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Friday February 23rd, 2024

Sri Lanka central bank forex interventions turn negative in November

ECONOMYNEXT – Interventions in Sri Lanka’s foreign exchange market by the central bank to maintain a soft-pegged exchange rate regime turns slightly negative in December after months of net purchases when private credit was negative, official data shows.

Central Bank net purchases of foreign exchange spiked to 162.5 million US dollars in July 2020 amid steep contraction in private credit.

Since then net purchases have fallen as private credit picked up.

Net purchases which were 93 million dollars in August, 2020 fell to 54 in September and 2.4 in November before turning to a net 22.5 million dollars of sales in December.

It is not unusual for pegged regimes to have small negative sales in some months amid credit spikes which makes liquidity tighten from dollar sales.

Sri Lanka however has over 200 billion rupees (about 20 percent of the monetary base) of excess liquidity.

Sri Lanka is operating a highly unstable pegged exchange rate regime aimed at collecting forex reserves without monetary policy to back it up or a transparent convertibility undertaking.

There is a notional weak side convertibility undertaking called a DMC rule (disorderly market conditions) which is found in highly unstable countries with monetary instability backed by International Monetary Fund programs.

The central bank also sold 174 million dollars in March 2020 after printing money through several means, and private credit spiked partly due to the fall in currency as importers scrambled to cover bills with a non-transparent DMC. The DMC was deployed close to 200 to the US dollar.

In December the central bank said it would like to see the rupee around 185 to the dollar and will take aggressive measures.

Sri Lanka’s foreign reserves which rose to 7.4 billion US dollars in August 2020 from 7.09 billion dollars in July had fallen to 5,549 million dollars by November.

The central bank had also executed swaps to temporarily borrow dollars, instead of buying them outright.

Swap premiums have turned negative amid record low rupee rates and weakened confidence after tax cuts and credit downgrades. Analysts say that Sri Lanka’s interest rates are now sharply out of line with balance of payments, though current transactions are not very strong amid weak private credit.

Sri Lanka’s stocks have been booming amid excess liquidity.

There are also import controls on items that bring high tax revenues to the government. (Colombo/Jan11/2021)

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Sri Lankans may need to wait for Monetary Board meeting minutes despite new Act

ECONOMYNEXT – Sri Lankans may have to wait more time to read the meeting minutes of the Central Bank’s Monetary Board, a top official said, despite a new act that has made the central bank to be more transparent and accountable for its decisions.

Many central banks including the United States’ Federal Reserve, India’s Reserve Bank, and Bank of Mexico release the minutes of their monetary policy meeting to ensure transparency.

The new Central Bank Act passed by the Parliament in line with the guidance by the International Monetary Fund (IMF) includes measures for Sri Lanka’s central bank to be more transparent and accountable.

These measures include releasing the Monetary Policy Report every six months and the first such report was released on February 15.

However, the central bank has not taken a decision to release the minutes of the Monetary Board meetings on the monetary policy.

“Going forward, one day this could happen,” Chandranath Amarasekara, Assistant Governor at the Central Bank told reporters on Wednesday (21) at a media briefing.

“Right now, we have just started working on the new Central Bank Act. We are not there yet. There is no such decision on releasing minutes yet.”

The central bank in the past printed billions of rupees to keep the market interest rates artificially low and provide cheap funding for successive governments to propel a debt-driven economy.

It’s decision, however, led Sri Lanka into an unprecedented economic crisis in 2022 with sovereign debt default.

It also propped up the rupee currency artificially in the past to maintain a stable exchange rate at the expense of billions of US dollars. The move also contributed for the economic crisis and later the central bank was forced to allow over 60 percent depreciation in the rupee in March 2022.

However, none of the top central bank officials was held responsible for wrong decisions to hold interest rates artificially low with money printing and propping up the rupee. (Colombo/Feb 23/2024)

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Amid mass migration, Sri Lanka to recruit volunteers as English teachers

ECONOMYNEXT- Sri Lanka is planning to appoint foreign and expatriate volunteers to teach English for Sri Lanka students, the Ministry of Higher Education said, amid thousand of teachers migrating to other countries after the island nation’s unprecedented economic crisis.

Over five thousand teachers have left the country with the Education Ministry permission using the government’s circular of temporarily leaving state jobs while tens of thousands of teachers have left the country without informing the relevant authorities, Education Ministry officials say.

That had led to an acute teacher shortage in the country.

Suren Raghavan, the State Minister for Higher Education said the shortage has aggravated because most of the graduates who have an English degree become writers and join the private sector due to higher salary.

“They do not join government schools. This is a problem all over the country which is why we need to have an online system,” Raghavan told EconomyNext.

Separately he said on Thursday at a press conference that he had spoken to Canadian and Australian High Commissions to get the assistance of where their English teachers who have experience in teaching English as a second language in South Asia.

He also said that there is a number of teachers in the Unite Kingdom have shown interest in teaching English and they have experience in teaching in other Asian countries such as Burma and India while the teaching would be done free of charge.

The new move also comes at a time when the country’s English literacy rate is on the decline, according to the Minister.

President Ranil Wickramasinghe announced the English-for-all initiative three months ago with plans to improve English literacy at school and university level. (Colombo/Feb 23/2024)

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Sri Lanka tea production up 1.4-pct in Jan 2024, exports up 6.8-pct

ECONOMYNEXT – Sri Lanka’s tea production was up 1.4 percent to 18.73 million kilograms in January 2024, with high growns falling and low and mid growns rising, industry data shows.

High grown tea in January 2024 was 3.56 million kilograms, down from 3.36 million, medium growns were 2.6, up from 2.5 million kilograms and low growns were 12.56 million, up from 12.32 million kilograms last year.

Exports, including re-exports were up 6.88 percent to 18.76 million kilograms, industry data published by Ceylon Tea Brokers show.

Export earnings were reported at 102 million US dollars, up from 99.5 million dollars last year. The average FOB price was 5.45 US dollars a kilo down from 5.67 dollars last year.

Tea in bulk was 8.5 million kilograms valued at 12.79 billion rupees, tea in packets was 7.8 million kilograms valued at 13.1 billion rupees and tea in bags was 1.8 million kilos, valued at 5.06 billion rupees.

The top buyer was Iraq with 2.5 million kilos, up from 2.1 million last year followed by the UAE with 1.99 kilos, up from 1.86 million last year.

Russia bought 1.98 million kilos, down from 2.0 last year, Turkey bought 1.72 million kilos, from 2.3 million last year, while Iran bought 1.32 million, up from 614 million last year. (Colombo/Feb23/2024)

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