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Thursday June 8th, 2023

Ceylon Chamber of Commerce calls for public support for Sri Lanka IMF programme

ECONOMYNEXT – The Ceylon Chamber of Commerce has urged the public, political parties, trade unions and civil society to view Sri Lanka’s ongoing programme with the International Monetary Fund (IMF) positively and to support the reform process.

Noting that Sri Lanka cannot afford to revert to an unsustainable subsidy-driven economy and a Central Bank-financed fiscal deficit, the Ceylon Chamber has also urged the government to prioritise said reforms.

“We believe this is a crucial point for the economy, with the implementation of long overdue economic reforms acting as a vital impetus towards sustainable economic revival,” the Chamber said in a statement on Wednesday March 22 congratulating the government on securing a 2.9 billion dollar extended fund facility (EFF) from the IMF.

The announcement of IMF executive board approval for the EFF was preceded by a series of protests and strikes organised by trade unions against a sharp hike in progressive taxation. Some opposition parties and other actors have also spoken against cost-reflecttive tariff hikes.

The Chamber called for sharper focus on reforms such as tax administration, state-owned enterprises (SOEs), trade and competitiveness, labour and land reforms, which the organisation said need to be unlocked in order to pursue a sustainable growth path.

“The country will need to prioritise these reforms in meeting its fiscal targets, which will be central to the IMF programme and debt restructuring. In focusing on revenue, the State should look at overall productivity improvement and curtailing of government expenditure where possible. These can be achieved by ensuring data driven and evidence based policymaking that will incorporate technology and digital tools,” the Chamber said.

The statement noted that the country must prioritise these reforms in order to ensure a successful 17th IMF programme which will complement the macro stabilisation efforts undertaken.

“The country cannot afford any pauses in the programme, or returning for an 18th program with the IMF, where similar reforms will eventually and unavoidably need to be undertaken,” it said.

The Ceylon Chamber requested all political parties, civil society, trade unions and the public to view the IMF programme positively and support the reforms process “so that the country can move towards greater prosperity with a stable economy for all its citizens.”

“The Chamber recognises that the private sector is an equal partner in ensuring an accelerated economic recovery, and to this end will continue to support the government in implementing progressive reforms,” it said.

The business chamber went onto say that it appreciated the efforts of the government led by President Ranil Wickremesinghe, Central Bank Governor Nandalal Weerasinghe, the Secretary to the Treasury, other key officials and independent experts who assisted in the process.

“We also appreciate the bilateral and commercial creditors for providing the necessary financial assurances towards debt restructuring. Along with the initial proceeds from the IMF programme, we expect multilateral agencies to also support the country by unlocking fresh financing.”

“We acknowledge and hail the difficult steps taken by the government in the lead-up to securing the EFF, such as cost-reflective tariffs for utilities, tax regime changes, legislation of the new Central Bank Act and the move towards a flexible exchange rate, to name a few,” the statement added. (Colombo/Mar22/2023)

 

 

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.

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No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.

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Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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