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Sunday September 24th, 2023

Sri Lanka debt to GDP ratio down to 106-pct of GDP in June 2023 – Corrected

ECONOMYNEXT – Sri Lanka’s debt to gross domestic product including guaranteed debt of state enterprises were down to 106.04 percent by end June 2023, official data shows.

Sri Lanka’s central government debt was 27,148 billion rupees by end June 2023, and SOE guaranteed debt was another 1,095 billion rupees, taking the total to 28,244 billion rupees, according to a June debt update.

Sri Lanka’s rolling GDP in the four quarters up to was 26,636 billion rupees, based on the latest calculations of the statistics office.

Sri Lanka’s central bank also had another 4.996 billion US dollars in gross debt which is used in International Monetary Fund debt calculations.

However, the debt is balanced by a large Treasury bill stock worth almost 10 billion US dollars at the June exchange rate of 308 rupees by June.

As long as monetary stability is maintained, the central bank can exchange the debt for US dollars and pay the debt down without any increase in government debt.

In the current currency crisis, the central bank also borrowed from India through deferred the Asian Clearing Union

Though holding an exchange rate, and building reserves (the monetary authority takes in dollar deposits) is a simple matter for an Asian country with a 20 percent savings rate, unstable central banks in the region print money to target a call money rate or other interest rates and trigger monetary instability, when private credit picks up, destroying currencies.

The problem is then blamed on a variety of real economy phenomena by inflationists, among the favourites are lack of an export oriented economy, budget deficit and current account deficit.

Sri Lanka’s rupee has since depreciated to around 320 to the US dollar, under an ad hoc peg arrangement called a ‘flexible exchange’ found in countries with central banks that go to the IMF frequently after mis-targeting rates and triggering external crises.

The depreciation will expand dollar debt.

The IMF also counts among gross debt a swap from China taken by the central bank which has not been spent.

Related Sri Lanka’s controversial new central bank law certified by speaker

Sri Lanka has passed a new central bank law, legalizing the unstable peg arrangement backed by inconsistent policy, which is neither a clean float nor a hard peg.

The law has also legalized flexible inflation targeting with output gap targeting (printing money for macro-economic policy or growth with easy money) , the exact strategy that led to forex shortages, growth shocks from stabilization policies and rising foreign borrowings from around 2015.

Flexible inflation targeting is also found in recently defaulted countries. (Colombo/Sept18/2023 – Corrected. An earlier version of this story said said total of central govt and SOE debt was 100.34 -pct of GDP)

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Sri Lanka India industrial zone around Trinco, maritime links mooted

ECONOMYNEXT – Sri Lanka’s Ports Minister Nimal Siripala de Silva had highlighted the desire of both the Governments to work closely to develop the industrial zone at Trincomalee, after accepting an invitation to participate in a maritime summit.

The Global Maritime India Summit (GMIS) will be held in India from October 17-19, 2023 at Mumbai where Sri Lanka has been invited at a partner country.

At a curtain raiser event on September 22, India’s High Commissioner in Colombo, Gopal Baglay had said both countries were working on enhancing sea connectivity according to a vision document launched during a recent visit of the President of Sri Lanka to India.

Minister de Silva will lead a delegation from Sri Lanka to the summit.

Secretary to the Ministry of Ports, Shipping and Waterways, Government of India, T K Ramachandran said the Global Maritime India Summit aims strengthen the Indian maritime economy by promoting global and regional partnerships and facilitating investments.

The event will give an opportunity to the Government of Sri Lanka to attracting greater investment from India in development of its maritime infrastructure, Ramachandran said.

It will also facilitate greater business to business interactions. (Colombo/Sept24/2023)

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Sri Lanka brings back import para tariff on milk

ECONOMYNEXT – Sri Lanka has brought back an import para tariff called the Ports and Airports Levy, to several grades of milk powder.

Milk powder has been removed from a list of PAL exemptions, making them liable for a 10 percent tax.

The PAL para tariffs are also a contentious issue in terms of export competitiveness, and the government has previously given undertakings that they will be eliminated.

Trade freedoms of the poor figure in an IMF/World bank reform program with the governments.

Milk is a protein rich food, in a country where children of poor families are facing stunting and malnutrition.

Economic nationalism is seen at high levels in food, with several businessmen are pushing for trade protection, amid an overall autarkist (self-sufficiency) ideology, going directly against policies followed in East Asia, which the same as hold up as examples.

Sri Lanka keeps dairy product prices up ostensibly to bring profits to a domestic dairy company and farmers.

Sri Lanka also keeps maize prices up, ostensibly to give profits to farmers and collectors. (Colombo/Sept22/2023)

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Sri Lanka govt warns liquor manufacturers: pay defaulted tax or lose licence

ECONOMYNEXT – Sri Lanka government which is struggling to raise the state revenue despite   higher taxes, has warned liquor manufacturers to pay defaulted taxes or lose their licence.

The government is now getting tough with past tax defaulters amid concerns over falling short of this year’s revenue target agreed with the International Monetary Fun (IMF).

“Liquor manufacturing firms owe us 660 crore rupees (6.6 billion rupees),” Siyambalapitiya told  reporters on Thursday (21).

“Most of this or around a third is the only excise tax amount to be paid. The rest is penalty. If a liquor manufacturer does not pay on time, we impose a penalty of 3 percent per month This means 36 percent (penalty) per annum,” he said.

“We have given them deadline to repay the basic excise taxes. If they don’t pay, we will cancel their licence.”

President Ranil Wickremesinghe’s government committed an ambitious revenue target among many other reforms to the International Monetary Fund (IMF) in return to a $3 billion loan package.

However, the revenue could face a short fall of 100 billion rupees, State Finance Minister Ranjith Siyambalapitiya has said.

A new Central Bank Act also has legally prevented the government of printing money at its discretion as  in the past.  (Colombo/September 24/2023)

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