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Saturday May 25th, 2024

Sri Lanka central bank still not decided on possible Zimbabwe-style parastatal facility

ECONOMYNEXT – Sri Lanka central bank has not yet decided on how to structure a 4 percent credit facility for semi-government institutions which has been directed by the cabinet of ministers, Governor W D Lakshman said.

“We are still thinking about it, how to handle this issue,” Governor Lakshman said.

“So no decision is yet taken at the central bank level.”

He was responding a question whether the 4 percent loan scheme would be provided by central bank re-finance (printed money which expands the monetary base).


Sri Lanka to have central bank run credit scheme for SOEs amid forex trouble

In 2020 the central bank structured a Saubhagya Covid-19 Renaissance Facility (SCRF) in three phases under Section 83 of its Monetary Law Act.

Similar re-finance (money printing) contributed to high inflation and currency depreciation in the 1980 and the failure of Sri Lanka’s post-1978 ‘open economy’.

Re-Finance Credit

Governor A S Jayewardene, probably the greatest classical economist that Sri Lanka produced, put a stop to re-finance from the Rural Credit Department of the central bank, also known as quasi-fiscal activities (QFA).

In 2020 Sri Lanka’s central bank was pressured by President Gotabaya Rajapaksa and was given a public ticking off when the agency seemingly delayed a 150 billion rupee re-finance facility demanded, in great shock to outside analysts.

According to published data the bank eventually provided 24.45 billion rupees and 92.6 rupees in facilities under Section 83 of its law and another 56.8 billion under section 108 involving credit guarantee, which was also rightfully a Treasury activity.

However the credit guarantee, which can also result in quasi fiscal losses, nevertheless does not create forex shortages and banks will provide credit using the existing monetary base.

A government statement on cabinet decisions made in August 09 said that there were 282 parastatals (government or semi-government owned enterprises) which were hit by Coronavirus.

Re-energize, re-orientation, renaissance

Therefore it was necessary to ‘re-energize’ them.

Newly appointed Finance Minister Basil Rajapaksa had proposed that the parastatals be also be financed through the same Saubhagya credit scheme.

“If any of the 270 plus government institutions is facing difficulties, they can obtain loans at 4 percent interest rate instead of getting it from the treasury,” Minister Keheliya Rambukwelle told reporters at the weekly cabinet press briefing.

“The current finance minister is on the process of doing this.”

Sri Lanka is now facing severe foreign exchange crisis from money printed to buy Treasury bills from failed auctions as well as direct liquidity window financing of commercial banks.

Parastatal re-finance schemes have led to eventual very high interest rates as happened in Sri Lanka in the 1980s and hyperinflation and eventual triple digit inflation and quasi financial losses for the central bank.

Zimbabwe’s Parastatal and Local Authorities Reorientation Program (PLARP), similar to the Saubhagya Renaissance facility and the Re-energizing loans now envisaged by the cabinet was first granted at 50 percent.

The Reserve Bank of Zimbabwe had to eventually sterilize the liquidity from parastatal and other facilities at triple digit rates creating even more quasi fiscal losses.

As of last week the central bank was sterilizing excess liquidity at 4.50 percent, which it had injected at around 5.20 percent through failed Treasury bill auctions. The sterilization rate was on Thursday raised to 5.0 percent.

The original Saubhagya loans were also provided at 1.0 percent when the sterilization rate was 4.5 percent, indicating a 3.5 percent quasi-fiscal loss, or conversely a forex reserve loss on the total volume on any that were not absorbed through a higher demand for notes and coins.

The central bank has said for the time being it will maintain a ceiling on Treasury bill auction yields.


Sri Lanka to keep Treasury auction ceiling yields: CB Governor

At every future rate hike, all non-overnight liquidity injections will result in higher sterilization losses for the central bank.

Thursday SRR hike will also reduce sterilization losses.

In 1967 Sri Lanka’s central bank launched a ‘New Agricultural Credit Scheme’ with re-finance from the central bank at 1.5 percent which People’s Bank was expected to loan at 8 percent.

In 1969, foreign reserves were down to 40 million US dollars from 190 million in 1950 when Sri Lanka set up the money printing central bank and an Import Control Law was brought.

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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


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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.


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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