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Wednesday December 7th, 2022

Crisis-hit Sri Lanka takes baby steps to boost dollar earnings

  • Sri Lanka is facing unprecedented economic crisis with sovereign debt default
  • Debt restructuring discussions are at initial level, IMF loan date unpredictable
  • Government is encouraging people to go abroad to boost remittances

ECONOMYNEXT – Sri Lanka is fast-tracking a move to utilise all its resources to send citizens abroad to earn as jobs are lost in an economic contraction in the wake of a forex crisis and domestic salaries have lost value.

Sri Lanka has already raised interest rates and taxes in the run up to a deal with the International Monetary Fund to reduce money printing which created forex shortages. The sovereign debt defaulted island nation is in the initial stage of debt restructuring discussions with its creditors who must agree on a plan for Sri Lanka’s anticipated 2.9 billion US dolalr deal with the International Monetary Fund (IMF) to be approved.

Sri Lanka is now taking some baby steps to raise its dollar earnings within and outside the country.

On Friday, the Ministry of Labour and Foreign Employment conducted a job fair titled “Glocal Fair” to showcase employment opportunities available to Sri Lanknas  both globally and locally.

“Our Ministry is responsible for providing a wide range of services such as employment to the country’s youth and directing them for foreign jobs, giving them solutions for the issues faced by the foreign workers and the local workers as well,” Minister of Labour and Foreign Employment Minister of Manusha Nanayakkara said at the job fair.

“We have decided to go the villages and give our services to the people.”

The government has already introduced some incentives to Sri Lankan migrant workers who remit their foreign earnings in dollars. Those incentives include houses, apartments, and electric vehicle import licenses, all of which have now become a luxury.

Sri Lanka’s foreign remittances have declined by over 47 percent to 2.2 billion dollars in the first eight months of 2022 mainly because migrant workers stopped sending their earnings through formal channels as the central bank maintained a peg and a parallel exchange rate until March this year.

Though the central bank has allowed some flexibility,  remittances did not recover as migrant workers still do not have confidence in the formal banking system amid speculations of a collapse of the system after the economic crisis, analysts say.

Record number of passports, sportsmen for sale 

The Department of Immigration and Emigration has overstretched itself to cater to the unprecedented demand for passports this year partly because more Sri Lankans are leaving the country and partly due to workers seeking jobs abroad.

The department has already issued a record 385,000 passports in the first six months of this  year compared to 105,000 in the same period last year.

It was forced to ask the public to make an appointment to visit the the Controller General to obtain passports.

Sri Lanka migrant workers who left the country this year have almost doubled to 221,551 in the first nine months of this year, compared to the same period last year, with workers in skilled, professional, and unskilled categories showing record high numbers.

The foreign ministry this week launched an e-channelling service to do away with long queues for consular services including the authentication of government certificates. The move was to ease the process and help Sri Lankans migrate quickly.

This week, President Ranil Wickremesinghe issued a gazette for Sri Lanka’s China backed Port City’s regulator to acquire operating licenses for an annual fee of 2,000 US dollars.

“We see some liquidity in the dollar market, but it is below the level we saw before the economic crisis,” a currency dealer told EconomyNext.

The island nation has already curbed many imports including some essentials to save dollars and has been encouraging exports of merchandise goods, services, and even sportsmen.

“In March, we trained 120 swimmers in four districts under the Sri Lanka Life Saving (SLLS) for both pool and coast lifeguards, and some were selected for the foreign market,” Amal Edirisuriya, Director of the Department of Sports told reporters in Colombo this week.

“In the future, we are planning to carry out this process within the 25 districts and to give 200 more lifeguard employments to our children.” (Colombo/Sep30/20220)

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Despite losses, Sri Lanka to resume “park & ride” transport after complaints  

ECONOMYNEXT –  Sri Lanka’s state-run Transport Board will resume its loss-making City Bus service from January 15, 2022 Cabinet Spokesman Bandula Gunawardena said, after the service abruptly discontinued with the state-run firm’s director board citing losses.

The City Bus service was introduced in 2021, under the government of former President Gotabaya Rajapaksa, from Makubura to Pettah and Bambalapitiya.

The service was started to reduce the number of automobiles travelling to and from Colombo and suburbs by providing a comfortable, convenient and safe public bus transportation for passengers and riders who use cars and motorcycles as their means of transportation.

During the time period in which the service was initiated, there were 800 hundred vehicles that would be parked and would use the system, Gunawardena, who is also the Transport Minister, said.

The service was later collapsed due to inconsistencies in scheduling and it was completely stopped after

“Without informing the Secretary or the Minister of the relevant Ministry, the Board of Directors have come to a conclusion that this is loss making route and must be halted,” Gunawardena said.

“The users of the City Bus service brought to our notice and therefore I gave the Secretary to the Ministry of Transport the approval to start the City Bus service from January 15.”

“If we stop all loss making transport services then massive inconveniences will occur to the people in far parts of the island.”

The chairman of the state run Ceylon Transport Board has been asked to handover the resignation letter by the Minister Gunawardana citing that the head has failed to implement a policy decision approved by the government. (Colombo/ Dec 06/2022)

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Sri Lanka may see rates falling next year: President

ECONOMYNEXT – Sri Lanka’s interest rates are high and hurting small businesses in particular but interest rates are required to maintain stability, President Ranil Wickremesinghe said.

