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Wednesday June 7th, 2023

Sri Lanka bears Rs.50bn in disaster damages annually: World Bank

ECONOMYNEXT- Disasters are annually costing Sri Lanka 50 billion rupees, or around 0.4 percent of gross domestic product (GDP) in damages, which requires preventive measures to reduce climate risks, the World Bank said in a report.

“On average, Sri Lanka experiences LKR 50 billion (US$313 million) in annual disaster losses related to housing, infrastructure, agriculture, and relief,” the report titled “Contingent Liabilities from Natural Disasters: Sri Lanka” said.

Around 32 billion rupees of damages are from floods. Cyclones and high winds cause 11 billion rupees in losses, while droughts and landslides cause 5.2 billion rupees and 1.8 billion rupees in damages respectively.

Disasters are costly on human lives as well, with the 2017 floods leading to 213 passing away and the 2018 floods leaving another 13 persons dead.

The state provides the thousands who become homeless 1.2 million rupees each to build a house and 0.4 million rupees each to procure land or settle on state-owned land.

Sri Lanka is one of the world’s most at-risk for climate-related disasters. The country was ranked second most affected by extreme weather events over the past 20 years in the Global Climate Risk Index.

The disasters disproportionately affect the poor, with 77 percent of the population in areas highly vulnerable to floods and droughts employed as smallholder farmers, the World Bank said.

This also disrupts Sri Lanka’s protected rice production.

In Decemer 2017, food inflation rose to 14.4 percent due to disruptions to agricultural supply chains from droughts.

Tea, rubber and coconuts, key export crops, also face reduced production as they are in areas which experience high rainfall and long dry spells, the World Bank said.

Droughts also force the state to switch electricity production from cheap hydropower to expensive thermal, which cost 560 million US dollars in higher oil import costs in 2017, worth around 0.7 percent of GDP.

Industrial activity is not beyond disruptions as well. Lion Brewery, one of the country’s largest tax payers, had to halt operations in 2016 due to flooding.

The report said Sri Lanka is prone to low frequency of high impact events such as the tsunami or high frequency of low-impact events such as floods.

The World Bank estimates disaster-related liabilities for the government on average at 11 billion rupees a year, or 1 percent of government expenditure.

Contingent liabilities are on average 20.5 billion rupees, after rising to 25 billion rupees in 2018, from 6 billion rupees in 2015.

Contingent liabilities are mainly for rehabilitating infrastructure and public assets. At a smaller scale, the state incurs contingent liabilities for relief payments, resettlement and premiums for disaster insurance.

However, these levels of contingent liabilities could be understated, as multiple agencies are responsible for post-disaster activities, the World Bank said.

When disasters strike, the government has to halt capital expenditure projects and reallocate funds to respond to emergencies and rehabilitate communities, the World Bank said.

Some ministries, such as Disaster Management, Irrigation, and City Planning and Water Supply have dedicated budgets for relief, but other ministries, such as Education, have to be reallocated funds from other ministries, or through passing of supplementary budgets, to rehabilitate schools.

The World Bank recommended preventive measures such as investment in disaster mitigation and climate-proofing public investment projects. Greater co-ordination between ministries was also recommended to improve preventive measures.

Financially, the government was asked to enhance risk management capacities at the ministry of finance, maintain dedicated budget lines to prevent spending cuts for other programs and transfer risks through insurance.

As Sri Lankan is facing tight fiscal space, disasters add greater strain to the Treasury, the World Bank said.

The multilateral lender said the World Bank–Global Facility for Disaster Reduction and Recovery (GFDRR) Disaster Risk Financing and Insurance Program is collaborating with the government to define, assess, and quantify the costs of disasters to the state.

“Increased understanding and accurate quantification of post-disaster liabilities will help the government make informed decisions about how to best to manage these liabilities.”

If the risks are properly assessed, the government could better secure financing, monitor funding and reduce financial risks arising from disasters, the World Bank said. (Colombo/Jan22/2020)

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  1. Bhagawaan says:

    I think it need to be clarified further that “this amount not including the losses due to political disasters and corruption”

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  1. Bhagawaan says:

    I think it need to be clarified further that “this amount not including the losses due to political disasters and corruption”

Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed amid weak credit and better inflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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