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Sunday February 25th, 2024

IMF cautions Maldives on money printing to stop rufiyaa fall as Sri Lanka wobbles

ECONOMYNEXT – Maldives should not print money if they wanted to maintain their rufiyaa peg at 15.4 to the US dollar and try to raise funds from bonds and curtail capital spending, the International Monetary Fund has said as Sri Lanka struggles.

Maldives, which is dependent on tourism revenues was badly hit by Coronavirus and their economy contracted 32 percent in 2020, but is expected to grow by 18.9 percent in 2021.

However with the pandemic, the Central Bank had bought Treasury bills, triggering a parallel exchange rate from the demand created.

IMF’s Executive Directors “cautioned against central bank financing of the government and encouraged developing a comprehensive debt management strategy, coupled with public financial management reforms, to manage the risks from large infrastructure projects and state-owned enterprises.

“Directors agreed that a tighter monetary policy stance may be needed to ensure compatibility with the exchange rate peg, lower external imbalances and build up reserves.”

Sri Lanka has been printing money from around the third quarter of 2014 and has only had stability in the external sector in 2017 and up to around July 2019 in the last 7 years contributing to a sharp rise in market debt and possible sovereign default.

Maldives was a stable country until highly volatile income tax replaced a previous stable bed tax and civil service salaries were raised for vote buying with the demise of Mahathir Mohammed.

He had the benefit of the Maldives Monetary Authority which does not usually print money and has no “modernized ” open market operations to bust the peg and has the strongest currency on an absolute basis in South Asia and the country has the highest per capita income.

IMF usually descends into Mercantilism and encourages ‘competitive’ exchange rates and the attendant high inflation and social unrest for central banks with active open market operations and inflating currencies.

Tourism has started to recover with growth projected at 19 percent in 2021. Inflation is expected to be 1.4 percent and set to increase to 2.3 percent in 2022 with high commodity and food prices.

Washington has been pushing countries to adopt income tax for years and Western agencies have been also pushing GCC countries and targeting tax havens through which large volumes of money were channeled as foreign direct investments.

This week a deal was reached for a 15 percent minimum corporate tax rate as a group journalists, who have been periodically targeting tax havens, released the latest findings.

But now it is trying hard to avoid sovereign default.

In addition to the income tax problem, the Maldives had taken large loans including from China to build infrastructure and also has a 200 million dollar international sovereign bond, which has been re-financed with a Sukuk.

“Nonetheless, fiscal and external positions are projected to remain weak over the medium term, underpinned by capital expenditure plans,” the statement said.

“The Maldives remains at a high risk of external debt distress and a high overall risk of debt distress.

“The total public and publicly guaranteed (PPG) debt-to-GDP ratio increased from 78 percent in 2019 to 146 percent in 2020, reflecting mostly the contraction in nominal GDP, but also an expansion in nominal debt.

“PPG debt is projected at 123 percent of GDP in 2026.” (Colombo/Oct08/2021)

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Sri Lanka could get US$500mn from ADB in 2024

ECONOMYNEXT – Sri Lanka could receive 500 million US dollars in support from the Asian Development Bank in 2024 based on the progress of policy reforms, Country Director of the Manila-based lender, Takafumi Kadono said.

The ADB expect to go to its Board around March or April with a 100 million US dollar power sector loan subject to the cabinet of ministers of approving a revised electricity reform bill.

A 100 million dollar loan to support SMEs could also be approved in the early part of the year. Sri Lanka is setting up a credit guarantee agency to support credit for small firms.

A 200 million dollar credit for financial sector was also slated for the year. The ADB gave the first tranche of the financial sector policy loan late last year.

A $100mn for the water sector could also be approved later in the year.

Sri Lanka could get around 200 to 300 million US dollars a year at the lowest rate, or concessional ordinary capital resources (COL) rate of 2 percent.

The balance of would come at the ordinary capital resource rate linked to SOFR.

The ADB has also started work on a ‘Country Partnership Strategy’ for Sri Lanka covering the 2024-2028 period, Kadodo said. (Colombo/Feb25/2024)

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Sri Lanka’s multi-aligned foreign policy based on friendship: Min

ECONOMYNEXT – Sri Lanka’s multi-aligned foreign policy is based on friendship to all and enmity to none, its Minister of Foreign Affairs has said.

“Non-alignment means not becoming a bystander. Non-alignment means you are not forced or coerced into a camp to take sovereign decisions… you make your own choices. Whether it is commercial, security, regional or otherwise,” M U M Ali Sabry said on X (twitter).

“I have repeatedly stressed that sovereignty is the right to have your own opinion on what’s right and wrong, and to stand by your principles. Our multi-aligned foreign policy is based on friendship to all and enmity to none,” Sabry was quoting from his speech at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) Foreign Policy Forum, on the theme ‘Reassessing Non-Alignment in a Polarised World’.

Sri Lanka is one of the founding members of the Non-Aligned Movement.

The strategically located island has been increasingly walking a fine line between opposing global factions as it seeks to come out of a financial crisis. (Colombo/Feb24/2024)

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Sri Lanka’s Commercial Bank Dec net down on tax provisions

ECONOMYNEXT – Sri Lanka’s Commercial Bank of Ceylon reported profits of 6.9 billion rupees from the December 2023 quarter down 21 percent, despite an improvement in net interest income and lower provisions, amid a change in tax provisions.

Pre-tax profits were 8.89 billion rupees up from 2.4 billion rupees. There was a 6.4 billion tax reversal last year compared to a 1.7 billion rupee tax charge this year.

Commercial Bank reported earnings of 5.26 rupees for the quarter. For the year to December 2023 earnings were 16.07 rupees per share on total profits of 21.1 billion rupees, down 11.3 percent.

Net fee and commission income was down 1.2 percent to 6.1 billion rupees.

Net interest income went up 16.8 percent to 25.5 billion rupees, with interest income rising marginally by 1.3 percent to 73.0 billion rupees and interest expense falling 5.45 percent to 47.5 billion rupees.

Loans and advances to customers grew 4.06 percent to 1.17 billion rupees in the year to December. Debt and other financial instruments fell 10.5 percent to 649 billion rupees.

Financial assets measured and fair value through other comprehensive income was at 287 billion rupees, up from 117 billion rupees.

Impairment charges were 13.1 billion rupees, down from 19.6 billion rupees last year.

Gross assets were up 6.45 percent to 2.36 billion rupees. Net assets were up 5.51 percent to 214 billion rupees. (Colombo/Feb24/2024)

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