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Tuesday November 29th, 2022

Sri Lanka can avoid food shortages by relaxing open account imports: Trade Minister

Beijing will lower import tariffs on more than 850 products including frozen pork from next month.

ECONOMYNEXT – Sri Lanka can avoid a food shortage from July to mid-August following a decision to relax open account imports for 10 essential foods, in conjunction with a fuel distribution scheme for local suppliers and traders, Trade Minister Nalin Fernando said.

“We have allowed the import of 10 essential items from today onward. With this, we expect to meet our needs without shortages, and also to reduce prices through competition,” said Fernando speaking at a government press briefing on Friday July 01.

Open account imports for 10 essential items are permitted effective Friday. These are, according to a previous statement Fernando had made in parliament, rice, wheat flour, sugar, potatoes, red dhal (lentils), onions, dry chillies, dry fish, beans and milk powder.

Open account imports allow food to be cleared on suppliers’ credit which can be settled later through official or unofficial means. Sri Lanka, banned open accounts in May in an attempt to reduce Unidyal style net settlements being made for what officials called ‘non-essential’ imports. However, the ban also hit food imports, which are usually imported long term relationships on suppliers credit. It is estimated that the island needs about 150 to 250 million US dollars a month for food imports according to industry officials.

Minster Fernando said he had been approached about the possibility of allowing a price increase in rice by 25 rupees a kilo, but he had to deny this request as Sri Lanka’s prevailing price controls on rice varieties cannot be changed at present.

“We’re also importing rice. We expect to import about 75,000 to 100,00 metric tons of rice a month,” he said.

The government is also looking to allocate fuel for the transport of essential foods. Sri Lanka is currently in the throes of an unprecedented energy crisis brought about by a crippling dollar shortage. Dire warnings of a possible food crisis over the the next few months have also been raised by various parties including Prime Minister Ranil Wickremesinghe.

“There has been a drop in lorries operating out of Economic Centres (state-run agricultural exchanges) due to the fuel issue. We have a special programme in place to distribute fuel to lorries at these centres through army camps. This will be coordinated by district secretaries and fuel will be supplied to the lorries from tomorrow (July 02),” he said.

“We will provide diesel to transport goods to [state-run retailer] Sathosa and supermarket chains. Diesel will also be given to wholesale outlet’s lorries,” he added. (Colombo/Jul02/2022)

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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