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ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa addressed the nation on March 16, amid the worst forex crisis triggered by the country’s Latin America style central bank which was set up in 1950.

President Rajapaksa said the country will go for an International Monetary Fund bailout as the country reels from fuel, medicines shortages.

Sri Lanka cut taxes in December 2019 and printed large volumes of money to keep interest rates down, boosting domestic demand and triggering a collapse of a soft-peg with the US dollar.

Sri Lanka joined the IMF on August 29, 1950, a day after creating a Latin America style soft-peg (an unstable intermediate regime) after breaking a Singapore and Hong Kong style currency board that kept the country stable since 1885.

It will be the 17th time the soft-pegged central bank has sought IMF help.

The full statement is reproduced below:

Most Venerable Maha Sangha, Priests of other Religions, Mothers, Fathers, Brothers and Sisters, Dear Children and Friends.

I address you today at a challenging time.

I am well aware of the shortages of essential items and increase in prices. I am also aware of issues such as gas shortage, fuel shortage and power cuts. I am also very sensitive to the many sufferings the people have to experience over the past two months. I know that this situation will continue for reasons beyond our control though we make maximum possible efforts with regard to these situations.

I accept responsibility for the actions I take. Today, I am determined to make tough decisions to find solutions to the inconveniences that the people are experiencing. I have appointed a National Economic Council and an Advisory Committee to assist it. I will constantly monitor whether the decisions I make through this are implemented. Therefore, first of all I request you to have faith in the actions I will take on behalf of the people.

I am well aware of the difficulties faced by the people. I was able to better understand and manage all the difficulties faced by the soldiers who were at the forefront of the war against the brutal terrorism and the innocent civilians who were affected by the war.

Our country is not the only country in the world affected by the prevailing crisis situation. The entire world is engulfed with various hardships. Increasing shipping costs, rising commodity prices and shortages of certain goods caused by the Covid-19 pandemic are all beyond our control. However, we have adopted concessionary initiatives for the benefit of the people.

This crisis was not created by me. When those who contributed to the creation of this crisis are criticizing the government in front of the people today, I am attempting to immediately resolve this crisis and provide relief to the people.

In a crisis situation like this, it is the responsibility of the politicians and intellectuals of a country to collectively find solutions to the issues.

The root cause of current issues is our foreign exchange crisis.

The projected export earnings for this year is USD 12 billion, before the rupee was floated. According to the data of the last two months, we have to bear USD 22 billion as the import cost this year. Accordingly, this will result in a trade deficit of USD 10 billion.

Based on recent data, this year we will receive about USD 3 billion from tourism, as well as export services such as information technology, and USD 2 billion from remittances from expatriate workers. Accordingly, the trade deficit will be USD 5 billion.

Meanwhile, USD 6.9 billion will have to be paid in loan installments and sovereign bonds this year. Then there will be a deficit of USD 11.9 billion.

We expect to generate USD 2.5 billion from other grants and investments. Accordingly, there is a total deficit of USD 9.4 billion in foreign exchange.

However, once the rupee is floated, export earnings are expected to reach USD 13 billion. This will also reduce the cost of imports from USD 22 billion to USD 20 billion. If that happens, the trade deficit could be reduced to USD 7 billion. We should aim for this target.

We can also expect USD 4 billion by providing export services and USD 5 billion in remittances from expatriate workers. Accordingly, our trade deficit will be USD 2.4 billion.

We must take action to fill this deficit and increase our foreign exchange reserves.

To this end, we have initiated discussions with international financial institutions as well as with our friendly countries regarding repayment of our loan installments. The government is in discussions with various parties to implement a new method regarding this which will be beneficial to our country. Yesterday’s discussion with the International Monetary Fund was also held for this purpose.

Through those discussions, we hope to find a way to pay off our annual loan installments, sovereign bonds, and so on. Subsequent to my discussions with the International Monetary Fund, I have decided to work with them after examining the advantages and disadvantages.

