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Sunday June 16th, 2024

Sri Lanka COPF chair urges IMF to prioritise accountability, transparency as review begins

ECONOMYNEXT – Chairman of Sri Lanka’s parliamentary Committee on Public Finance (COPF) Harsha de Silva has urged the International Monetary Fund (IMF) to prioritise accountability and transparency as the international lender goes into its first review of its programme.

“As the IMF evaluates our progress, we urge them to prioritize accountability and transparency. Confronting past mistakes is crucial for our nation’s recovery. Let’s work together to rebuild Sri Lanka on a foundation of truth and justice,” de Silva tweeted Thursday September 14 afternoon.

The main opposition Samagi Jana Balawegaya (SJB) MP made this call in a Twitter thread about questions he had raised at a recent press conference about a former Central Bank of Sri Lanka (CBSL) governor guarantee repayment to a Chinese-American financier named Benjamin Wey when Sri Lanka was on the brink of defaulting in January 2022.

“Benjamin Wei’s involvement in questionable activities, including ties to the Hamilton Reserve Bank and Fintech Holdings Ltd., is deeply concerning. How did a small bank in a nation with 50,000 inhabitants and GDP under $1 billion amass a $250 million stake in our bonds?” said de Silva.

The same question was raised by an article that appeared in the London-based Financial Times on September 08 in a piece titled ‘The mysterious ‘global financier’ suing Sri Lanka’.

The FT story was on a lawsuit filed by the US government in the first week of September.

“The case has been brought by Hamilton Reserve Bank in St Kitts & Nevis. Somehow, a small bank based in a country with 50,000 inhabitants and GDP of under $1bn has amassed a $250mn face-value stake in a Sri Lankan bond,” the FT wrote.

This specific bond was issued in happier times (2012) and lacks some now-common clauses that make bonds easier to restructure, the FT noted. What was unusual, according to the newspaper, was the size of HRB’s stake and the “unusual aggressiveness” of its lawsuit against Sri Lanka, which began almost as soon as it defaulted in April 2022. The lawsuit “smelt a bit fishy”, the FT wrote.

“We’d heard whispers about who might be behind HRB’s lawsuit, and last week Sri Lanka’s law firm Clifford Chance for the first time said explicitly who it thinks is driving this: a Chinese-American financier called Benjamin Wey,” the paper said, adding that Wey is no stranger to legal controversy.

According to the FT, Wey had contacted several creditors about joining forces against Sri Lanka, and had even emailed a presentation laying out their case.

MP de Silva said in his Twitter thread on Thursday that parallels with Greek bond crisis are evident, “as we see investments in ‘junk’ bonds raising anger”.

“Recent revelations of Wei rallying creditors against #lka only deepen suspicions of undisclosed deals,  who truly invested in these bonds & at what discounted rates?

“The U.S., Britain, and France’s support underscores international unease. However, our refusal to accept allegations of #EconomicCrimes remains a significant challenge. The @IMFNews must not overlook governance issues in Sri Lanka’s recovery plan. 🌍 #IMF #Accountability,” he tweeted.

The IMF begins its first review of its ongoing programme in Sri Lanka on September 14. (Colombo/Sep14/2023)

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Sri Lanka state airport agency swimming in cash after sovereign default

ECONOMYNEXT – State-run Airport and Aviation Services (Sri Lanka) Ltd is swimming in cash after a sovereign default halted debt repayments allowing it to post a profit of 29.7 billion rupees with 10.4 billion rupees in interest income, official data showed.

In April 2022 Sri Lanka declared a sovereign default after printing large volumes of money over more than two years to enforce rate cuts and blowing the biggest hole in the balance of payments in the history of the island’s money printing central bank.

Interest earnings of Airport and Aviation Services also shot up to 10.4 billion rupees in 2023 from 6.1 billion in 2022 and 3.3 billion rupees in 2021 before the sovereign default.

Under the terms of the default or ‘debt suspension’, state agencies like the Airport and Aviation Services, and Sri Lanka Port Authority were also not required to service loans, even if they had the cash to repay loans.

AASL’s finance income shot up in 2023 “mainly because the company has invested surplus cash saved by not servicing the foreign loans obtained by the company due to the temporary debt moratorium policy of the country,” the Finance Ministry said in a report.

Sri Lanka’s rupee and foreign currency interest rates also shot up in 2022 and 2023 as rate cuts enforced by money printing were lifted to clear anchor conflicts.

After inflationary rate cuts kill confidence in a currency triggering capital flight and parallel exchange rates, excessively high rates are needed to kill domestic credit and stabilize the currency.

Countries with such flawed operating frameworks in central banks tend to have chronic high nominal interest rates in any case.

