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Thursday December 1st, 2022

Ban-nomics: Sri Lanka to ban imports of handloom textiles, printed batiks

ECONOMYNEXT – Sri Lanka will ban the import of printed batik and handloom textiles to eliminate competition from imports for domestic producers, State Minister for Batik, Handloom Fabric and Local Apparel Products, Dayasiri Jayasekera said.

He said young were no longer interested in joining the batik industry but the government would set up training centres for 10,000 individuals and pay them 5000 rupees at tax payer expense and train them.

Minister Jayasekera said printed batik cloth rolls will be banned through the applicable Customs HS Codes.

“Secondly, handloom textiles are brought into Sri Lanka in large numbers, so bringing in of handloom textiles is also stopped through a designated HS code,” he added.

Under the Harmonized System of customs codes, each country could specify sub codes to distinguish between individual products.

The availability to cheaper industrial cloth in the 1980s, which competed with kerosene smelling textiles made at state enterprises raised the living standards of the masses.

The trade liberalization also led to the closure of many handloom centres that were established during the closed economy of the 1970s.

However several Colombo based firms in particular helped make handlooms in to a high-end product, with craftsmen being encouraged making higher quality products with better dyes under their brands.

Several firms have also started an export market.

But Minister Jayasekera he will ban imports to limit competition and stop consumers from buying less expensive products. He hopes it will create a bigger market for batik products.

“When a saree is produced in Sri Lanka and given between 2500-3000 to rupees, it is brought from other countries for 800 or 900 or 1000,” he said.

He said that there are about 11,000 makers of batik in Sri Lanka.

It is not clear how many people who bought a batik saree for 800 will be able to by one for 2,500 to 3,000, or whether they will shift to some other type of saree.

But Minister Jayasekera said government will set up a training centre in every electorate from which a member of parliament is elected, to train 10,000 persons.

“Already five have been established,” he said. “We expect to complete 200 training centres within this year. Thirty persons will be trained in every batik centre for three months. They will not only be trained on production but we will teach them sewing too.”

He said not many people were entering the industry.

In order to attract people to the industry, the government is planning on providing 5000 as an incentive for people who sewing handloom textiles in Sri Lanka and that the cabinet paper will be presented in the future.

He said some raw materials needed were also not available.

Sri Lanka has controlled many imports after unprecedented money printing created forex shortages. The rupee has also depreciated. It is not clear whether the materials shortages are related to controls or due to some other issue.

“Next year, starting from the Matara district, we expect to gather all the batik manufacturers in the district and introduce them to the importers of dye and clothes in Sri Lanka and develop a process to address the shortage of these materials,” Minister Jayasekera said.

Jayasekera represents the Matara district. Sri Lanka has appointed a number of ministers for various sectors ranging from clay to handlooms who are required to do some state intervention in their area to show some results.

Minister Jayasekera said there was no plan to for a broad ban on textile imports and only items such as bed sheets and sarees will be banned.

Rulers have already banned a number of products in the expectation that creating a scarcity and driving up prices will bring prosperity to the people of Sri Lanka.

Prices of banned items such as turmeric, green gram, have shot up. Sri Lanka Navy is kept busy nabbing smuggled turmeric from India. Sri Lanka has also banned the import of ethanol to give profits to a loss making expropriated state enterprise.

Brown sugar is also taxed at higher level that while sugar to give profits to the loss making state enterprise. Palm oil is the latest item to be banned. (Colombo/April09/2021)

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Sri Lanka electricity losses from overpriced fuel, no tariff hike considered: regulator

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board’s high operating costs are partly due to excessive prices paid for fuel and no tariff hike is being considered, Chairman of the Public Utilities Commission of Sri Lanka, Janaka Ratnayake said.

The CEB itself does not buy fuel but depends on state-run Ceylon Petroleum Corporation and Lanka Coal, another state firm to buy fuel. Both firms are periodically caught in procurement scandals.

“They are paying about 385 plus rupees per litre for furnace oil,” Ratnayaka told EconomyNext.

“That is too much. From the global market we can buy it to much lower price. It can be imported below 200 rupees,”

“I ask the government to take the necessary steps to create a system to import furnace oil, like they did for fuel, to be imported at the lower price levels. If that happens, we can go without going for a price hike.”

Sri Lanka’s CEB generally gets furnace oil and residual oil from the domestic refinery and usually do not import furnace oil.

The refinery however is not regularly operating due to inability to get crude amidst the worst currency crisis in the history of the island’s intermediate regime central bank.

Ratnayake had earlier brought to light import costs of the CPC.

Pushing for operations efficiency of the CEB is a role of the regulator. Regulating costs based on global benchmark prices to push for procurement efficiencies is a standard practice. However the PUCSL is not the official regulator of the petroleum sector.

