An Echelon Media Company
Tuesday April 23rd, 2024

Sri Lanka dollar salary earners protest as banks force convert forex

ECONOMYNEXT – Resident Sri Lankans who earn dollar salaries and deposited them in forex accounts in the past are calling banks to protest against conversion of their earnings in to rupees against their wishes, multiple customers said.

Customers were warned of forced conversion of forex after the central bank issued a gazette ordering merchandise and service exporters to convert their dollars.

Merchandise exporters were allowed to invest 10 percent of their money in Sri Lanka Development Bonds.

But banks have told individuals, they are force converting every cent of salaries.

“I was told I am deemed to be a services exporter,” one dollar salary earner who protested said. “I was told my entire salary would be converted against my wishes.”

Another customer at a foreign bank who was notified by text message of forced conversion was given the following message when the move was queried.

“Kindly note that any Sri Lankan residing in Sri Lanka receiving any income/remittances in foreign currency will be in scope for the new Gazette and will be required to convert the Foreign currency to LKR,” the customer was told in writing.

“If possible please visit the closest branch for further details.”

Another bank asked a customer more time to clarify from the central bank after a protest.

Yet another customer was told as follows.

“We have asked the authorities. They gave us a Q and A without directly giving us an answer.”

Existing deposits, earned before October are allowed to be kept, customers were told by several banks.

Another customer said he was planning legal action against banks as there was a contractual relationship between banks and customers, which he felt was violated when banks took actions against his wishes.

The central bank in December said 10 rupee extra would be given to person who bring dollars through conventional channels. Resident persons so far had not told attempted to re-route dollars much.

Sri Lanka is facing forex shortages due to excess money printed to enforce low rates and sterilize interventions under a non-credible peg regime run by a Latin America style central bank set up in 1950.

Foreign exchange troubles and depreciation has become common after central banks were nationalized and they acquired virtually unlimited powers to oppress and monetarily expropriate the general public through depreciation and exchange controls after World War II.

Post depression central bankers go unpunished, partly because economists that were spewed out of Anglo-American universities defend their actions and perpetuate policy errors, critics say.

Under Developed Measures

Mandatory conversions after the credibility of a peg had been lost is a cascading policy error which tends to reduce dollar inflows, analysts had warned.

In 1966 when Keynesianism was riding high, Sterling crises were brewing and the US dollar was heading for collapse and Sri Lanka was coming under increasing controls and multiple exchange rates, B R Shenoy, a rare classical economist wrote a policy document for the Ceylon government.

“As is now clearly seen, diversion of foreign exchange from the official to the free market, take plac through under-invoicing exports, over invoicing imports, smuggling out import gods, Ceylon gems and like items, and by routing in to the free market tourist funds of visitors to Ceylon,” Shenoy explained.

“To battle against these movements of foreign exchange, when the price parities are so enormous, is like trying to control the rush of flood waters down the river beds, though such attempts by sincere but vain administrators are common enough sights in many under-developed parts of the world; and the results of these misguided efforts, as experience has already demonstrated is disastrous – not beneficial – to the Balance of Payments position.”

The public eventually pay the price for the policy errors of soft-pegged central banks.

Politicians have legislative power to curtail the discretionary independence of central banks but do not usually take action and also pay a price at elections as monetary instability, the inevitable fallout of ‘stimulus’ hit the electorate in the form inflation and currency depreciation.

Legislators have instead through various laws including legal tender laws strengthened the powers of central banks through banking, monetary and exchange control laws.

The curtailment of the ability to save in dollars (a phenomenon called deposit dollarization) is a tightening of domestic legal tender laws involving the coercion of persons within a jurisdiction into a currency monopoly.(Colombo/Dec08/2021)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka state oligopoly allowed to import some black gram

ECONOMYNEXT – Sri Lanka has allowed the import of some black gram, by three state agencies, according to a gazette notice issued under the hand of President Ranil Wickremesinghe.

Import licenses will be given for 2,000 metric tonnes of the seed classified under HS Code 7312.31.22 and 29.

Sri Lanka State Trading Corporation, National Food Promotion Board and Sri Lanka Hadabima Authority is to be given import licenses.

Traders have resorted to smuggling some types of black gram (ulundu) mis classified as chick peas, to get over high taxes and import restrictions.

