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Wednesday June 7th, 2023

Easter Sunday attacks leave Sri Lanka east coast peak tourism season in tatters

Sri Lanka’s east coast has its peak tourism season from May through September

ECONOMYNEXT – Hotels in Sri Lanka’s east coast which has its peak tourism season from May through September was hit even worse from the Easter Sunday attacks than the rest of the country which was running through its off season.

“It’s a tough time for the hotels in the area,” said Neranjan Morais, General Manager of Uga Bay in the eastern resort of Passikudah, famed for its calm beach and watersports.

Trincomalee, the northernmost of the east coast, is a whale and dolphin watching destination, while Arugambay in the southern reaches is a world-class surfing spot.

Ship wrecks, mostly World War II Allied vessels bombed by the Japanese, dot the east coast and are popular among divers.

East coast hotels charge premiums during the five-month peak season. Discounts are offered from October through April, when there are heavy rains and rough seas.

Morais said that peak season profits fund hotels during the lean season, but there was no such surplus built in 2019, due to April’s Easter Sunday attacks, which resulted in mass cancellations.

Hotels across much of the country however have its peak season from November through March, and were spared disruptions to their most profitable months.

Arrivals to Sri Lanka had recovered rapidly following the Easter Sunday attacks, which had targeted three luxury hotels and three churches, killing over 250 persons.

Occupancies had recovered from less than 10 percent in May to around 60 percent in August for many hotels which were offering 50-60 percent discounts on room rates.

In August, which forms a mini-peak season for the country due to a cultural festival in the central hill city of Kandy, tourist arrivals were projected to have fallen just 15 percent from a year earlier, compared to a 71 percent fall in May.

However, occupancies at the east coast lags even as arrivals recover.

“The occupancy is about 40 percent in east coast hotels in August and we are expecting a drop again in September,” Morais said.

Annual average occupancies had been around 73-75 percent over the past three years in the region, according to official data.

“It would be helpful if we could get some soft loans and government support,” Morais said.

He said that government loan programs are still in the pipeline.

East coast occupancies are also down as the region does not benefit from fast transport infrastructure such as highways, which the country’s main resorts along the south coast enjoy, analysts say.

Sri Lanka is projecting about 2.1 million tourists to arrive in 2019, down 10 percent from 2018, compared to a 30 percent fall estimated immediately after the bombings.

Tourism is Sri Lanka’s third largest foreign exchange earner, after worker remittances and apparel exports.

The tourism sector generated 4.4 billion US dollars in foreign exchange last year. (Colombo/Sep03/2019)


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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 amid weak credit and better inflows.

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.


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.


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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