Lanka Free Library

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)

COLOMBO (News 1st); Many Sri Lankans lost their lives in several occasions due to wrong decisions made by the Government, among other disasters which took place recently. One such incident is the gas crisis, when authorities allegedly changed the composition of gas cylinders, causing accidents due to gas leaks and explosions throughout the country. Investigations have The cost of the crisis

ECONOMYNEXT – The price of a cup of milk tea in Sri Lanka shot up by 100 rupees on Sunday (20) after importers raised milk powder prices the previous day.

Media reports quoting All Island Canteen Owners Association President Asela Sampath said the price of a cup of milk tea was increased taking into consideration rising prices of essential commodities including sugar.

Milk tea — a mix of hot, strong tea with powdered milk and usually sugar — is a favourite beverage in Sri Lanka consumed by nearly all socioeconomic demographics.

The price of milk powder, an essential commodity in Sri Lanka, shot up by 250 rupees and 600 rupees per 400g and 1kg pack respectively on Saturday.

According to the Milk Powder Importers’ Association, a 400g pack will now be sold at 790 rupees while a 1kg pack will be sold at 1,945 rupees.

Milk powder is widely consumed in Sri Lanka in place of fresh milk and is recognised as an essential food item. However, the prevailing economic crisis had led to shortages in imported milk powder leading to long queues for the product, with importers demanding a price hike amid an artificially pegged foreign exchange regime.

The last milk powder price revision was in December 2021 — 400g by 60 rupees and 1kg by 150 rupees — but importers had persisted in their demand for a steeper increase claiming that it wasn’t enough.

Sri Lanka is currently going through one of the worst economic crises in its history and, though the currency has been floated, the prevailing dollar shortage continues to see queues across the island for essentials including fuel. (Colombo/Mar20/2022)

ECONOMYNEXT – Sri Lanka is expecting severe fuel shortages to ease with shipments from an Indian credit line beginning to come, Ceylon Petroleum Corporation Chairman Sumith Wijesinghe said, as the island nation reels from forex shortages triggered by money printing.

“From the Indian credit line, we get all the finished products, such as petrol, diesel and Jet fuel,” Wijesinghe said in a recorded statwment.

“We have already received jet fuel on the last 13 and 14. We received another diesel ship which will start unloading tomorrow.”

Wijesinghe said the public seems to be stocking up on fuel, while there is also a demand for generators with daily power cuts of up to 5 hours.

“The daily demand for diesel was 5,500 metric tonnes and 3,300 metric tonnes for petrol (before the crisis),” Wijesinghe said in a video statement.

“Now due to the excess buying we see in the country we have been issuing 7000-8000 MT of diesel and 4200-4500 MT of Petrol from CPC storage to the market in the past few days.”

In recent weeks Sri Lanka has been unable to unload ships which had brought oil to the country due to forex shortages with the central bank printing money to keep interest rates down.

The newly printed money has set off cascading credit, with a high budget deficit, triggering domestic demand and non-oil imports.

“There is a 92-octane petrol ship is unloading in Muthurajawela which will be completed tonight,” Wijesinghe said.

Another Jet-A1 ship and a diesel ship in Colombo port has started unloading and also there are two other diesels and a Jet-A1 Ship to unload in ports.”

Petroleum Minister Gamini Lokuge told reporters separately that there were delays in issuing fuel to the provinces due to unloading to the Muturajawela complex, which was not connected to the rail network.

Fuel distribution last week was also hit by a industrial action by tanker owners, after fuel prices were raised after the currency collapsed from 203 to 275 to the US dollar so far.

India is giving a 500 million dollar credit line for oil as forex shortages intensify. Another billion dollar credit for food and medicine was also signed.

Classical economists and analysts have urged legislators to change the governing law of the central bank to reduce its discretionary independence to print money and operate an intermediate regime, putting an end forex shortages, currency high inflation and social unrest. (Colombo/Mar19/2022)

ECONOMYNEXT – Power cuts of 3 hours and 15 minutes for some areas in Sri Lanka in blocks, 1 hour and 15 minites for other areas were approved for Sunday March 20, the Public Utilities Commission Chairman Janaka Ratnayake said as a forex crisis creates power shortages in the dry season.

