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Tuesday May 30th, 2023

Maersk presses for Sri Lanka ship agency, logistics ownership liberalisation

ECONOMYNEXT – Danish shipping line Maersk has said it is waiting for Sri Lanka’s government to implement plans to lift the 40% foreign ownership limit on ship agency and freight forwarding firms, which the latter have strongly opposed.

The world’s biggest container shipping line moves one in five containers in Colombo port, which it sees as a strategic hub, Maersk Lines Managing Director for South Asia Steve Felder said.

Lifting foreign ownership limits on ship agency and logistics firms would reduce costs and encourage foreign investment, he told a news conference.

Minister of Finance Mangala Samaraweera announced plans to liberalise the sector in the government’s 2018 budget presented last November, to try to make the island a shipping hub like Singapore and Dubai.

Felder said it was too early to say what Maersk would do if the shipping sector was liberalised but noted that “just the fact it opens up opportunities would be a good sign.

“We feel the sector should be fully liberalised in terms of ownership like in India.”

 “In a free market trade should flow in line with its own merits and enable importers and exporters to do business,” Felder said.

“Sri Lanka is one of the few countries today that stands out as having not liberalised the sector yet. So we’d like to see the process move to a conclusion,” he said.

“It also will send a strong signal for investors that Sri Lanka is open for business.”

The Ceylon Association of Shipping Agents (CASA),and Sri Lanka Logistics and Freight Forwarders Association(SLFFA) have opposed the move, saying it would put at risk the over 750 local shipping and freight forwarding and clearing agents employing over 12,000 direct staff.

Samaraweera told parliament during the budget debate in December 2017 that five Sri Lankan companies control the agencies of shipping lines that account for 74% of the global shipping market.

“Whilst these companies have opposed liberalization of the sector, Sri Lanka’s apparel exporters (JAAF and the Sri Lanka Apparel Exporters Association), the Tea Exporters Association of Sri Lanka and the Sri Lanka Export Association, have all hailed the move to liberalise the shipping industry since it enables more competitive pricing and better services to the entire export industry,” he said.

“Do we want to undermine the interest of thousands of export companies, and hundreds of thousands of their employees, to serve the interests of a handful of entrenched shipping agency companies?”

Samaraweera said the government will ensure competition will be fair and balanced, eliminating unfair trade practices by enacting prudent regulation.

“This is why the proposal on shipping liberalization is coupled with the proposal to implement an independent regulator for the industry.”

Advocata, a private sector think-tank, has said liberalising shipping agencies would help transform Colombo into a maritime hub.

While Sri Lanka has 750 local shipping, freight forwarding and clearing agents, Singapore’s open market has over 5,000, showing that opening up the agency business would not necessarily mean the end of the local agents, it noted.

Around 20 of the world’s top 25 logistics companies have based their global or regional operations in Singapore.
(COLOMBO, July 6, 2018)
 

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Sri Lanka rupee at 296.75/297.25 to dollar at open, bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee opened at 297 /297.50 against the US dollar in the spot market on Monday, while bond yields were steady, dealers said.

The rupee closed at 296.75 /297.25 to the US dollar on Monday after opening around 296.50 /297.50 rupees.

A bond maturing on 01.09.2027 was quoted at 26.50/75 percent steady from Friday’s close at 26.50/65 percent.

Sri Lanka’s rupee is appreciating amid negative private credit which has reduced outflows after the central bank hiked rates and stopped printing money. (Colombo/ May 29/2023)

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Sri Lanka rupee appreciation squeezes exporters

ECONOMYNEXT – Sri Lanka’s recent appreciation is starting to squeeze apparel exporters as their domestic costs including wages and energy, were hiked over recent months, when the rupee fell steeply, an industry official said.

Companies had raised salaries and emoluments at rates averaging 25 percent for workers while transport costs have also gone up but not has come down, Yohan Lawrence Director General of the Join Apparel Association Forum said.

Apparel factories in particular also provide transport and some meals for workers.

Electricity prices have also been hiked, based on the rupee which was weaker. A tariff cut is expected from June after the rupee appreciated and imported fuel prices fell.