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Sri Lanka power tariff revisions sought in Jan and July: Minister

Power and Energy Minister Kanchana Wijesekera told parliament that cabinet approval was sought to twice yearly tariff hikes in January and July of each year.

No Electricity tariff hikes are being considered yet, Ratnayake said.

Wijesekera blamed the regulator as well as successive administrations for not regularly revising power prices and pushing the sector into crisis.

In Sri Lanka activists had also blocked cheap coal power. (Colombo/Dec01/2022)

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Sri Lanka banks may need more regulatory, accounting forbearance: Coomaraswamy

ECONOMYNEXT – Sri Lanka’s banks may need more regulatory forbearance ex-Central Bank Governor Indrajit Coomaraswamy said as the country imposes stabilization measures after the worst currency crisis since independence.

“We need to look at regulatory forbearance,” Coomaraswamy told a forum organized by CT CLSA Securities, a Colombo based brokerage.

“For CA Sri Lanka to do some more accounting forbearance. They have given some already.”

Sri Lanka’s central bank has given some regulatory loosening in the mark to market losses and also in liquidity ratios.

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Sri Lanka relaxes bank capital rules to cushion bond losses as rates spike

Sri Lanka’s banks are seeing higher levels of bad loans after the latest currency crisis as well as mark-to-market losses, and the impact of dollar sovereign bonds in default.

Sri Lanka’s stage 3 loans were 7.9 percent of total advances (net 8.7) by the end of the second quarter of 2022.

It compares with a 6.6 percent NPL ratio in the first quarter of 2020 as the Coronavirus pandemic started, which also triggered bad loans just as the roots of the current currency crises started.

In a currency crisis, a soft-pegged or reserve collecting (flexible exchange rate) central bank will inject liquidity to either monetize mostly maturing Treasuries from past deficits (in Latin America mainly failure to roll-over sterilization securities) to suppress rates.

When forex shortages begin to emerge from the excess credit, the flexible exchange rate central bank will intervene and sterilize the dollar sales to keep suppressing rates and prevent reserve money from contracting. Both moves allow banks to give credit without deposits, worsening their loan to deposit ratios and blowing a hole in the balance of payments.

When interest rates correct to stabilize the currency crisis and injections end, bad loans pile up. During the Coronavirus crises however economic activity was muted, compared to previous credit cycles and large volume of injected liquidity piled up in the banking system.

Before the twin crises, the central bank had earlier made banks boost capital.

Coomaraswamy who was Central Bank Governor until the beginning of 2020 said the then head of bank supervision A Thassim had insisted that banks comply with the Basle III capital standards as early as possible, when he himself was prepared to give some more time.

As a result, Sri Lanka banks were well capitalized at the start of the crisis, he said.

In the crisis with government finances already weakened, the banks were made to give relief and took the pressure, Coomaraswamy said.

After Sri Lanka default in April and interest rates were normalized to stop the currency crisis, banks were now facing pressure.

CA Sri Lanka, the island’s accounting body had already given some leeway to re-classify trading portfolios of securities to reduce the impact of mark-to-market losses.

In previous currency crisis, the IMF makes the briefly float the currency to establish confidence in the exchange rate after raising rates to curb domestic credit. This time rates were raised after a float failed by a surrender rule.

A successful float leads to early exporter conversions and a resumption of delayed import settlements which leads to a gradual fall of interest rates. Fixes to the budget and utilities also help.

The falling rates help boost capital gains of banks, offsetting some of the loan loss provisions.

This time however though external stability has large been reached, there has been no successful float to convince the market but taxes have been raised and utility prices adjusted to reduce domestic credit.

Lack of clarity over domestic debt re-structuring has also kept rates elevated. But long term rates have now started to ease.

Meanwhile President Ranil Wickremesinghe had already proposed an asset management company to take-over bad loans. (Colombo/Dec01/2022)

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Sri Lanka power cuts expanded on low water levels

ECONOMYNEXT – Due to water level reduction in reservoirs and high usage of fuel in generating electricity was the main reason the Public Utilities Commission has approved power cuts of 2 hours and 20 minutes, Chairman Janaka Rathnayaka said.

Sri Lanka power cuts were two hours earlier. The Ceylon Electricity Board had requested a 3 hour cut which was not granted.

“The reason it was brought to 2 hours and 20 minutes, was the water levels are lowering in reservoirs and we need to maintain a certain water level to generate hydro power,” Rathnayaka told EconomyNext.

“And also we are using more fuel which is costlier, and therefore we had to increase the power cuts period”.

CEB unions had warned of extended power cuts from July unless coal for 2022 was brought before the April monsoon season starts, when ships cannot be unloaded.

Sri Lanka has already secured seven coal shipments which will complete in the next two days, and should work to secure 38 more shipments in order to secure the necessary coals for 2023. (Colombo/ Dec 01/2022)

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