Areas ABCDEFGHIJKL will have a 2 hour power cut from 0900am to 0500pm and another 1 hour 15 minutes from 0500pm to 1000pm, on Sunday.

Areas PQRSTUVW will have power cuts of 1 hour and 15 minutes from 4.30pm to 9.30pm.

Download the power cut schedule for March 15 Sunday from 20-03-2022-Power-Interruption-Schedule-full

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 19/2022)

ECONOMYNEXT – The price of milk powder, an essential commodity in Sri Lanka, shot up by 250 rupees and 600 rupees per 400g and 1kg pack respectively on Saturday (19), an industry source said.

A spokesperson for the Milk Powder Importers’ Association told EconomyNext that, following the price revision, a 400g pack will be sold at 790 rupees while a 1kg pack will be sold at 1,945 rupees.

Milk powder is widely consumed in Sri Lanka in place of fresh milk and is recognised as an essential food item. However, the prevailing economic crisis had led to shortages in imported milk powder leading to long queues for the product, with importers demanding a price hike amid an artificially pegged foreign exchange regime.

The last milk powder price revision was in December 2021 — 400g by 60 rupees and 1kg by 150 rupees — but importers had persisted in their demand for a steeper increase claiming that it wasn’t enough.

Sri Lanka is currently going through one of the worst economic crises in its history and, though the currency has been floated, the prevailing dollar shortage continues to see queues across the island for essentials including fuel. (Colombo/Mar19/2022)

ECONOMYNEXT – A paper shortage in cash-strapped Sri Lanka has led to final term tests for grades 9, 10 and 11 in Western province schools being postponed until after the April holidays, with tests for grades 6, 7 and 8 to be held at the school level.

Western province Provincial Director of Education Priyantha Srilal Nonis writing to zonal directors of education on Friday (18) said third party printers are finding it difficult to print school exam papers due to shortages and price increases in paper and other materials.

Sri Lanka is going through one of the worst economic crises in the country’s history, with a sever dollar shortage leading to shortages in many imports including paper.

Final term tests for grades 9, 10 and 11 would therefore have to be postponed to the next school term, and amended timetables will be provided, Nonis said.

For grades 6, 7 and 8, schools in the western province that can hold exams based on the provincial department-issued question papers can go ahead with the existing timetable, and soft copies of the papers have already been sent to the zonal education office. However, schools that are unable to do so must come up with their own question papers and timetables.

Criticising the decision, Sri Lanka including Ceylon Teachers’ Union (CTU) general secretary Joseph Stalin told reporters on Friday that children have had to pay the price for what he said was the government’s economic mismanagement.

“There are no text books either. The books should’ve been printed before January. They haven’t done their job,” he said. (Colombo/Mar19/2022)

ECONOMYNEXT – Sri Lanka stock gained on Friday (18) due to some bargain hunting for the first time in five straight session as negative sentiments over economic uncertainties worsened after the currency depreciation, brokers said.

The main All Share Price Index (ASPI) gained 1.28 percent or 131.28 points to close at 10,35.83, recovering from its lowest since March 9.

Analysts said they see a slow down in the decline and that bargain hunters were entering the market.

“But the volumes are low and still the market expects further slowdown,” a market analyst said.

“Corporate and other taxes are expected to rise with Sri Lanka going to IMF. So the index will further come down.”

Sri Lanka has decided to seek IMF assistance to face the economic and debt crisis.

The market turnover was 1.4 billion rupees, around a quarter of this year’s average daily turnover of 5.5 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 over 40 percent since the devaluation on Tuesday (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.

S&P SL20 of the most liquid stocks up 1.82 percent or 64.05 points to 3,588.11 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 10.5 percent so far in March after falling 11 percent in the previous month. Overall the market has lost 15.3 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year.

Foreign investors bought a net 65.9 million rupees worth of shares. So far this year, the market has witnessed a total foreign outflow of 2.4 billion rupees.

Market heavyweight John Keells, Expolanka and LOLC pushed the main index up on Friday.

Shares in John Keells rose 3.1 percent to close at 156.60 rupees a share while the Market heavyweight Expolanka closed up 3.4 percent at 259.50 rupees a share.

LOLC Holdings gained 3.4 percent to close at 801.75 rupees a share. (Colombo/March18/2022)