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IMF increases bailout access to 600-pct from 200-pct of member quota

ECONOMYNEXT – The International Monetary Fund has increased normal access to its funds to 600 percent of the quota for member countries from the current 200 percent for at least 12 months amid global economic turmoil.

Many countries are experiencing currency trouble of external default after a spurious economic doctrines over the past decade, while floating rate nations are experiencing fiscal trouble as inflationary policy is scaled back.

“The increase was initially approved in March 2023 for a period of 12 months, ending on March 5, 2024,” the IMF said in a statement.

“The extension takes place in the context of the still uncertain global economic environment, and the need for a smooth transition to the comprehensive review of the GRA access limits planned for the second half of 2024.”

IMF Executive Board Extends Temporary Increase in Access Limits Under the General Resources Account

The full statement is reproduced below

Washington, DC – March 11, 2024: The Executive Board of the International Monetary Fund (IMF) approved on March 4, 2024 an extension until end of 2024 of the temporary increase in normal limits on members’ annual and cumulative access to Fund resources in the General Resources Account (GRA) to 200 and 600 percent of quota respectively.

The increase was initially approved in March 2023 for a period of 12 months, ending on March 5, 2024. The extension takes place in the context of the still uncertain global economic environment, and the need for a smooth transition to the comprehensive review of the GRA access limits planned for the second half of 2024.

IMF lending to members is subject to both normal annual and cumulative limits on access to the Fund’s general resources. Access to resources beyond these limits is subject to meeting the requirements of the Fund’s exceptional access framework. The last comprehensive review of access limits in the Fund’s GRA happened in 2016, establishing an annual limit of 145 percent and a cumulative limit of 435 percent of quota.

The decision to temporarily raise GRA limits in March 2023 reflected the challenging economic environment and uncertain prospects faced by emerging markets and developing economies. The Board noted at the time that an extension of the temporary increase could be appropriate, if circumstances warranted, and should be considered before the expiration of the 12-month period.

The extension will allow member countries facing large shocks and increased financing pressures in an uncertain environment to access higher levels of financial support in the GRA without triggering the exceptional access framework. It will also avoid a possible fluctuation in GRA normal access limits between March 2024 and the comprehensive review of GRA access limits planned for later this year, ensuring more predictability in the Fund’s lending toolkit.

The forthcoming comprehensive review of access limits, expected to be completed in the second half of 2024, will reassess the adequacy of access limits in light of their erosion against key metrics, taking into account the outcomes of the 16th General Review of Quotas and other factors, including the need to safeguard Fund resources.

Executive Board Assessment[1]

Executive Directors supported the staff proposal to extend until end‑2024 the temporary increase in the annual and cumulative limits on overall access to Fund resources in the General Resources Account (GRA). The annual access limit in the GRA will continue to be set at 200 percent of a member’s quota and the cumulative access limit at 600 percent of quota. Directors noted that since the GRA access limits were increased in March 2023, the economic recovery has continued and inflation has receded in some countries, but the global outlook remains weak and uncertain, with risks especially elevated for vulnerable emerging market economies.

Directors stressed that access limits are key elements of the Fund’s risk management framework, providing an important safeguard to Fund resources. Increased access limits should not automatically imply higher access for a member. Access would continue to be determined by rigorous assessments informed by standard access policy criteria, including the size of the balance of payments need, the strength of program policies, the country’s record of using Fund resources, debt sustainability, and capacity to repay the Fund, as well as the catalytic role of Fund financing. Directors also emphasized the importance of enhanced scrutiny and additional safeguards for exceptional access cases.

Most Directors considered that maintaining the higher limits through end‑2024 would help avoid large swings in SDR nominal values of access limits in the context of their erosion against key metrics, pending the comprehensive review of access limits in the second half of the year. Directors noted that the impact of the proposed extension of higher access limits on the Fund’s liquidity and on the demand for Fund resources is expected to be limited, although subject to uncertainty. In this context, they recommended close monitoring of liquidity and credit developments and the impact on the Fund’s precautionary balances. Directors concurred with the proposed transitional rules for exceptional access and for the High Combined GRA and PRGT (Poverty Reduction and Growth Trust) credit exposure policy safeguards (PS‑HCC) in case access limits, and hence the PS‑HCC thresholds, were to revert to lower levels after 2024.

Directors looked forward to the comprehensive review of access limits planned for late‑2024, which will consider the GRA access limits and other access‑related policies in the context of the 16th General Review of Quotas. The comprehensive review will evaluate developments with respect to access limits vis‑à‑vis relevant macroeconomic aggregates. In this context, a few Directors cautioned that the Fund’s risk tolerance should not be tightening when some members face significant challenges. A few other Directors did not share the view that the Fund’s risk tolerance has implicitly or de facto tightened, but has instead loosened, and emphasized that normal access limits should be set in a manner that appropriately safeguards Fund resources. Directors emphasized that the review should be holistic and take into account a broad range of considerations. They stressed that today’s decision should not prejudge the outcome of the review.

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Sri Lanka power outages from falling trees worsened by unfilled vacancies: CEB union

HEAVY WINDS: Heavy rains and gusting winds have brought down trees on many location in Sri Lanka.

ECONOMYNEXT – Sri Lanka’s power grid has been hit by 300,000 outages as heavy winds brought down trees, restoring supply has been delayed by unfilled vacancies of breakdown staff, a union statement said.

Despite electricity being declared an essential service, vacancies have not been filled, the CEB Engineers Union said.

“In this already challenging situation, the Acting General Manager of CEB issued a circular on May 21, 2024, abolishing several essential service positions, including the Maintenance Electrical Engineer in the Area Engineer Offices, Construction Units, and Distribution Maintenance Units,” the Union said.

“This decision, made without any scientific basis, significantly reduces our capacity to provide adequate services to the public during this emergency.

“On behalf of all the staff of CEB, we express our deep regret for the inconvenience caused to our valued customers.”

High winds had rains have brought down trees across power lines and transformers, the statement said.

In the past few day over 300,000 power outages have been reported nationwide, with some areas experiencing over 30,000 outages within an hour.

“Our limited technical staff at the Ceylon Electricity Board (CEB) are making extraordinary efforts to restore power as quickly as possible,” the union said.

“We deeply regret that due to the high volume of calls, there are times when we are unable to respond to all customer inquiries.

“We kindly ask consumers to support our restoration teams and to report any fallen live electrical wires or devices to the Electricity Board immediately without attempting to handle them.

The union said there were not enough workers to restore power quickly when such a large volume of breakdowns happens.

“We want to clarify that the additional groups mentioned by the minister have not yet been received by the CEB,” the union said.

“Despite the government’s designation of electricity as an essential service, neither the government, the minister in charge, nor the CEB board of directors have taken adequate steps to fill the relevant vacancies or retain current employees.

“We believe they should be held directly responsible for the delays in addressing the power outages due to the shortage of staff.”

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Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings

(Colombo/May25/2024)

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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.

Related

Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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