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Thursday July 18th, 2024

Sri Lanka central bank not yet trippled Zimbabwe style quasi-fiscal facility

FIAT MONEY: Minister Bandula Gunewardene says money is not a game.

ECONOMYNEXT – Sri Lanka’s central bank has not yet tripled a re-finance (printed money) facility to 150 billion rupees (about 800 million US dollars) to give COVID-19 relief loans as ordered by President Gotabaya Rajapaksa, Information Minister Bandula Gunewardene said.

“I said as cabinet spokesman last week that President had ordered the central bank to give 150 billion rupees of re-finance,” Minister Gunewardene said.

“But it has not happened.”

Quasi-Fiscal

The central bank had already provided 50 billion rupees central bank credit (printed money) re-finance facility for banks to give loans without using real savings (deposits which offsets total consumption).

Minister Gunewardene said there were complaints from borrowers that banks were not giving loans as ordered under a debt moratorium already approved.

“Next week the President will take another action on this,” he said.

When credit is given with printed money, the excess demand from the newly created money puts pressure on the exchange rate and the central bank has to sell dollars to mop up the rupees in forex markets (defend the rupee).

The sale of domestic currency securities to mop up the new rupees will also result in (quasi-fiscal) losses to the central bank. Sri Lanka’s central bank is already giving forward guarantees to banks which results in quasi-fiscal losses when the rupee falls steeply.

Further Reading: Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe

A 150 billion rupee facility amounts to about 800 million US dollars in potential forex reserve losses when the rupee is defended against the newly created money. Sri Lanka had forex reserves of about 7.2 billion rupees by the end of April.

Sri Lanka has already placed exchange and import control after printing money in March and April.

Minister Gunewardene said the central bank was an independent financial authority.

Api Nodanner Mudal

“It is like the Elections Commission,” he said. “Money is not a game (Moodhull kiyan-nay sel-ler muck nevei. Api nodun-ner moodull). It is on a paper banknote that the entire economy’s trust is place.

“The monetary board has the monopoly power to issue money. It is not a power that the government has. It is like the Elections Commission.

“To that independent financial authority, the President has given instruction (oopperdes). It has been informed that those instructions have not been carried out.”

“Agencies that issue money – Reserve Banks all over the world operate like that. The President will make the necessary intervention next week.”

Sri Lanka’s high inflation and currency depreciation in the 1980s which blocked people from getting full benefits of a re-opened economy in 1978 was also partly due to central bank re-finance of bank credit.

Then-Governor A S Jayewardene stopped central bank re-finance of bank credit known as quasi-fiscal activities and also halted the direct purchase of Treasury bills at auctions, helping bring back monetary stability, end widespread strikes and keep the economy from collapsing as the war intensified.

However many of his prudential rules have been broken over the past three years, critics have said.

The collapse of the Zimbabwe dollar about 15 years ago and the country’s slide into hyperinflation was also worsened by several re-financed credit schemes.

The Reserve Bank of Zimbabwe set up a Productive Sector Facility (PSF) commercial firms, and Agricultural Sector Enhancement Facility (ASPEF) for farms about 15 years ago triggering severe foreign exchange shortages.

Another fund Parastatals and Local Authorities Reorientation Programme (PLARP) re-financed state enterprise and sub-national agencies. (Colombo/June11/2020-sb)

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Sri Lanka to conduct threat assessments for presidential candidates

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has submitted a cabinet paper proposing security measures for presidential candidates and former presidents, following the recent attack on former US President Donald Trump during a campaign rally in the USA.

“This proposal suggests the appointment of a committee to conduct threat assessments and provide necessary security for Presidential candidates as well as former Presidents,” a statement from his media division said.

The committee will include the Secretary of the Ministry of Public Security as Chair, the Chief of Defence Staff, the Inspector General of Police, the Chief of National Intelligence, and the Senior Deputy Inspector General of Police/Elections.

A Deputy Inspector General of Police will be appointed to oversee all security arrangements.

The committee and the designated officer will work closely with the Election Commission to ensure seamless coordination of security arrangements, the PMD said.

After today, July 17, Sri Lanka’s Election Committee is empowered to announce a date for the presidential polls due to be held this year.

Minister of Foreign Affairs M U M Ali Sabry has said the election will be held on October 5 or 12.

Members of the Samagi Jana Balawegaya (SJB) have said that the government should be accountable for the security of Opposition Leader Sajith Premadasa, the SJB’s presidential candidate. (Colombo/Jul17/2024)

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Sri Lanka rupee closes flat at 303.80/304.00 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed almost flat at 303.80/304.00 to the US dollar on Wednesday, from 303.70/304.00 to the US dollar on Tuesday, dealers said, while bond yields were down.

A bond maturing on 15.12.2026 closed at 10.60/75 percent, down from 10.82/92 percent.

A bond maturing on 15.12.2027 closed at 11.60/38 percent, down from 11.65/75 percent.

A bond maturing on 01.05.2028 closed at 11.72/78 percent, down from 11.80/90 percent.

A bond maturing on 15.09.2029 closed at 12.05/10 percent, down from 12.05/20 percent. (Colombo/Jul17/2024)

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Sri Lanka stocks close down, John Keells, Hemas, Hayleys push turnover

ECONOMYNEXT – The Colombo Stock Exchange closed down on Wednesday, data on its site showed.

The broader All Share Index closed down 0.41 percent, or 48.44 points, at 11,830; while the more liquid S&P SL20 Index closed down 0.52 percent, or 17.91 points, at 3,456.

Turnover was 1.2 million. A big part of this (Rs597mn) came from John Keells Holdings Plc (down at 194.25).

“There was foreign buying interest on John Keells and Hemas,” Softlogic Stockbrokers said.

“We saw foreign interest in selective counters persist.”

Hemas Holdings Plc contributed Rs143mn to the turnover, and the share closed down at 81.10.

Hayleys Plc contributed Rs156mn to the turnover, and the share closed up at 101.50.

The three crossings made up 67 percent of the turnover.

The capital goods counters, with all the bluechips, was the leading sector contributing to the day’s turnover.

With the exception of Hayleys and a couple of other companies, the counter saw most stocks close down or flat.

Sentiment around the banking counters also remained negative.

“The volatility in investor sentiments persisted. There are a lot of spectators in the market over the last few weeks, despite some positive news coming in.”

Treasury bill and bond rates have also dropped.

The top contributors to the ASPI were Melstacorp Plc (up at 86.00), SMB Finance Plc (up at 0.70), and TeeJay Lanka Plc (up at 40.00).

There was a net foreign inflow of 392 million. (Colombo/Jul17/2024)

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