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Tuesday May 30th, 2023

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 cabinet nod for President to discuss cancelled LRT with Japan

ECONOMYNEXT – Sri Lanka’s Cabinet of Ministers approved a proposal by President Ranil Wickremesinghe discuss resuming a Japan funded. Light Rail Transit (LRT) project cabinet spokesman said, as the island nation is in the process of mending ties with Tokyo.

However, any such deals are likely to take place after the debt restructuring and Sri Lanka starts to repay its foreign loans to come out of default, analysts say.

Former President Gotabaya Rajapaksa unilaterally cancelled the 1.5 billion US dollar LRT and East Container Terminal (ECT) projects in 2021. Japan agreed to fund the LRT project while it was one of the tripartite members of the ECT project along with India and Sri Lanka.

The abrupt cancellation hit the diplomatic ties between the two countries and Sri Lankan government officials have said Japan had given the project to Sri Lanka at a very lower financing cost.

President Wickremesinghe returned from Japan late last week after having met top officials of the Japanese government including its prime minister.

“In recent history, due to the stopping of several agreements and proposals suddenly, President Wickremesinghe went to Japan after creating the background to clear some of the worries we have,” Cabinet Spokesman Bandula Gunawardena told the weekly media briefing.

“Before he went, he got the approval from the cabinet to resume the discussion on the light railway project. He got the approval from the cabinet to get parliament approval for bilateral agreements signed or any other investments project. Any change or cancellation of a project could be done only with the approval of the parliament.”

Japan has backed Sri Lanka under Wickremesinghe’s presidency after the island nation declared sovereign debt default. (Colombo/May 30/2023)

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Sri Lanka to tighten grip on television with broadcast law

ECONOMYNEXT – Sri Lanka has formulated a broadcast authority law to regulate electronic media which will be made public soon, Cabinet spokesman Minister Bandula Gunawardana said.

“The draft prepared by a cabinet subcommittee under Justice Minister Wijedasa Rajapaksa has discussed with various parties will be given to all media institutions and broadcast media,” Gunawardana said.

“We do not have to hide or force anyone. A legal framework that can be acceptable to all for all sectors.”

“In a week or two Minister Wijedasa will discuss with state and private stakeholders.”

At the moment Sri Lanka has issued frequencies without conforming to an “international procedures”, he said.

In Sri Lanka television frequencies are issued under a state television act.

Successive administrations in Sri Lanka has since around 1980 mis-used state television duopoly which including for conducting elections according to critics.

Private television as well a raio emerged around the 1990s and has since over shadowed state media.

There have been calls by ruling party politicians from time to time to control private media. There is now calls to control social media.

At a Committee on Public Accounts meeting of the Department of Government Information, ruling coalition legislators called for regulation of television content. (Colombo/May30/2023)

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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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