“One is, all of you want to know what’s going to happen to the interest rates?,” President Wickremesinghe told an economic policy forum organized by the Ceylon Chamber of Commerce.

“I wish I know. The governor has told me that the inflation has peaked. It’s coming down. You all understandably want some relief with the interest rates to carry business on.”

“I understand that and appreciate the viewpoint. It’s not easy to carry business on with such high interest rates. On the other hand, the Central Bank also has to handle the economy. So maybe sometimes early next year we will have a meeting of minds of both these propositions.”

Sri Lanka’s interest rates are currently at around 30 percent but not because the central bank is keeping it up. The central bank’s overnight policy rate is only 15.5 percent but the requirement to finance the budget deficit and roll over debt is keeping rates up.

Rates are also high due to a flaw in the International Monetary Fund’s debt workout framework where there is no early clarity on a whether or not domestic debt will be re-structured.

After previous currency crises, rates come down after an IMF deal is approved and foreign loans resume and confidence in the currency is re-stabilished following a float.

This time however there has been no clear float, though the external sector is largely stable and foreign funding is delayed until a debt re-structure deal is made.

Sri Lanka’s external troubles usually come because the bureaucrats do not believe market rates are correct when credit demand picks up and mis-uses monetary tools given in 1950 by the parliament to suppress rates, blowing the balance of payments apart.

The result of suppressed rates by the central bank are steep spikes in rates to stop the resulting currency crisis.

A reserve collecting central bank has little or no leeway to control interest rates (monetary policy independence) without creating external troubles, which is generally expressed as the ‘impossible trinity of monetary policy objectives’.

However, it has not prevented officials from trying repeatedly to suppress rates, perhaps expecting different results.

After suppressed rates – supposedly to help businesses – trigger currency crises, the normalization combined with a currency collapse leads to impoverishment of the population.

The impoverishment through depreciation leads to a consumption shock, which also leads to revenue losses in businesses.

The suppressed rates then lead to bad loans.

In the 2020/2022 currency crisis the sovereign default has also led to more problems at banks. Several state enterprises also cannot pay back loans.

“…[T]he bad debt that is being carried by the banks is mainly from the private sector or the government sector,” President Wickremesinghe said.

“Keep the government sector aside. We’re dealing with it. How do you handle it? Look, one of our major areas of are the small and medium industries. You can’t allow them to collapse, but they’re in a bad way.”

Classical economists and analysts have called for new laws to block the ability to central bank to suppress rates in the first place so that currency crises and depreciation does not take place in the first place.

Then politicians like Wickremesinghe do not have to take drastic and unpopular measures to fix crises and there will be stability like in East Asia.

Sri Lanka had stability until 1950 when the central bank was created by abolishing an East Asia style currency board. The currency board kept the country relatively stable through two World Wars and a Great Depression.

In 1948 after the war (WWII) was over “we stood second to Japan” Wickremesinghe said.

“But we started destroying it from the sixties and the seventies,” he said. :We started rebuilding an economy, which was affected by a (civil) war, and thereafter the way we went, is best not described here.”

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Crisis-hit Sri Lanka sees recovery in cruise ship tourism from zero

ECONOMYNEXT – Seventeen cruise ships are scheduled to arrive in Sri Lanka next year with
Queen Mary 2, one of the largest and popular ships, Colombo’s harbor master said, as the island nation is looking for alternative avenues to boost its faltered tourism sector.

The rise is expected to bring thousands of high end tourists with higher spending capacity after two years. The island nation saw a record high 54 ships in 2019, rising from the previous year’s 42, Nimal Silva, Colombo Port Harbor Master said.

“The 2019 was one of the best years and in 2020 there were more than 60 scheduled vessels to
call but with COVID pandemic all hell broke loose,” Silva told EconomyNext.

Fourteen cruise ships are scheduled to call from January-May next year and another three are scheduled to arrive in Colombo in November, when the peak tourism season begins.

Cruise tourism cycle begins in Sri Lanka from October to May with a dip during the monsoon
seasons.

Sri Lanka welcomed two cruise ships in November after almost two years.

Three ships are scheduled to arrive in December and Azamara Quest, carrying at least 722 tourists, arrived in Colombo on December 3 and is now heading to Hambantota.

On December 18, Le Champion carrying 264 will arrive in Colombo and depart to Mumbai and the third vessel, Silver Spirit will arrive in Colombo on December 23 carrying up to 648 passengers.

There are two scheduled in January, one in February, and four in March next year, according to the harbormaster.

“Next year more ships could schedule, so far these are the confirmed ones now,” he said.

This also generates income for the port and the prices are charged according to the size of the
vessel.

Silva said the first medium sized-cruise vessel, 229 meters long, generated about 14,000 dollars
for docking in the port for a day.

He said Queen Mary 2, a 325 meter long ship and one of the largest cruise ships in the world, is also
scheduled to call at Colombo in February. It can carry up to 3200 passengers.

Silva said almost all the ships that were scheduled have arrived on the island and therefore, he is
confident all the ships including Queen Mary 2 will arrive in Sri Lanka.

“Only one ship has been canceled thus far. There are no last minute cancellations if there were some they would have informed us by now,” Silva said. (Colombo/Dec07/2022)

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