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Saturday June 3rd, 2023

Sri Lanka budget deficit to expand to 5.4 to 5.6-pct in 2019

ECONOMYNEXT – Sri Lanka’s budget deficit may reach 5.6 percent of gross domestic product in 2019, Treasury Secretary R H S Samaratunga said, which would be around the same levels as in 2018.

The revised deficit could be 5.4 to 5.6 percent, Samaratunga said.

Sri Lanka was originally targeting 4.4 percent of GDP for 2019.

But the 5.6 percent out-turn would be around the same levels as the 5.4 to 5.6 percent seen in the last three years.

Up to July 2019 Sri Lanka’s revenues fell 4.4 percent to 1,031.9 billion rupees from 1,079.0 percent in 2018.

Current spending grew 10 percent to 1,218.9 percent, pushing the deficit to round 4.4 percent of GDP.

Samaratunga said in September there were signs of a recovery in revenues.

Revenues generally move up in the second half of the year. In the first half of the year arrears are also sometime settled and state salary hikes and other new spending also occurs.

Sri Lanka’s credit and import has collapsed amid monetary instability triggered by a highly unstable soft-peg with contradictory money (liquidity management, rates) and exchange (convertibility undertakings).

Under the latest reincarnation or ‘flexible exchange rate’ a call money rate is targeted with sudden large injections of printed money until the peg comes under pressure, and convertibility undertakings are delayed until a ‘disorderly fall’ occurs.

However large volumes of dollars are bought including from the Treasury at a convertibility undertaking at market prices with no’ disorderly’ rise.

The central bank also injects base money in using forward dollar contracts of the type used by speculators to hit East Asian currencies, with Treasury as the counterparty, critics have said.

The rupee collapsed from 153 to 182 from the latest ‘flexible exchange rate’ crisis, involving injections from both speculative swaps and injections from lender of last resort windows.

Money was injected in 2018, just as the credit system was recovering from another crisis in 2015/2016 triggered by sustained releases of liquidity and money printing to depress short term rates as the economy was recovering from yet another crisis in 2012/2013.

In the 2015/2016 flexible exchange rate crisis the rupee fell from 131 to 150 to the US dollar.

In 2012 crisis when liquidity management was worse, but convertibility undertakings were tighter, the rupee fell from around 113 to 131 to the US dollar.

Under the flexible exchange rate, the gap between crises is becoming narrower, critics have warned.

There have been calls to reform the central bank to reign in its ability to practice discretionary or flexible policy and move to a consistent peg or an inflation targeting framework with a genuine floating rate to that the country will have longer periods of stability and will be able to practice free trade.

Nixon shock-style trade restriction were slammed in 2018, in the wake of monetary instability and the state revenues, economic output are under pressure. In April matters were further complicated by a Easter Sunday blasts which hit tourism. (Colombo/Oct04/2019)

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Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

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.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

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.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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