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Saturday June 3rd, 2023

Debate over constutionality of Sri Lanka’s March-May 2020 mini-budget

ECONOMYNEXT – A mini-budget from March to May 2020, drawn up by the Treasury purportedly under presidential powers is unconstitutional as a vote-on-account has already been passed by parliament up to April, ex – Finance Minister Mangala Samaraweera had claimed.

He said a pre-election budget report referred to the newly drafted mini-budget as a vote-on-account, which was not correct.

“Only Parliament can approve a Vote-on-Account,” he said.

“This Presidential action is prima facie inconsistent with the Constitution and usurps the Parliament sanctioned Vote-on-Account. ”

Section 150(3) of the constitution read as follows.

“Where the President dissolves Parliament before the Appropriation Bill for the financial year has passed into law, he may, unless Parliament shall have already made provision, authorize the issue from the Consolidated Fund and the expenditure of such sums as he may consider necessary for the public services until the expiry of a period of three months from the date on which the new Parliament is summoned to meet.”

“As is evident above, the provision places two important limitations on the president’s ability to draw from the Consolidated Fund after an election is announced,” Samaraweera said.

“First, it states that the President can draw from the Consolidated Fund, “unless Parliament shall have already made provision”. Through the Vote-on-Account ending 30 April, Parliament has made such provision.

“Therefore, the President cannot authorize any funds from the Consolidated Fund till then. Second, after April 30, any funds authorized from the Consolidated Fund can only be those “necessary for the public services.”

“In laymen’s terms this means government salaries and continuance of essential government services.

“This becomes evident when 150(3) is read in conjunction with 150(4), which provides specific authorization for the President to draw funds for a purpose other than paying government salaries viz the conduct of an election.”

The Treasury in a pre-budget report has claimed that the vote-on-account passed by parliament did not amount to a budget under the Appropriation Act.

“In the meantime, there was no Appropriation Act as approved by the Parliament for 2020. Instead, in the wake of the 2019 Presidential elections, Vote on Account for 4 months commencing from January 2020, has been approved,” a Treasury report said. “The Vote on Account had did not have adequate provisions to meet all such unpaid bills and it has been a challenge to maintain a smooth supply of fertilizer and pharmaceutical products even in the first two months of 2020.”

Samaraweera said the government had spent 36 billion rupees as capital expenditure in January and February but planned to spend another 150 billion rupees in capex from March to May.

“These measures constitute a usurping of Parliament’s constitutional role by the executive,” he said.

“Such a weighty violation of the separation of powers is a grave threat to democracy, the rule-of-law and the check-and-balances essential for accountable use of public funds.

“This unfortunate situation could be easily have been avoided by passing a Budget prior to the announcement of polls or by summoning Parliament to pass another Vote-on-Account. ”

Samaraweera also warned that the central bank is acquiring large volumes of Treasury bills with newly printed money triggering currency depreciation.

“Already, the Government has purchased Rs. 100 billion in Treasury securities over the last fortnight – a major cause for the depreciation of the rupee,” Samaraweera warned.

A part of the T-bill purchases seemed to be a reserve appropriation analysts who watch the central bank closely say.

However in 2018 also the central bank injected liquidity and triggered monetary instability,e shattering Samaraweera’s economic program, with the introduction of call money rate targeting with excess liquidity and real effective exchange rate targeting .

Real effective exchange rate targeting involves the Mercantilist debasing of the currency ahead of the worst central banks included in a trade weighted basket (India in particular in the case of Sri Lanka) and temporary falls in floating rates in a trade weighted basket to destroy real incomes of factory workers and the rest of society, in the hope that exports will go up. (Colombo/Mar29/2020)

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Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

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.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

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.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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