Sri Lanka’s rupee collapsed in 2022 from 200 to 360 to the US dollar as interest rates were suppressed with liquidity injections and a failed attempt was made to float the rupee with surrender requirement in place.

From the second half of 2022, with higher interest rates and negative private credit, the central bank has avoided printing money under conditions which are generally accepted to be difficult, and is broadly running deflationary open market operations, triggering a balance of payments surplus and putting the rupee under upward pressure.

Central bank net credit to government which was 3,302 billion rupees in September in 2022, was down to 3,209 billion rupees by March 2023, part of which was due to rollovers, analysts say.

Market pricing of fuel and electricity by the Ministry of Energy and also spending controls and tax hikes buy have also helped contain domestic credit.

Sri Lanka also has mandatory conversion rules, imposed on exporters, which is a concern for exporters.

“We believe rupee should be at its natural level, but with forced conversions you won’t get the correct picture,” Lawrence said.

Sri Lanka has to release a plan to remove import controls, exchange controls and other restrictions imposed in the period where policy rates were suppressed with liquidity injections (so-called multiple currency practices and capital flow measures) by June under the IMF program.

Apparel exporters have also seen orders fall amid tighter conditions in Western markets.

The central bank has to peg (intervene actively in forex markets and create money) to meet reserve targets under an IMF program and cannot free float (avoid creating money through international operations) the rupee.

The newly created money has generally been absorbed in an overnight liquidity shortage.

There have also been foreign purchases of rupee Treasuries. Amid a contraction in credit, the inflows also do not turn into imports fast as the money if the money is spent.

By making purchases a little below what is allowed by the contraction in domestic credit, the rupee can be allowed to appreciate, analysts say.

The central bank has so far allowed the rupee to appreciate to around 300 to the US dollar from 360 levels under a transparent guidance peg up to February.

Except after the 2008/2009 currency crisis, Sri Lanka’s central bank has not previously allowed to the rupee to appreciate under IMF programs where the first year in particular sees balance of payments surpluses, before private credit and domestic investments picks up again.

One of the considerations used by third world central banks are Real Effective Exchange Rate indices.

The REER of the Sri Lanka rupee based on a basket of currencies calculated by the central bank was 61.12 points in February before the rupee was allowed to appreciate by lifting a surrender rule.

In March the index went up to 69.55 points, but remained steeply below 100. Real effective exchange rates are calculated also taking into account inflation in counterpart trading nations.

Sri Lanka’s inflation index had hardly risen since September amid rupee gains. Falling food prices can help contain pressure for further wage hikes, analysts say. (Colombo/May30/2023)

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Sri Lanka forum to discuss central bank independence vs sound money

ECONOMYNEXT – Central bank independence and sound money will be under discussion at a public event organized by the Sri Lanka chapter of the Bastiat Society today, May 30, as island is recovering from the worst episode of monetary instability since independence.

The forum will feature Lawrence H White, Professor of Economics at George Mason University in the US, and W A Wijewardene, former Deputy Central Bank Governor, of the Central Bank of Sri Lanka.

“The discussion will compare the current system against alternative systems and explore the relationship between such banking systems and sound money,” the organizers said.

White specializes in the theory and history of banking and money. He is the author of “The Clash of Economic Ideas” (2012), “The Theory of Monetary Institutions” (1999), “Free Banking in Britain” (2nd ed., 1995), and “Competition and Currency” (1989).

Wijewardene has been speaking on central bank independence in Sri Lanka long before it became a topic of wider discussion, but also on accountability.

In April, a Central Bank Independence and Other Matters, which includes a collection of his orations on the subject over the years as well a recent development was published.

The discussion comes as independent central banks in the West have created the worst inflation since the 1970s and early 1980s and are apparently unaccountable to parliaments and the public.

The early 1980s also saw the first wave of external debt crises in so-called soft-pegged countries in Latin America and Eastern Europe in particular as the US and UK tightened policy to end the Great Inflation.

The discussion will be held at 7.00 pm at the Lakmahal Community Library and those interested can register online, the organizers said. (Colombo/May30/2023)

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