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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)

COLOMBO (News 1st); No conditions have been underlined for the USD 1 billion loan given by India, however, the amount will have to be paid back in installments after three years, said Finance Minister Basil Rajapaksa. The President is acting on a very prudent and a long-term plan, says Finance Minister Basil Rajapaksa on repaying the country’s loans No conditions for Indian loan, SL has to pay back in three years: Basil

ECONOMYNEXT – Marxist youth affiliated with the opposition Janatha Vimukthi Peramuna (JVP) protested the government’s handling of Sri Lanka’s worsening economic crisis on Friday (18) outside the president’s office, culminating in some protestors attempting a break-in.

The JVP-affiliated Socialist Youth Union (SYU) marched from the Maradana Technical Junction to the Presidential Secretariat in Colombo Friday morning, carrying placards and shouting slogans against the ruling Sri Lanka Podujana Peramuna (SLPP), President Gotabaya Rajapaksa and others.

Sri Lanka is going through one of the worst economic crises in the country’s history as a severe dollar shortage has led to daily power outages and long queues for essentials including fuel. The protestors also demanded the cancellation of a power deal with a US energy company and a deal with India to manage a decades-old oil tank farm in the Eastern district of Trincomalee.

Reports said a group of protestors had broken into the presidential secretariat causing a commotion. However, the situation seemed to have been brought under control by mid afternoon by which time the protest had ended.

Organiser Eranga Gunasekera could be heard calling to the youths connected to different political parties to join the SYU.

“The youth of the SLPP who have gotten the boot can come join the JVP. The youth that want to get the boot can stay with SJB.”

On Tuesday (15), the main opposition Samagi Jana Balavegaya (SJB) led a protest march that saw thousands of party supporters gathered outside the presidential secretariat in a similar expression of apparent anger towards the government. (Colombo/Mar18/2022)

COLOMBO (News 1st); Opposition Leader Sajith Premadasa said that the tea industry is facing a crisis due to the government’s ad-hoc decision to do away with chemical fertilizers. He was speaking at an event in Matara on Thursday (17), to discuss issues faced by the tea estates in the districts. Many large and medium-scale tea Fertilizer Crisis led to Tea Industry fall

ECONOMYNEXT – The International Monetary Fund intends to begin discussions with Sri Lanka on a program to support the country, spokesman Gerry Rice said as the island is facing steep currency depreciation and inflation after an unusual bout of money printing to keep interest rates low.

President Gotabaya Rajapaksa said in a national address Wednesday said that he had given the go ahead for an IMF program after meeting senior staff of the lender in Colombo.

“The authorities have also indicated that they are actively considering an IMF-supported program,” IMF spokesman Gerry Rice said.

“We will discuss with the authorities how best we can assist Sri Lanka going forward, including during the Minister of Finance’s visit in Washington in April.”

The IMF has already called for for tighter monetary policy to stop liquidity injections which create forex shortages.

Related

Sri Lanka debt unsustainable, should stop printing money, hike rates, taxes: IMF

Sri Lanka President says seeking IMF bailout for forex crisis, debt

Sri Lanka money printing, deficits could lead to economic implosion: IMF report

The IMF has analyzed Sri Lanka’s economy in a staff report which has been submitted to the board, following annual Article IV consultations. The full report has not been made public, but key conclusions, including that the debt is unsustainable is now known.

Urgent Action

The report also warned that the economy could implode unless actions was taken to halt monetary instability, though analysts say the IMF does not make a habit of modelling disaster scenarios.

Rice said the IMF had highlighted “the urgent need of implementing a credible and coherent strategy to restore macroeconomic stability and debt sustainability, while protecting vulnerable groups through strengthened, well-targeted social safety nets.”

With the debt deemed unsustainable, re-structuring or re-profling will also be required.

Sri Lanka for sometime has not had a working exchange rate regime, with a peg having lost credibility and parallel exchange rates emerging due to money printing.

In a program a float of the currency to end dual anchor conflicts (reserves sales for imports and money printing to maintain the policy rate) is a prior action. Though the exchange rate has been allowed to fall, a clean float has not yet been established.

Analysts have said the central bank should to remove a surrender requirement that effectively imposes a strong side convertibility undertaking in the style of a peg and further weakens the rupee.

Further policy rate hikes are also needed to make the float work.

If a float is not established, economic problems that took place at 200 to the US dollar, will continue to take place at a weaker level. The currency can be appreciated if required after domestic credit slows (consumption and investments slows) and sterilizing inflows.

An IMF program typically involves a tight reserve money program to stop inflation and block the validation of domestic prices as the currency weakens.

Tax hikes and spending cuts will reduce the budget deficit and domestic credit, keeping down the corrective interest rate. Sri Lanka’s private citizens are net savers and are incapable of triggering currency pressure.

A foreign reserve target is also given and reserves for imports are generally discouraged (sometimes a so-called disorderly market conditions intervention is allowed which however can undermine the currency unless they are unsterilized).

Debt re-structuring will also reduce the corrective interest rate and the need to immediately deploy more savings for debt repayment and leave space for reasonable growth path.

India is giving a 500 million US dollar credit and a billion dollar credit for food and medicines which can be used to finance the deficit if they are not used for subsidies.

Medicine credits can be used for the health budget directly or cash collected from private sector importers can be used to finance other expenses such as the salary bill, analysts say.

Unemployed graduates had progressively bloated the public sector and have become a key consumer of the productive efforts of society.

Classical economists and analysts have called for reforms to the central bank to outlaw intermediate monetary regimes (flexible exchange rates/soft-pegs) and go for a single anchor regime made up of a fully reserve-backed hard peg or a clean floating regime with a low inflation-driven monetary base and no foreign reserves.

