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Grain Elevators expect hit from Sri Lanka’s self-imposed trade embargo

ECONOMYNEXT – Sri Lanka’s Ceylon Grain Elevators, a feed milling and poultry farming and processing group said it has liquidity and the it is facing several risk from import controls and exchange rate volatility.

CGE, and its subsidiary Three Acre Farms both publicly traded companies said it was able to continue operators as it was declared an essential service by the government during a Coronavirus curfew but business was disrupted.

Sri Lanka has printed unprecedented volumes of money in March and April leading to a steep fall in the currency and import controls have been slapped in the style of a self-imposed trade embargo.

Grain elevators expected activity to pick up, its cash position was strong but said the exact outcome was uncertain amid the new risks.

“Several other new risks are emerging including an increase in exchange rate volatility, foreign currency unavailability, and prevailing import restrictions.

“As such the overall impact on operations is not immediately predictable.”

Sri Lanka has slapped a series of trade controls, involving import suspensions, bans, and tariff hikes.

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Sri Lanka import controls extended, license regime in import substitution drive

Due to classical economic illiteracy strong Mercantilism in Sri Lanka, there is a strong belief in the country that currency problems are not caused by liquidity injections and credit but by real economy factors like imports, especially oil.

The Mercantilist belief that oil imports cause currency collapses had been undermined the minds of some true believers after the 2015/2016 currency collapse when oil prices also collapsed, and also in 2020 when oil prices fell.

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Sri Lanka slapped its worst self-imposed trade embargo in the 1970s when the Bretton Woods system of soft-pegs collapsed as the Federal Reserve printed money.

The US dollar then became a free-floating currency made up of printed or fiat money.

Sri Lanka however does not have a credible monetary regime, triggering a frequent balance of payments trouble, analysts have said.

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Under fire Sri Lanka central bank defends money printing

Authorities have resisted a credible external anchor by running a discretionary ‘flexible’ exchange rate and has simultaneously resisted a credible domestic anchor by running ‘flexible’ inflation targeting regime. (Colombo/May28/2020-sb)

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