.

“One of the biggest issues is not having raw materials to make animal food,” Ajith Gunasekara, President of the All Island Poultry Association told EconomyNext.

“In the last two months, we could not import the raw materials for the food, because of the dollar crisis.”

Sri Lanka started printing money to keep interest rates down (monetary stimulus) after cutting taxes (fiscal stimulus) in a bid to create a ‘production economy’ in an extreme Keynesian boom policy ignoring warnings from classical economists.

Sri Lanka has been able to print money since 1950 when a soft-peg central bank replaced a currency board which had kept the country stable through two World Wars and a Great Depression.

Keynesian stimulus hits chicken

“Due to not having good nutritious raw materials the farmers were not able to give nutritious food for the animals, especially layers,” Gunasekara said.

“That including the heat nowadays, egg production fell by 40 percent.”

Sri Lanka’s State Veterinary Surgeons Association has warned that farmers are culling layer chicken due to the lack of feed selling for meat.

It takes more than 6 months to grow a chicken and it would take more than a year for the sector to reach normalcy, officials said.

Over 70 percent of the production cost of poultry farmers is feed cost.

India credit for chicken feed?

The Poultry Association is hopeful that maize and feed ingredients could be imported under the Indian credit line.

“According to them (authorities) the food items that are to be purchased under the Indian credit line also includes animal food,” Gunasekera said.

“From today (Monday) we asked the suppliers to get the raw materials from India under this credit line.”

Poultry farmers get materials from European and Chinese markets too but are still unable to import due to a dollar shortage.

“When we can’t supply to the demand the first people that will be affected is the small-scale farmers,” Gunasekera said.

“It is already happening. Large scale farmers are also facing this issue because they also make their own animal food needed for their farms and the production costs increase for them as well.”

However, Gunasekerasays they don’t want to halt the production as that will create a major price hike and with the green light they have received from the government the industry is hopeful.

The rising price of meat and fish are also driving up the demand for eggs he said. (Colombo/Mar24/2022)

ECONOMYNEXT – Power cuts of 6 hours and 20 minutes for some areas in Sri Lanka and 5 hours for other areas were approved in two blocks for March 24 Thursday, 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 0800am to 0600pm and 1 hour and 40 minutes from 600pm to 1100pm.

Areas PQRSTUVW will have power cuts of 4 hours from 30 minutes from 830am to 0530pm and 1 hour and 50 minutes from 0530pm to 1100pm.

Download the power cut schedule for March 24 from 24-03-2022-Power-Interruption-Schedule-full

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

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 – 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.

Related

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)