AASL’s rupee revenues went up to 48.8 billion rupees in 2023 from 32.2 billion rupees in 2022 as passenger movements increased to 7.5 million from 5.5 million with a recovery in tourism and local traffic.

Sri Lanka’s currency crisis hit in 2022 just as the island was recovering from Coronavirus pandemic triggering fuel shortages and power cuts as money printing triggered forex shortages.

From 2022 March the rupee collapsed from 200 to 370 levels an attempt to float the rupee was failed by a surrender rule (a type of buy-side pegging which pushes the exchange rate down).

In 2023, after hiking rates to kill credit, the surrender rule was removed, leading to a currency appreciation.

The airport agency also made an exchange gain of 6.1 billion rupees in 2023 against an exchange loss of 10.5 billion rupees in 2022 the rupee appreciated. (Colombo/June16/2024)

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Sri Lanka car import relaxing roadmap given to IMF: State Minister

ECONOMYNEXT – Sri Lanka has submitted a roadmap on relaxing vehicle imports to the International Monetary Fund, State Minister of Finance Ranjith Siymabalapitiya said as the country recovers from the worst currency crises in the history of its central bank.

The import relaxation will allow vehicles for public transport, goods transport, then motor cycles and cars use by private individuals and after that, luxury cars, Minister Siyambalapitiya said.

Luxury cars however attract the highest taxes for each dollar spent on imports.

Economic analysts have characterized vehicle import controls as a ‘cascading policy error’ that follows inflationary rate cuts, which then deprive taxes to the state and triggers more money printing and more forex shortages, requiring even higher corrective interest rates and a contraction of economic activities to save the rupee.

According to the latest IMF report car import controls may have led to revenue losses of 0.7 to 0.9 percent of GDP.

Sri Lanka started controlling imports few years after a central bank was set up in 1950 and also tightened exchange controls progressively, so that macroeconomists using post-1920 spurious monetary doctrines taught at Anglophone universities could print money through various mechanisms to suppress rates.

Sri Lanka is working with the IMF as a guide on many issues and the roadmap was submitted to the agency on June 14, Minister Siyambalapitiya said.

The IMF in an economic report released last week the plan was expected to be submitted by June 15.

Whatever the IMF’s faults, which some wags have called ‘progressive Saltwaterism’, the agency does not advocate import controls as solution to balance of payments problems, despite a Mercantilist fixation with the current account deficit in countries with reserve collecting central banks, analysts say.

Import controls have the same effect as import substation on the balance of payments, which is none, classical economists have pointed out and is now mainly a problem associated with macro economists and economic bureaucrats of so-called basket case countries.

Any pressure on the currency or missed reserves targets in the IMF program has come in the past only if the central bank printed money to suppress rates as credit growth picked up from car imports.

Sri Lanka had 3,000 items under import controls when rates were suppressed with printed money from 2020 to 2022 but eventually ended up with the worst currency crisis triggered by macro economists in the history of the country and eventual external default.

A committee made up of the Department of Trade and Fiscal Policy of the Finance Ministry, the Department of Registration of Motor Vehicles, the Central Bank and two associations representing vehicle imports were appointed to come up with the roadmap, he said. (Colombo/June15/2024)

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Chitrasiri Committee presents draft constitution for Sri Lanka Cricket

ECONOMYNEXT – A draft constitution for Sri Lanka Cricket, the governing body for cricket in the island, prepared by a committee headed by retired Supreme Court judge K T Chitrasiri, was presented to President Ranil Wickremesinghe today (15).

The Sri Lanka team were ignominiously knocked out of the Men’s T20 World Cup tournament this week, sparking renewed criticism of the team and the governing body.

Last November, a cabinet sub-committee was appointed to address challenges faced by Sri Lanka Cricket and provide recommendations after consecutive losses became a hot topic in parliament.

After parliament decided to remove the administrators of the sport, the International Cricket Council (ICC) Board suspended Sri Lanka Cricket’s membership.

Based on the sub-committee’s recommendations in its report, the Cabinet then appointed an expert committee to draft a new constitution for Sri Lanka Cricket.

The committee headed by judge K T Chitrasiri includes President’s Counsel Harsha Amarasekara, Attorney-at-Law Dr Aritha Wickramanayake and Chairman of the Sri Lanka Chamber of Commerce Duminda Hulangamuwa.

Deputy Solicitor General Manohara Jayasinghe, and Shamila Krishanthi, Assistant Draftsman representing the Legal Draftsman’s Department, and Loshini Peiris, Additional Secretary to the President were also on the committee. (Colombo/Jun14/2024)

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