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Saturday May 18th, 2024

Sri Lanka drawing up new banking law, hopes enact next year: Deputy Governor

ECONOMYNEXT – Sri Lanka is drawing up a new banking law, which is expected to be passed by parliament next year, and will also form part of an International Monetary Fund backed program Deputy Governor Yvette Fernando said.

“On the Banking Act we have done a new Act,” Deputy Governor Fernando said. “..[W]e want to do a little bit more consultation also there,”

“Because we want to expand on the resolution area. So that is happening now.”

The new banking law which will have provisions to more easily resolve troubled banks. It has been included as part of a reform package backed by the IMF.

“Most probably during next year we are expected to finalize it, by going to cabinet and consultation process and also finally getting Parliament approval.”

Sri Lanka is also expected to enact a new monetary law act under the IMF program.

Analysts have warned that a draft monetary law prepared before 2019 institutionalizes an ‘impossible trinity regime’ where floating rate style liquidity injections (inflationary policy) are applied to a foreign reserve collecting peg (flexible inflation targeting).

Policy errors are then compensated for by depreciation (flexible exchange rate). Sri Lanka has been juggling with impossible trinity regimes since 1951 and going to the IMF 17 times.

The IMF is unable to permanently stop balance of payments trouble, general impoverishment of the population through monetary debasement and social unrest as there is no exit to a single anchor regime from the impossible trinity regime that led to currency crisis in the first place.

IMF generally does not prescribe consistent single anchor regime, partly because it gives loans to a central bank which has to collect reserves to repay the loan by running deflationary policy for a time.

However due to aggressive open market operations to suppress rates or sterilize interventions (operation of a dual anchor or impossible trinity regime), such a central bank returns to inflationary policy in the credit cycle following the end of an IMF program.

Under flexible inflation targeting with a monetary consultation clause Sri Lanka operated inflationary policy in 2018 with aggressive open market operations and ran into balance of payments trouble even before the last IMF program ended.

Critics say the flexible inflation targeting with a high inflation target above 3 to 4 percent is perhaps deadliest impossible trinity regime cooked up by Washington based policy makers up to now and is far more unstable than the original Bretton Woods. (Colombo/Sept08/2022)

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Sri Lanka suffers over $138mn foreign outflow from govt bonds in 2024 after rate cuts

ECONOMYNEXT – Foreign investors have dumped 41.6 billion-rupee ($138.6 million) worth of Sri Lanka government securities in the first 20 weeks of 2024, the central bank data showed, after reduction in the key policy interest rates.

The foreign holding in Sri Lanka’s treasury bills and treasury bonds fell to 75.9 billion rupees on the week ended on Friday (17), May 2024, from 117.4 billion rupees on the week ended on December 29.

The central bank rate has reduced the key policy rates by 50 basis points so far in 2024, extending the rates cut by 700 basis points since June last year.

The rupee appreciated 9.1 percent in the first four months, but the gain failed to attract foreign investors amid a dragged debt restructuring negotiation with external private creditors.

Currency dealers said lackluster demand for dollars due to dampened imports with heavy controls, boom in both tourism revenue and remittances have helped to increase the dollar liquidity in the market, leading to the appreciation of the local currency.

The dealers said foreign investors can earn capital gain if they had bought government securities before the appreciation and now the offshore investors might be selling their bonds.

“They are also discouraged by policy rate cut because that will reduce their returns from the rupee bond investments,” a currency dealer said.

The yield in 12-month T-bills has fallen 336 basis points in the first four months of this year, the central bank data showed.

The central bank also reduced the Statutory Reserve Ratio (SRR) of commercial banks by 200 basis points in August last year to boost liquidity in the market with an aim to reduce market interest rates.

Under tough International Monetary Fund (IMF) conditions for its $3 billion loan program, the central bank raised key monetary policy rates in 2022 and last year to bring down inflation which hit over 70 percent in 2022. The inflation has fallen to the lower single digit now.

The rupee has appreciated to around 300 against the US dollar this week from around 330 level early in November. The local currency was at 365 rupees against the US dollar in early 2022. Depreciation causes capital loss for foreign investors. (Colombo/May 18/2024)

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Sri Lanka’s ‘Sancharaka Udawa’ tourist fair seeks to involve universities

ECONOMYNEXT – Sri Lanka’s ‘Sancharaka Udawa’ tourism fair kicked off this week to promote interaction between industry stakeholders and relevant Government bodies, including the Tourist Police, and also universities.

“Several universities, including Colombo, Uva Wellasa, Kelaniya, Sabaragamuwa and Rajarata were given free stalls to facilitate student interaction with industry professionals,” Chairman of the Sancharaka Udawa Organising Committee, Charith De De Alwis said in a statement.

The event takes place today (18) at the BMICH and houses stalls for hoteliers, tour and transport services, with a goal of attracting 10,000 visitors.

Organized by the Sri Lanka Association of Inbound Tour Operators (SLAITO) and the Sri Lanka Tourism Promotion Bureau (SLTPB), the 11th edition of Sancharaka Udawa offers a platform for both B2B and B2C sectors.

“Sancharaka Udawa houses over 170 exhibitors and a footfall of more than 10,000 visitors,” De Alwis said.

This year’s edition will include participants from outbound tourism sectors to facilitate capacity building. The event provides networking opportunities for industry newcomers and veterans.

“The networking platform offers opportunity for small and medium-sized service providers integrating them into the broader tourism landscape. The anticipated outcome is a substantial increase in bookings particularly for regional small-scale tourism service providers.” (Colombo/May18/2024)

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Sri Lanka’s CEB sells LTL shares to West Coast IPP for Rs26bn

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board has sold shares of an affiliate to West Coast Power Company Limited, an independent power producer giving profits of 25.9 billion rupees in the March 2024 quarter, interim accounts showed.

The sale has been carried out as a transfer.

“Twenty-eight percent (28-pct) of share ownership of CEB within LTL Holding’s equity capital has been transferred to West Coast Power Company Ltd for a total consideration of Rs 26 billion as part of a partial settlement of outstanding dues…” the March interim accounts said.

“This transaction resulted in a net gain of Rs25.9 billion rupees which has been recognized and reflected in the ‘Gain from Share Disposal’ in the individual financial statement in CEB.”

LTL Holdings is a former transformer making unit of the CEB set up with ABB where the foreign holding was sold to its management.

The firm has since set up several IPPs.

West Coast Power operates a 300MW combined cycle IPP in Kerawalapitiya promoted by LTL group liked firms in which both the Treasury and Employees Provident Fund also have shares.

Its operational and maintenance contract is with Lakdhanavi, another private IPP. The firm has been paying dividends.

The capital gain from the transfer of shares helped the CEB post profits to 84 billion rupees for the March 2024 quarter.

CEB reported gross profits of 62.7 billion rupees from energy sales and 30.6 billion rupees in other income and gains in the March 2024 quarter. Other income was only 3.1 billion rupees in last year. (Colombo/May18/2024)

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