Due to some decisions I have taken in the recent past, we were able to control the import expenditure to a great extent. We suspended importing vehicles two years ago because we saw this issue in advance. In addition, we encouraged local industries. We also stopped the importation of many non-essential food items and took steps to cultivate those crops in our own country. Now we can witness the successful results of those initiatives.

The most serious issue we face in controlling the cost of imports is the rapidly rising fuel prices in the world market. Generally, more than 20 percent of our import expenditure is spent on purchasing fuel. In the last few months alone, fuel prices in the world market have more than doubled. This is the reason why the increase in fuel prices in our country was inevitable. Fuel is widely used in our country not only for vehicles but also to generate electricity.

This is why, I constantly took steps to discuss and encourage relevant agencies to use renewable energy sources as much as possible.

Therefore, by limiting the use of fuel and electricity as much as possible, the citizens too can extend their support to the country at this time. I hope that you will understand the responsibility lies with you at this challenging time.

The tourism industry, which was collapsed due to the COVID-19 pandemic, is revving. The last two months have seen a clear increase in tourist arrivals to Sri Lanka.

Also, due to the acceleration of the government’s provision of infrastructure facilities in the IT and telecommunications sectors, the revenue generated through these sectors is increasing.

We are a nation that has experienced many adversities and at the same time conquered those challenges throughout the history. We have faced foreign invasions, great famines, natural disasters and threats of terrorism. The way we dealt with the Covid-19 situation has been praised even by international organizations. However, we all need to understand that we have to face difficulties when implementing solutions for the issues for a certain period of time. Therefore, I urge all of you not to be discouraged but to unite as a nation to overcome this crisis.

You requested me to build a secure, disciplined, and a modern developed country, as well as a better education for your children. Almost two and a half years of my tenure were devoted to protect you and your child from the pandemic. I will dedicate remaining period of my tenure to accomplish those original goals.

I urge the Cabinet, the Parliament and public officials to work together as a team to achieve our desired goal of providing a better country for our children with a great commitment.

I entered into politics on your invitation. All of you have placed an utmost trust in me. I will never betray the trust you have placed in me and protect it with a great commitment.

May the Noble Triple Gem bless you all!

ECONOMYNEXT – Sri Lanka will seek International Monetary Fund support, President Gotabaya Rajapaksa said as the country reels from foreign exchange shortages due to unusually high levels of money printed to keep interest rates low.

Sri Lanka is facing forex shortages for basic imports as printed money has pushed up domestic demand and made it difficult to repay debt.

“To this end, we have initiated discussions with international financial institutions as well as with our friendly countries regarding repayment of our loan installments,” President Rajapaksa said.

“The government is in discussions with various parties to implement a new method regarding this which will be beneficial to our country.

“Yesterday’s discussion with the International Monetary Fund was also held for this purpose.

“Through those discussions, we hope to find a way to pay off our annual loan installments, sovereign bonds, and so on.

“Subsequent to my discussions with the International Monetary Fund, I have decided to work with them after examining the advantages and disadvantages.

Sri Lanka will be seeking IMF help for the 17th time since a Latin America style central bank was set up in 1950 abolishing a Singapore, Malaysia and Hong Kong style currency board that had kept the country stable since 1885.

The Singapore and Malaysia currency board (Straits dollar) was set up in 1898, but the monetary arrangements were retained after independence.

President Rajapaksa meanwhile promised to solve the economic crisis.

“I accept responsibility for the actions I take,” President Rajapaksa said. “Today, I am determined to make tough decisions to find solutions to the inconveniences that the people are experiencing.

“I have appointed a National Economic Council and an Advisory Committee to assist it. I will constantly monitor whether the decisions I make through this are implemented. Therefore, first of all I request you to have faith in the actions I will take on behalf of the people.”