Tamil legislators have also protested the import controls, which they go into several key ethnic foods they consume. (Colombo/Apr23/2024)

Continue Reading

Sri Lanka single borrower limits cut to 25-pct of bank capital, SOEs also included

ECONOMYNEXT – Sri Lanka’s central bank has issued directions limiting loans to a singe borrower or a group of connected customers to 25 percent of Tier I capital, with state enterprises which turned out to be the biggest borrowers, also included.

In a 2007 direction, banks were allowed to give loans up to 30 percent of capital for a single customer and 33 percent for a group but the rules were widely violated in the case of state enterprises, which were used as off-budget vehicles to give energy and other subsidies.

Banks will have to limit exposures to 25 percent starting from January 2026.

According to transitional provisions published in the direction seems to indicate that some banks may have single borrower exposures of 85 percent or more.

They will be required to bring exposures down to 60 percent by 2027 and 25 percent by 2028.

Download the direction from here Sri-Lanka-single-borrow-limit-direction-2024

Energy utilities were made to borrow from state banks to run off-budget subsidies under plan avoid a price formula during the Rajapaksa regimes.

Sri Lanka’s state banks ended up with large debts to Ceylon Petroleum Corporation partly due to flexible inflation targeting (printing money to cut rates as soon as inflation fall triggering forex shortages) even when fuel was market priced in 2018, analysts have shown.

When rates were cut with inflationary open market operations, triggering forex shortages, CPC was barred from buying dollars and forced to get suppliers’ credit denominated in dollars.

The suppliers’ credits were later converted to dollar loans from state bank loans, usually after the currency collapsed from the inflationary rate cuts or inflationary open market operations to sterilize interventions or both, analysts have shown.

The CPC loans have since been taken over by the government.

Banks have also funded roads and other state projects.

“Licensed banks shall gradually reduce the exposures to Public Corporations to meet the maximum limit,” by December 2030 according to the direction.

“Public corporation shall mean any corporation, board or other body which was or is established by or under any written law other than the Companies Act, with funds or capital wholly or partly provided by the Government.”

Many of the newer state enterprises however have been suddenly set up under the Companies Act, unlike earlier where a specific act was passed by the parliament to set up corporation or a statutory authority.

Borrowings of CPC and CEB eventually hit the financial stability of state banks while actual bad loans were under-reported. Now the bad loans are being covered with a state capital injection.

Under an International Monetary Fund and World Bank backed program, the so-called ‘sovereign bank nexus’ is being severed to protect the banking system.

Government securities, central bank sterilization securities, loans guaranteed by multilateral lenders or high rated foreign banks are excluded. (Colombo/Apr23/2024)

Continue Reading

Sri Lanka exceeds tax revenue target by 6% in first quarter

ECONOMYNEXT – Sri Lanka’s revenue collecting bodies have outperformed and exceeded tax revenue target by 6 percent for the first quarter ended on March 31, State Revenue Minister Ranjith Siyambalapitiya said.

“After many years of difficult challenges, it has been possible to exceed the expected state revenue in the first quarter of 2024,” he said in a statement.

The government expects a revenue collection of 4,106 billion rupees in 2024.

“The reason for the economic crisis in the past period was the reduction in the level of government revenue. Considering the achievement of higher than the target in the first quarter of this year and the revenue pattern, the 2024 will become a year in which the revenue targets can be achieved,” he said.

The three tax revenue collecting bodies – Sri Lankan Customs, Excise Department, and Inland Revenue Department have collected 834 billion Sri Lanka rupees in the first quarter.

“It is a 6% higher than the expected revenue target of 787 billion rupees,” Siyambalapitiya said.

He said the Inland Revenue Department exceeded its target by 13 percent to 430 billion rupees compared to the target of 381 billion rupees in the first quarter of 2024.

He also said Customs Department has managed to reach the target of 353 billion rupees and the Excise Department has also achieved 96% of the revenue requests and earned 51 billion rupees in the first quarter.

The island nation has raised Value Added Tax (VAT), imposed new taxes, and increased personal income taxes to boost the revenue under an International Monetary Fund-backed reforms in return of a $3 billion External Fund Facility.

People have started to grumble over the government’s higher taxes without reducing some of the state expenditures. The government has been in the process to privatize some key state-owned enterprises. However, that process faced delays amid gradually rising protests against the move. (Colombo/April 22/2024)

Continue Reading