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Sunday September 24th, 2023

Sri Lanka ‘deflation’ drives manufacturing PMI in August

ECONOMYNEXT – Sri Lanka’s falling food prices was driving domestic manufacturing activities up, but falling external demand was depressing other sectors especially apparel, according to a Purchasing Managers Index compiled by the central bank.

The Manufacturing Index was 49.3 in August 2023, almost at the 50 point level, up from 44.6 points in July.

“The overall increase in New Orders was mainly driven by the manufacture of food & beverages sector, in response to the continuous downward revisions in retail prices,” the statement said.

“Further, most of the respondents in the manufacture of food & beverages sector mentioned that there was an upturn in their overall business activities during the month.”

Sri Lanka’s food and some other traded goods prices, have come down absolutely especially after March 2023, when the central bank allowed the currency to appreciate under Governor Nandalal Weerasinghe, after hiking rates and running broadly deflationary policy.

A currency appreciation and falling prices increases the disposable incomes at current salary levels, without the wait required for salaries to be hiked.

However, falling prices are usually anathema for Western academic inflationists whose ideas drive countries with monetary instability and social unrest.

The 2008 housing bubble was fired by an 8 -year credit cycle with ultra-low interest rates driven by the so-called ‘False Deflation Scare’ of Ben Bernanke who critics say misled Alan Greenspan, ending the Great Moderation period and driving the global economy into chaos (Delfation: Making sure “It” doesn’t happen here.)

Falling prices in traded goods many also leave more money to be spent on services.

Sri Lanka’s services sector continued to expand strongly in August 2023, with the sector PMI at 57.6 points, on the back of 59.5 points in July.

New Businesses increased in August 2023 compared to July 2023, particularly with the increases observed in financial services, wholesale and retail trade, other personal activities, professional services and education sub-sectors. (Colombo/September17/2023)

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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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