ECONOMYNEXT – Indian Prime Minister Narendra Modi met Sri Lankan Finance Minister Basil Rajapaksa on Wednesday (16) as the island nation is in the process to finalise one billion credit line deal with India amid worsening economic crisis.

Sri Lanka is facing an increasing risk of sovereign debt default as it has to pay over 4 billion US dollars for foreign loans in 2022 where as it only had 2.31 billion US dollars in its reserves by end February.

India has agreed to provide 1.9 billion US dollars including 1 billion for imports of essential commodities, 500 million US dollars for fuel import and another 400 million US dollars as a swap.

Sources close to the government said Finance Minister Basil Rajapaksa briefed the current economic challenges faced by Sri Lanka and steps it has taken.

The one billion US dollar credit line is expected to be signed during Rajapaksa’s visit, which was postponed twice.

Before meeting Modi, Rajapaksa also met Indian Minister of Foreign Affairs, Shri Harsh V. Shringla. 

Before India granted its financial aids, Sri Lanka had to finalise long dragged deals including oil tanks and power projects in Sri Lanka’s eastern district of Trinc0malee where the one of the World’s best natural harbour is located.

India has strategic interests in the Sri Lanka’s eastern Trincomalee since later 1970s.

Diplomats say Sri Lanka is seen getting close to India and the West because it is facing a financial and debt crisis.

The island nation has been an strong ally of China, its largest lender after the end of a 26-year war in 2009.

Government sources have said Indian has asked Sri Lanka to look into longer term solutions for its debt and economic crisis. This includes seeking the International Monetary Fund assistance for debt restructuring. (Colombo/March 16/2022)

ECONOMYNEXT – Sri Lanka’s liquid petroleum (LP) gas suppliers complain of another cooking gas shortage in the market as the gas duopoly is unable to open letters of credit (LCs) due to a prevailing foreign exchange crisis.

Officials of the two gas companies, the privately owned Laugfs and state-run Litro, confirmed the shortage, adding that they are still not able to open LCs even after the country floated the rupee.

“When I called the gas company they didn’t even accept my order,” Premachandra, a Litro gas dealer based in Kalutara told EconomyNext.

Premachandra said he gets his supply every Tuesday and Friday and that it finishes “then and there” but now he doesn’t have any stock left.

Another Litro Gas dealer in Bentota said: “There is a new scam with the gas transporters. They see the queues outside the shop and sell our consignment in front of us from their lorry and do not deliver the goods after the order is made. It’s a loss for us. We have spent so much just to have empty cylinders in our store.”

Gas companies in the country have been complaining about local banks not opening LCs to clear gas shipments.

Sri Lanka’s private gas supplier Laugfs Gas controls around 20 percent of the LP gas market while the state-owned Litro supplies 80 percent.

Laugfs said it needs on average 15-30 million US dollars per month to import gas. (Colombo/Mar16/2022)

ECONOMYNEXT – Thousands of protesters led by Sri Lanka’s main opposition Samagi Jana Balawegaya (SJB) staged protests demanding the president to resign due to his continuous failure in governance and economic policies.

The protesters gathered near the opposition’ office and marched for nearly 2 km towards President Gotabaya Rajapaksa’s office which is in front China’s Port City in the commercial heart pf Colombo asking

They carried placards which carried “GotaGoHome” asking the President (Gota) to go home.

The same words were written in a black head band which was worn by many protectors. Some held large light green and yellow collar banners with the words “Country is destroyed.. now enough”.

The opposition protesters criticized President Rajapaksa for the government’s messed up policies – from fertilizer to economic policies –

His decision to ban chemical fertilizer has hit the crop harvest in the last cultivation season while severe dollar shortage has led to extended power cuts due to lack diesel imports.

Protesters kicked a man who was wearing Finance Minister Basil Rajah’s face in a mask and smashed him with a sweeper while they brought a stretcher with a person lying with a slogan “people are dying because there is no medicine”.

Protesters carried coffins and burnt near the president’s office in front of the security personnel.