Such a regime will eliminate the need for IMF programs in the future. A hard peg with a low inflating reserve currency in particular will also serve as a hard budget constraint and help social unrest. (Colombo/Mar18/2022)

ECONOMYNEXT – Sri Lanka’s current economic troubles would have been avoided if a decision has been made to approach the International Monetary Fund earlier and authorities cannot disclaim responsibility, opposition legislator Harsha de Silva said.

De Silva said President Rajapaksa in a national address indicated that he will work with the IMF to solve the economic and debt crisis.

“It is a good thing, but the problem is if the problem was anticipated, why the discussions with the IMF was delayed up to now,” de Silva said.

“That this country was heading for a crisis was warned by independent economists about 18 months earlier.

“If the current decision was taken then, people will not suffer as they are doing now.”

Sri Lanka’s rupee has so far fallen from 203 to around 275 after an attempt was made to float the currency and end dual anchor conflicts (a too low policy rate enforced by liquidity injections which made the peg non-credible), but the float has not yet got established.

De Silva was one of the first legislators who wanted the government to re-profile debt (extent maturity) as the central bank started to print money (monetary stimulus) after cutting taxes (fiscal stimulus) based on Cambridge economics/Keynesian style ideology, torpedoing Sri Lanka’s exchange rate peg.

An exchange rate peg with a stable currency (and external anchor for reserve money) is the simplest monetary regime imaginable and has been followed by East Asia during their fastest growth phase and is also followed by Dubai and other GCC countries.

Sri Lanka had such a regime from 1885 to 1950 where foreign reserves of 11 month of imports were collected until a Latin America style soft-peg (a regime with conflicting external and internal anchors) was set up styled on the Argentina central bank of Raul Prebisch in 1950.

Legislators have the power to eliminate the sufferings of the people with one act of parliament which will take away the discretionary independence of the Monetary Board of Sri Lanka to print money under various pretexts based on failed Anglo-American ideology and commit them to a rule of law.

In South Asia itself the Maldives has a partly credible peg which had broken only once or twice while Bhutan and Nepal have pegs with the Indian rupee which have lasted even longer.

However the Indian rupee is not a stable external anchor and its policy errors and inflation de-stabilizes both nations.

Both the public and legislators can take away the ability of the economists to destroy currencies by outlawing discretionary monetary policy.

Options include:

Credible external anchor/East Asia currency board: Exchange rate fixed, short term rates floats, domestic operations curtailed by law, reserve money driven by the balance of payments i.e. the foreign reserves.

Credible domestic anchor: Interest rates are targeted by open market operations. Exchange rate interventions barred, no reserves are collected. The government manages both domestic and foreign debt by buying dollars in the open market.

East Asia currency board plus or a peg with high degree of credibility: Wide policy corridor with two way liquidity auctions. Policy ceiling linked to anchor currency policy rate plus 100bp margin.

May end up collecting un-necessary volumes of foreign reserves (Asian savings glut), and subject to risk from Keynesian/Cambridge economics economists coming into senior positions and changing domestic operations.

Currency board plus with excessive reserves are at risk from the US Treasury for false charges of ‘undervaluing’ and a push by the IMF for flexible inflation targeting, which is also an oxymoron dual anchor conflicting regime which can trigger social unrest and unseat governments. (Colombo/Mar18/2022)

Concluding his two-day official visit to New Delhi, Finance Minister Basil Rajapaksa today (17) witnessed the signing of the agreement pertaining to the Short-Term...

ECONOMYNEXT – Sri Lanka had inked a deal with the State Bank of India to get a billion US dollar credit for food and medicine, India’s Finance Ministry said.

Finance Minister Basil Rajapaksa and Treasury Secretary Sajith Attygalle is on a two day visit to India.

Rajapaksa has met Prime Minister Narendra Modi, External Affairs Minister S Jaishankar during thevist.

“India stands with Sri Lanka,” Jaishankar said in a twitter.com message.

“US$ 1 billion credit line signed for supply of essential commodities. Key element of the package of support extended by India.”

Neighborhood first. India stands with Sri Lanka.

US$ 1 billion credit line signed for supply of essential commodities.

Key element of the package of support extended by India. pic.twitter.com/Fbzu5WFE3n

— Dr. S. Jaishankar (@DrSJaishankar) March 17, 2022

Sri Lanka is in a severe currency crisis after printing large volumes of money to keep interest rates down and also sterilize interventions, which had triggered an import boom.

However with the central bank running out of reserves, there has been an attempt to float the rupee. (Colombo/Mar17/2022)

ECONOMYNEXT – Sri Lanka’s canteens and restaurants will be force to close from March 17 as cooking gas supplies dry up, threatening the livelihoods of around 500,000 persons, a media report quoting an industry association said.

All Island Canteen Ownders Association Chief Asela Sampath was quoted as saying by Sri Lanka’s Lankadeepa newspaper that canteens and restaurants around the country which provide prepared meals will be forced to shut from March 17.

The restaurants employ around 500,000 persons, Sampath claimed.

Sri Lanka’s private Laugfs Gas stopped supplies sometime ago and state-run Litro is also without supplies as tankers await the release of dollars.

A tanker which used to cost about 3.5 million dollars now costs around 8 million US dollars and the firm is also paying demurrage as ships wait an anchor.

If the forex crisis is not solved canteen workers will take gas tanks and plates and camp out in front of the presidents’ office in Colombo, Sampath was quoted as saying.

Sri Lanka is in a serious balance of payments crisis after printing large volumes of money (monetary stimulus) after cutting taxes (fiscal stimulus) to generate a ‘production economy’.

Sri Lanka has suffered forex shortages ever since a Latin America style central bank was set up by a US money doctor in 1950.