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Tuesday September 26th, 2023

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.”


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 cabinet okays appropriation bill for 2024 budget

ECONOMYNEXT – Sri Lanka’s cabinet of ministers had approved a draft Appropriation Act for 2024, the state information office said.

The Finance Minister’s proposal to gazette the bill and table it in parliament was approved by the cabinet.

Presenting the appropriation bill is the first stage of presenting a budget for 2024,

The appropriation bills set outs the expenditure plans for each ministry.

The budget proposals, made in November is called the second reading of the Appropriation Act. (Colombo/Sept24/2023)

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Sri Lanka’s MEPA to get 28.5 mn rupees from Singaporean AEPW, for beach clean up

ECONOMYNEXT – Sri Lanka’s Marine Environment Protection Authority (MEPA) is to receive 5.7 million rupees a year, for five years, from Singapore-based marine waste solutions provider, Alliance to End Plastic Waste (AEPW), to maintain 8 beach cleaner machines.

The donation is meant to support MEPA clean coastal areas across Sri Lanka, using BeachTech Hydro Sweepy beach cleaner machines, previously donated by the organisation.

The oil industry-founded non-governmental organisation donated the 8 beach cleaners worth about US$180,000 to MEPA in the wake of the 2021 MV X-press Pearl ship disaster.

The machines manufactured by Kässbohrer Geländefahrzeug AG, a German company, are effective at cleaning up plastic nurdles and other types of potentially harmful non-biodegradable waste, minimising human contact with hazardous materials.

As a significant amount of money is spent for the deployment of these machines for beach cleaning activities, the Alliance to End Plastic Waste has agreed to provide the funds for the upkeep of the machines for a period of five years.

With this financial donation, the Maritime Environment Protection Authority will be able to continue using these machines without interruption to clean identified beaches in the future. (Colombo/Sep26/2023)

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Sri Lanka’s SEC makes four new appointments

ECONOMYNEXT – The Securities and Exchange Commission of Sri Lanka (SEC) made four new additions from diverse backgrounds to its leadership.

These appointments are expected to increase the effectiveness of the SEC secretariat in the respective operating areas, the SEC said.

Manuri Weerasinghe, with over 20 years of experience in accounting, financial management, financial reporting and auditing, was appointed Director, Corporate Affairs.

She is a Fellow Member of CA Sri Lanka, member of the Chartered Institute of Management Accountants and a member of the Certified Practicing Accountants of Australia.

Her academic credentials include a Master of Business Administration and a BSc (Hons) in Accountancy and Financial Management (Special).

Prior to joining the SEC, she served in several financial management positions in Bermuda and Sweden.

Madura P R Wanigasekara was appointed Chief Digital Officer. He has over 20 years delivering and managing IT solutions, and has held several senior management positions in the public and private sectors.

His academic qualifications include a Master of Science in Information Technology from the University of Colombo and a Bachelor of Information Technology from the Curtin University of Technology.

He is also a member of the Australian Computer Society (ACS).

Sharmila Panditaratne was appointed Assistant Director, Legal and Enforcement.

She is an Attorney-at-Law with over 21 years of experience as a securities market regulator.

She holds a Master of Laws degree from the University of Houston, Texas and has worked at two law firms in the USA prior to joining the SEC.

Riyaz Bary, Deputy Solicitor General at the Attorney General’s Department was appointed a Director on secondment basis. (Colombo/Sep26/2023)

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