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Thursday December 1st, 2022

Losing GSP+ will spell disaster for Sri Lanka’s economy: former PM Wickremesinghe

ECONOMYNEXT – If Sri Lanka loses access to Europe’s Generalised Scheme of Preferences Plus (GSP+) trade concessions, thousands will lose their jobs and the rupee will further depreciate, forcing Sri Lanka to pay around 300 rupees per US dollar, former prime minister Ranil Wickremesinghe said.

“Our government took action to regain the GSP+ from the European Union to assist in developing the country’s economy in 2017. This facility provides Sri Lanka with permission to export goods to Europe without taxation, which led to a boom in the garment and fishing industries. An issue has arisen in the European Parliament this week regarding the GSP+ tax concession. We have been warned that this concession will be revoked,” Wickremesinghe said in the latest of a series of video statements.

The United National Party (UNP) leader was referring to a resolution adopted by the European parliament June 10 calling for the repeal of Sri Lanka’s Prevention of Terrorism Act (PTA) and inviting the European Union (EU) Commission to consider temporarily withdrawing Sri Lanka’s access to GSP+.

Related: EU parliament adopts resolution on Sri Lanka; wants PTA repealed, GSP+ withdrawn

Wickremesinghe said Sri Lanka’s foreign exchange reserves have dropped.

Sri Lanka’s reserves have dropped due to liquidity injections by the central bank. If export revenues fall, salaries will be cut or jobs will be lost and imports will decline by the same volume. However currencies fall and forex shortages occure due to central bank money printing.

When Wickremesinghe was Prime Minister, GSP+ was restored by the rupee collapsed due to central bank money printing mostly to target an ‘output gap’.

The Sirisena-Wickremesinghe administration gave full independence to a central bank that was targeting an output gap, and also a call money rate with printed money, triggering two currency collapses leading to the fall of the rupee from 131 to 151 in the first crises and from 153 to 182 to the US dollar during their period of office.

Wickremesighe himself admitted in parliament in 2016 that they had engaged in a ‘stimulus’ on a claim that ‘aggregate demand had collapsed’.

Related

Rupee, Sri Lanka, in trouble after Keynesian stimulus

“Our tourism industry is at risk at this time due to the COVID-19 pandemic. With the sinking of the X-Press Pearl, issues have arisen for our fishing industry as well. The number of people going abroad for employment has decreased. Therefore, our foreign exchange has fallen.

“Sri Lanka borrowed $200 million from Bangladesh due to the economic crisis caused by the decline in our foreign exchange. At present, only the tea and garment industries are able to earn foreign exchange for our country,” he said.

Given this, said the former PM, the island nation is reliant on GSP+.

“In the face of the danger that has arisen, the GSP+ must not be politicised. The government should take immediate action to protect the concession. Do not add any more weight to the heavy economic burden that the people are carrying. I urge the government not to destroy the country,” he said. (Colombo/June13/2021)

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Sri Lanka’s inflation eases to 61-pct in November

ECONOMYNEXT – Sri Lanka’s 12-month inflation in the capital Colombo fell to 61 percent in November 2022 from 66 percent in October as price stabilized after interest rates were allowed to go up and the exchange rate was pegged around 360 to the US dollar.

The widely watched Colombo Consumer Price Index fell absolutely 0.5 percent to 242.6 points in November after falling .04 percent in the October.

Food prices fell 1.5 percent after falling 2.0 percent a month earlier. The sub-index containing gas fell 0.5r percent and transport fell 3.6 percent.

But some services continued to go up, as relative prices adjusted to the steep fall in the currency after two years of money printing to suppress rates.

Health costs went up 5.7 percent. Furnishing and routine maintenance rose 0.4 percent.

Sri Lanka’s central bank hiked policy rates to 15.5 percent in April and pulled back on longer term money printing, allowing market rates to go to around 30 percent.

The exchange rater is pegged around 363 rupees with a surrender rule where banks are forced to sell dollars to the central bank for new liquidity.

The ongoing currency and inflation crisis is the worst in the history of the central bank.

Sri Lanka’s Latin America style central bank was set up in 1950 giving powers to the country’s macro-economists the power to mis-target rates, create currency crisis and high inflation. (Colombo/Nov30/2022)

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Sri Lanka shares close at one-month high

ECONOMYNEXT – Sri Lanka shares closed at one month high on Wednesday gaining for the fourth session on news that government is in talks with ADB and World Bank to get a 1.9 billion dollar loan facility, brokers said.

The main All Share Price Index (ASPI) closed 3.3 percent or 276.02 points higher at 8,651.23, highest index gain in since November 01.

“Investor participation improved on the back of confirmed talks with multilateral and bilateral lenders including world banks and ADB for USD 1.9Bn after IMF board level agreement is reached,” First Capital Market Research said in it’s daily note.

Former Central Bank Governor Indrajit Coomaraswamy said in a forum on Monday that the government is in discussion with ADB and World Bank to get loans of 1.9 billion US dollars after a reform program with International Monetary Fund is approved

A policy loan now being discussed with the World Bank may bring around 700 million US dollars, Coomaraswamy told a business forum organized by CT CLSA Securities, a Colombo-based brokerage.

The Asian Development Bank may also give around 1.2 billion US dollars most of which will be budget support, he said.

The market witnessed a turnover of 3.3 billion rupees, higher than this year’s daily average turnover of 2.9 billion rupees. This is the highest turnover generated since October 04.

In the last few sessions market gained after Central bank governor said market rates should eventually ease despite the fears of a domestic debt restructuring as inflation falls, increased liquidity in dollar markets, and the inter-bank liquidity improves.

In the past sessions, the index continued to fall on the speculation of a local debt restructuring although no proper decision has been taken so far.

The market saw a foreign inflow of 39 million rupees. The total net foreign inflow stood at 18.33 billion rupees so far for this year.

The more liquid index S&P SL20 closed 3.4 percent or 89.78 points higher at 2,730.08.

The ASPI has fallen 0.5 percent in November after losing 13.4 percent in October.

It has lost 29.2 percent year-to-date after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.

Sampath Bank pushed the index up to close at 10.9 percent to 36.6 rupees.

Other top gainers were Browns Investment gained 15.4 percent to close at 7.5 rupees and LOLC gained 9.4 percent to close at 411.3 rupees.(Colombo/Nov30/2022)

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Sri Lanka bonds, T-bills ease, overall market dull

ECONOMYNEXT – Sri Lanka’s treasury bonds eased and T-bill yields fell on the speculation on talks with ADB and World Bank to obtain financial aid but the over all market was dull on Wednesday while the Central Bank’s guidance peg remained unchanged, dealers said.

“During the day, secondary market witnessed some buying interest on the back of speculations on yields easing while talks about financial aid from ADB and World Bank further strengthened interest,” First Capital Market Research said in it’s daily note.

A bond maturing on 01.05.2024 closed at 32.00/60 percent on Wednesday, down from 32.30/90 percent on Tuesday.

A bond maturing on 07.07.2025 bond closed at 30.80/31.30 percent up from 30.30/31.25 percent on Tuesday.

A bond maturing on 15.05.2026 closed at 31.00/30 percent down from 31.10/31.30 percent on Tuesday.

The three-month T-bills closed at 32.30/33.25 percent, down from 32.60/33.00 percent.

The Central Bank’s guidance peg for interbank transactions remained unchanged at 363.19 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers between 371.79 and 372.10 for small transactions, data showed.

Buying rates are between 361.79 – 362.00 rupees. (Colombo/Nov 30/2022)

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