“If you can’t rule the country, give it to somebody else,” Opposition Leader Sajith Premadasa told the gathering before concluding the protest.

“We want a presidential election.”

Premadasa said Middle Eastern countries have agreed to grant fuel without any payment for two years when he establishes a government.

Failed Policies  

President Rajapaksa’s Sri Lanka Podujana Peremiuna (SLPP)-led government has messed up with some key policy measures, opposition party says.

It’s fertilizer policy has reduced harvests sharply in the last cultivation season and the island nation is likely to face a food shortage because of that, the opposition has said.

Severe US dollar shortage has reduced the imports of fuel, cooking gas, and milk powder and an extended power cuts across the island nation.

People have been in queues for hours to buy cooking gas, fuel, milk power, wheat flour, and kerosene due to lack of dollars to import those commodities.

“Are you ready to send this government home as they have not listened to the people?” Sajith Premadasa asked when he addressed the protesters.

“All these people have come without fearing of possible tear gas spray,” he said.

After holding the rupee at 200 per US dollar for nearly one year, the central bank’s decision to allow flexibility in exchange rate has led to a nearly 40 percent depreciation since March 8.

The Sharp fall in the rupee also has made fuel, imports, essential foods, medicines, and transport services more expensive.

The government, after dragging for many months, finally, has decided to seek International Monetary Fund (IMF) assistance on Tuesday.

The SLPP government has been against an IMF programme and had refused to seek the global lender’s assistance when they realized the country was heading for an economic and debt crisis.

In fighting between SLPP ministers have led the public to suffer in the power sector while the country is facing heightened risk of sovereign debt default due to sharp drop in foreign reserves, an economic analyst said.

Analysts say Tuesday’s protest was a tip of an ice berg of the frustrated public in the country.

The latest protest comes after the government’s strong coalition has showed clear signs of split.

The government has already lost two-third majority in the parliament after President Rajapaksa sacking two key cabinet ministers early this month.

Political analysts say the split has strengthened the opposition.

Tuesday’s protests saw tensed situation between security forces and the protesters.

The protesters were allowed to come near the presidential office next to the island nation’s protesting site and Chinese-owned high end Sangri-La hotel.

Police officials facilitated the protesters to come neat the protesting site by closing some roads in the commercial heart of Colombo. (Colombo/March15/2022)

ECONOMYNEXT – Sri Lanka stock index dropped for a third straight session on Tuesday (14) to a near one-week low as economic uncertainties after the currency depreciation weighed on the sentiment, brokers said.

Investors shrugged off a government decision that the cabinet had given approval for the Finance Minister to seek International Monetary Fund assistance to address the current economic crisis.

The main All Share Price Index (ASPI) fell 2.66 percent or 280.96 points to close at 10,284.30, its lowest since March 9. It has been on the fall since posted a record high daily percentage gain on Thursday (10).

The market turnover was 1.67 billion rupees, less than a third of this year’s average daily turnover of 5.7 billion rupees.

The fall also came as the government’s treasury bill yield rose on Tuesday to above 11 percent.

Analysts have said the gain seen on Thursday was unsustainable as only a few select shares moved the market.

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.

In the late afternoon trade on Tuesday rupee was quoted at 275/285 to the US dollar. The rupee had fallen around 40 percent so far since the central bank allowed greater flexibility on March 8.

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 fell 2.82 percent or 101.95 points to 3,514.83 points.

Rising oil price, policy rate hike, a slowing economy, and shortage of dollars, fuel, and cooking gas along with extended power cuts also weighed on the sentiment.

Sri Lanka’s central bank early this month raised the key monetary policy interest rates by 100 basis points to more than a two-year high in a bid to reduce pressure on the currency that was created by excess money printing while keeping the interest rates at a low level to spur pandemic-hit economic growth.

The market has already lost 11.1 percent so far in March after falling 11 percent in the previous month. Overall the market has lost 15.9 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 95.4 million rupees worth of shares. So far this year, the market has witnessed a total foreign outflow of 2.6 billion rupees.

