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Saturday March 2nd, 2024

Sri Lanka BOP deficit tops billion dollars in May, trade gap soars amid money printing

ECONOMYNEXT – Sri Lanka’s balance of payments deficit hit 1,053 million US dollars in the five month to May 2021 amid money printing while the trade deficit has exceeded the 2019 level despite import controls, official data show.

Sri Lanka’s BOP deficit or the excess outflows of dollars in current and financial transactions rose to a record 2.3 billion US dollars in 2021, as liquidity was injected through a combination of outright Treasury bill purchases and reserve ratio cuts.

Reserve money and notes and coins held by the public also rose absorbing some of the liquidity while provisional advances – a type of printed money overdraft – was also cut.

At the beginning of 2021 over 266 billion rupees of excess liquidity, printed in 2020 remained in the banking system, amid historic low interest rates.

The central banks Treasury bill stock rose from 725 billion rupees at the beginning of 2021 to 856 billion rupees by end May as more money was printed.

In addition around 45 billion rupees had been printed via provisional advances.

In 2021 also public currency holdings had gone absorbing some of the liqdity.

Related Sri Lanka public currency holdings spike in Covid-19 amid money printing talk

But by end May 2021 excess liquidity had dropped to 116 billion rupees from over 200 billion rupees in the first week of January as dollar reserves were redeemed against the rupees (convertibility) mostly in financial account flows.

There are ‘forex shortages’ and banks are rationing dollars as market participants armed with the printed rupees taken as loans or paid as salaries to state workers come to forex markets demanding dollars.

The trade deficit up to May had soared to 3.6 billion rupees with private credit financed by liquidity injections and the consumption of state workers paid with printed money.


Sri Lanka import controls shattered by credit, money printing in May

The trade deficit in May 2021 was higher than the 3.28 billion US dollar deficit in 2019 where there were no import controls and also in 2020, when the deficit narrowed amid a fall in domestic credit.

Sri Lanka’s balance of payments moved into deficit from after July 2019 when the last administration started to inject liquidity (stimulus) to target an output gap. In 2020 full blown modern monetary theory stimulus began. (Colombo/July22/2021)

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Sri Lanka eyes SOE law by May 2024 for better governance

ECONOMYNEXT – Sri Lanka is planning to pass a Public Commercial Business (PCB) Act improve governance of state-owned enterprise by May 2024 as part of an anti-corruption efforts following an International Monetary Fund assessment.

Sri Lanka’s state enterprises have been used by politicians to give ‘jobs of the boys’, appropriate vehicles for personal use, fill board of directors and key positions with henchmen and relatives, according to critics.

Meanwhile macro-economists working for the state also used them to give off-budget subsides or made energy utilities in particular borrow through supplier’s credits and state banks after forex shortages are triggered through inflationary rate cuts.

The government has taken billons of dollars of loans given to Ceylon Petroleum Corporation from state banks.

There have also been high profile procurement scandals connected to SOEs.

An SOE Reform Policy was approved by Sri Lanka’s cabinet of ministers in May 2023.

The Public Commercial Business (PCB) Act has now been drafted.

A holding company to own the SOEs will be incorporated and an Advisory Committee and Board of Directors will be appointed after the PCB law is approved, the statement said. (Colombo/Mar01/2024)

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Sri Lanka rupee closes at 308.80/90 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 308.80/90 to the US dollar Friday, from 309.50/70 on Thursday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.65/75 percent up from 10.50/70 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent from 11.90/12.10 percent.

A bond maturing on 01.07.2028 closed at 12.15/35 percent down from 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent up from 12.30/45 percent.

A bond maturing on 15.05.2030 closed at 12.30/45 percent down from 12.35/50 percent.

A bond maturing on 01.07.2032 closed at 12.50/13.00 percent from 12.55/13.00 percent. (Colombo/Mar1/2024)

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Sri Lanka stocks close up 0.37-pct, Expo to de-list

ECONOMYNEXT – The Colombo Stock Exchange closed up 0.37 percent on Friday, and SG Holdings, the parent company of Expolanka Holdings Plc, said it was taking the company private.

Expolanka is the largest listed company on the Colombo Stock Exchange.

“Expolanka Holdings PLC has, at the Board Meeting held on 1st March 2024, considered a request from its principal shareholder and resolved to initiate the de-listing of the Company’s shares from the Official List of the Colombo Stock Exchange subject to obtaining necessary shareholder approval and regulatory approvals,” the company said in a stock exchange filing.

As per arrangements with SG Holdings Global Pte Ltd, the Company’s majority shareholder, it will purchase its shares from shareholders who may wish to divest their shareholding in the Company at a purchase price of Rs 185.00 per share. The share closed up at 150.50.

The broader All Share Index closed up 0.37 percent, or 39.47 points, at 10,691; while the S&P SL20 Index closed down 0.64 percent, or 19.59 points, at 3,037.

Turnover stayed above the 1 billion mark for the sixth consecutive day, registering 1.4 billion.

Crossings in Melstarcorp Plc (135mn) up at 89.50, Hatton National Bank Plc (64mn) up at 158.00, Hemas Holdings Plc (53mn) up at 75.00 and Central Finance Company Plc (26mn) up at 103.50, added significantly to the day’s turnover.

“The upward trend is continuing, with more retail buying also coming in, the number of trades was more than 10,000 today,” a market participant said. “Investors are looking for undervalued stocks and buying in quantities.” (Colombo/Mar1/2024).

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