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Sunday May 26th, 2024

Sri Lanka central bank buys US$950mn amid negative credit so far 2023

ECONOMYNEXT – Sri Lanka’s central bank has been able to buy 950 million US dollars more from commercial banks than it sold so far in 2023, according to International Monetary Fund documents.

“Thus far in 2023, the CBSL has been able to purchase over US$ 950 million on a net basis towards building up reserves, ” Krishnamurthy Subramanian, Executive Director for Sri Lanka and Chandranath Amarasekara, Alternate Executive Director said in a statement released with IMF documents.

In 2023 the central bank has to buy 1.4 billion US dollars to build foreign reserves under the IMF program.

The central bank net reserves are now negative due to dollars borrowed to push unsustainable private imports as liquidity was injected to offset interventions and keep its policy rate artificially down.

Sri Lanka’s high interest rates and price reforms to state enterprises, as well as reduced budget deficit has reduced domestic credit to levels below loans repayments and new deposits, allowing the balance of payments to turn into surplus.

When credit is negative and external outflows are below inflows (there is balance of payments surplus) a central bank can easily control an exchange rate or appreciate it.

However, any purchases above that allowed by domestic credit developments (the net sale of sterilization securities in to a domestic banking system or voluntary private sector sterilization) can push the currency down.

East Asian pegged monetary authorities create almost permanent BOP surpluses by steadily selling sterilization securities (MAS bills/HKMA Exchange Fund bills and notes/Bank Negara paper/PBOC paper) and not obstinately maintaining short term rates through inflationary open market operations like Sri Lanka, Latin America, as well as other sovereign defaulting countries with collapsing flexible exchange rates, analysts say.

When credit is negative, the new money created by central bank purchases does not immediately come back to the forex market, allowing a reserve collecting pegged central bank to mop it up by the sale of sterilization securities.

At the moment Sri Lanka’s banking system has liquidity shortages from previously lost foreign reserves, which were filled with overnight open market operations as well as a high level of voluntary private sector sterilization through money deposited in the central bank’s overnight standing facility.

Thought access to the facility has been limited in a subsequent decision, banks are still keeping their money overnight in their RTGS accounts instead of lending, helping build up reserves.

If they star buying Treasury bills with the money or domestic credit picks up, the excess dollars available in the forex markets would reduce. (Colombo/Mar22/2023)

Comments (1)

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  1. K.wijesuriya says:

    If the central bank buys USD from the open market,
    that means they are interfering with the floating Forex market.
    They should allow appreciating the value of the rupee.

    Their approach is completely wrong.
    We are sure to market fundamentals will not allow this attitude
    because they will not be able to sell the exchange without
    reducing the present market price.

    Wijesuriya

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Your email address will not be published. Required fields are marked *

  1. K.wijesuriya says:

    If the central bank buys USD from the open market,
    that means they are interfering with the floating Forex market.
    They should allow appreciating the value of the rupee.

    Their approach is completely wrong.
    We are sure to market fundamentals will not allow this attitude
    because they will not be able to sell the exchange without
    reducing the present market price.

    Wijesuriya

Sri Lanka power outages from falling trees worsened by unfilled vacancies: CEB union

HEAVY WINDS: Heavy rains and gusting winds have brought down trees on many location in Sri Lanka.

ECONOMYNEXT – Sri Lanka’s power grid has been hit by 300,000 outages as heavy winds brought down trees, restoring supply has been delayed by unfilled vacancies of breakdown staff, a union statement said.

Despite electricity being declared an essential service, vacancies have not been filled, the CEB Engineers Union said.

“In this already challenging situation, the Acting General Manager of CEB issued a circular on May 21, 2024, abolishing several essential service positions, including the Maintenance Electrical Engineer in the Area Engineer Offices, Construction Units, and Distribution Maintenance Units,” the Union said.

“This decision, made without any scientific basis, significantly reduces our capacity to provide adequate services to the public during this emergency.

“On behalf of all the staff of CEB, we express our deep regret for the inconvenience caused to our valued customers.”

High winds had rains have brought down trees across power lines and transformers, the statement said.

In the past few day over 300,000 power outages have been reported nationwide, with some areas experiencing over 30,000 outages within an hour.

“Our limited technical staff at the Ceylon Electricity Board (CEB) are making extraordinary efforts to restore power as quickly as possible,” the union said.

“We deeply regret that due to the high volume of calls, there are times when we are unable to respond to all customer inquiries.

“We kindly ask consumers to support our restoration teams and to report any fallen live electrical wires or devices to the Electricity Board immediately without attempting to handle them.

The union said there were not enough workers to restore power quickly when such a large volume of breakdowns happens.

“We want to clarify that the additional groups mentioned by the minister have not yet been received by the CEB,” the union said.

“Despite the government’s designation of electricity as an essential service, neither the government, the minister in charge, nor the CEB board of directors have taken adequate steps to fill the relevant vacancies or retain current employees.

“We believe they should be held directly responsible for the delays in addressing the power outages due to the shortage of staff.”

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Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings

(Colombo/May25/2024)

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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.

Related

Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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