Market heavyweight Expolanka, LOLC, and Browns Investments Plc dragged the main index down on Tuesday.

Shares in Expolanka fell 6.2 percent to close at 256.25 rupees a share, while LOLC dropped 4.9 percent to 791.50 .

Browns Investments Plc 4.6 percent down at 10.50 rupees a share. (Colombo/March15/2022)

ECONOMYNEXT – Sri Lanka’s cabinet of ministers had given Finance Minister Basil Rajapaksa the go ahead to seek International Monetary Fund, a government minister said as the soft-pegged rupee suffers the worst currency crisis in its history.

“Finance Minister told us (at the cabinet meeting) that we will have go to the IMF. What do you say?” Minister Chandrasena told Sri Lanka’s Derana Television in a late night talk show.

“We all said to go. I also said to go. Nobody opposed.”

Sri Lanka has a Latin America style soft-peg set up by a US money doctor in 1950 which depreciates every time domestic credit picks up and economists using Keynesian dogma try to control interest rates by printing money.

The rupee fell from 203 to around 265 to the US dollar over the past week after the central bank started a float (suspension of convertibility) of the currency to end sterilized interventions.

Analysts have said a surrender rule requiring commercial banks to sell dollars to the central bank for new money, undermines the float and further weakens the currency.

Sri Lanka’s Keynesian economists who favour state spending, fiercely oppose market driven interest rates and push the country into currency depreciation after building large domestic credit imbalances with artificially low interests enforced by money printing (central bank credit).

Many cabinet ministers have publicly supported going for an IMF program, while anti-austerity economists have ideologically opposed the move.

The IMF primarily stabilizes a country by raising rates to reduce domestic credit and also raising taxes to cut the deficit, which also helps moderate interest rates.

Keeping an exchange rate fixed or stable by allowing the short term rates to float is the most simple monetary regime in the world. It was the basic building block of economic stability in most East Asian nations.

The Minister’s comments came as IMF’s Asia Pacific Director Changyong Rhee is visiting Sri Lanka to brief President Gotabaya Rajapaksa about the Washington based lenders’ staff report, the Executive Board’s comments.

The IMF has warned that Sri Lanka’s economy could implode unless money printing was halted.

ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa will address the nation on Wednesday (16), his media unit said, as the island nation has been witnessing sharp rise in prices in all essential goods and services following the rupee fall amid public protests.

The content of the speech is expected to be the prevailing situation in the country.

Since the central bank allowed flexibility in the exchange rate on March 8, the rupee has fallen nearly 32 percent so far.

With the rupee fall, prices of fuel, wheat flour, transport, rice parcel, container transport, air tickets, and many other essential goods have been raised and people have started grumbling about the latest cost of living.

The president’s speech also comes as opposition parties have called people to join them for protests against the government’s economic mismanagement and policy failures.

The opposition protests blame Rajapaksa’s Sri Lanka Podujana Party (SLPP)-led government for a messed up fertilizer policy and mismanagement of economic policies.

The main opposition Samagi Jana Balawegaya has planned a protest in Colombo on Tuesday.

The country has seen shortage of fuel, cooking gas, milk powder, sugar, and wheat flour in the recent past mainly due to severe shortage of US dollars as the island nation’s reserves dwindled over 70 percent in the first 11 month of 2021.

The fuel shortage has resulted in extended power cuts across the country. (Colombo/March14/2022)

COLOMBO (News 1st): Rajagiriya, a swanky suburb of Colombo is generally not associated with street protests amongst its fair share of ‘well-to-do’ residents. But the town known more for its high-risers that overlook lakes and marsh and for being a few minutes away from Sri Lanka’s parliament, has seen sustained street protests over the past Colombo takes to the Streets

වැලිගම ශ්‍රී සුමංගල තෙරුන්නාන්සේ විසිනි