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Saturday May 25th, 2024

Sri Lanka economy grinding to a halt as monetary meltdown bites fuel imports

ECONOMYNEXT – Activities at several key economic sectors requiring transport are slowly grinding to a halt as forex shortages from continued money printing is making it difficult to finance oil imports, hitting passenger, goods transport and fisheries.

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar after two years of money printing and a failed float with a surrender requirement. Liquidity injections and interventions are continuing at the lower level with dollars borrowed from India.

Fuel and gas queues are extending with exasperated customers clashing with police and others who jump the queues.

As passenger and goods transport is disrupted, economic sectors that depend on it including farming and tourism are feeling the pinch. While fishermen are provided some fuel on priority for boats are also depended on trucking and domestic.

Thousands of private buses are off the road without fuel. State-run trains which are supplied with fuel are filled to capacity.

It is not clear when the next petrol ship will come with banks unable to open letters of credit, as people using cars and motorcycles languish in queues, but the last diesel ship from an Indian credit line has now arrived in the country.

Sri Lanka has imported fuel for the past two months with an Indian credit line with without a credible peg or floating exchange rate making to buy dollars for rupees (transfer wealth from the credit system based on the rupee monetary base to the US dollar credit system linked to the Fed).

Related Sri Lanka fuel queues claim two new deaths, taking total to 10

At least two persons died in fuel queues on June 17.

Public Transport

To save fuel the government has closed state offices on Friday and asked them to grow vegetables instead with fertilizer and diesel imports hurting commercial agriculture.

RelatedSri Lanka state offices shut on Fridays for home garden leave

Minister of Transport Bandula Gunawardena told reporters Thursday, that fuel for private buses will be allocated from two fuel stations in Bastian Road in the capital Colombo but, television footage showed that buses in queues with no fuel.

Gemunu Wijeratne, President of Lanka Private Bus Owners Association says buses and drivers are spending most of their time on diesel queues instead of on the road carrying passengers.

Wijeratne said some priority has been promised for public transport and if state-run Ceylon Petroleum Corporation is able to allocate 600,000 liters of diesel per day for the buses, transportation can facilitate 40 million people while running at 50 percent of the capacity.

“With the ministry distributing the incoming fuel according to a priority list the diesel we are getting will be sufficient for the next two weeks,” Wijeratne told reporters on June 16.

“We heard that the CPC does not have any Petrol at the moment making the public transport the main transport for people. If we get 600,000 litres per day, we can facilitate 40 million people who use transport. That is also by operating only 50 percent of the capacity.”

There are emerging complaints of absenteeism and some firms are encouraging work from home.

CROWDED: An overloaded bus in a suburb of Colombo, leaning sideways with passengers clinging to the foot board.

Farming produce that is coming to main cities and economic centres are disrupted from diesel shortages.

Also hit are goods that move to the provinces from central wholesale markets in the capital, which includes imports.

“We are coming from Matara,” a crew member from a dry food truck operating from Colombo to the Southern Province, told EconomyNext.

“We stayed for several days to get the diesel to come on this trip from Matara, after we go today, we are cannot confirmation whether we will return tomorrow or not, because of diesel shortage”.

Sri Lanka’s food prices have risen 57 percent over a year according to official data and rice prices have doubled amid import restrictions.

Interventionist soft-peg

The prices of some fish prices have trebled in some cases after the rupee collapsed against the US dollar following monetary and fiscal ‘stimulus’.

The countries economic woes running back to 1950 can be traced to its intermediate regime central bank built by a US money doctor in the style of Argentina’s BCRA. (How Sri Lanka, Latin America was busted by Fed money doctors creating strongmen, anti-Americanism)

Under ‘flexible’ policy involving aggressive open market operations, anchor conflicts inherent in intermediate regimes (targeting exchange rates to collect or sell forex reserves while printing money to target interest rates) worsened from 2015.

Sri Lanka is undergoing the worst currency crisis in the history of its intermediate regime or soft-pegged central bank after it mis-targeted interest rates under ‘flexible inflation targeting’ with a ‘flexible exchange rate’.

The flexible exchange in Sri Lanka has turned out to be an extreme form of soft-peg with aggressive floating rate style monetary policy.

Since intensified flexible policy began in 2015 the rupee has fallen from 131 to 360 in three consecutive currency crises where forex shortages were covered by foreign borrowings.

Currency crise are peculiar to soft-pegs or flexible exchange rates they do not take place in single anchor regimes involving clean floats or currency boards.

However the country’s economists have stubbornly rejected either regimes sometimes spreading falsehoods to maintain an intermediate regime.

The central bank is negotiating its 17th program with the International Monetary Fund, since soft-pegging began in 1950.

For the duration of an IMF program, the central bank is forced to collect reserves to repay the Fund under a Net International Reserve target, making it impossible to run a clean float and operate a single anchor inflation targeting regime, analysts say.


Sri Lanka facing 2021 with reckless MMT, stimulus mania: Bellwether

Sri Lanka’s monetary meltdown will accelerate unless quick action is taken: Bellwether

Sri Lanka is not Greece, it is a Latin America style soft-peg: Bellwether

In the latest crisis, after defaulting on foreign debt, authorities are looking for 6 billion dollars in new borrowings.


Energy Minister Kanchana Wijesekera says fuel is distributed daily to fishery harbhours though it may not be the full requirement as each multi-day fishing boat requires several thousand litres for a trip.

When boats return, the transport of fish is also threatened.

The Ministry of Fisheries said all efforts were being made to supply kerosene and diesel to fishermen though the volumes were sharply below requirements.

“We are currently supplying fuel according to the stocks we receive, to the fishing fuel station around the country,” Nelson Edirisinghe, media secretary to the ministry of fisheries told EconomyNext.

“However, we doubt whether we can meet the entire demand”

Fishing boats need around 900,000 liters of kerosene a day but the Ceylon Fishery Harbhours Corporation gets only around 300,000, Edirisinghe said.

“So the distribution is being done according to the supply we get. Some harbors do not have a fuel station, so they are being supplied by other fuel stations or in alternative ways” Edirisinghe said.

Fish prices are moving up as the currency collapse by the soft-pegged central bank alters the price structure of the economy.

Minister of Fisheries, Douglas Devananda had discussed with the exporters in the industry to obtain the necessary dollars to purchase fuel needed by the fishing boats in an attempt to dollarize the sector.

Partial dollarization is already taking place in the economy.

This week Energy Minister Wijesekera said jet fuel imports and sales which are about 50 million US dollars will be outsourced to a third party reducing the foreign exchange burden on the CPC. (Colombo/June17/2022 – Update II)

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  1. Trevor Jayetileke says:

    If I was still the Adviser to the Petroleum Resources Development Ministry, Sri Lanka would be having US$ coming through its ears, but I could not suffer fools.
    Oil Exploration program Phase 2, which started in 2001 has only drilled 4 oil wells. I quit in disgust in March 2014 and no wells have been drilled since? Fools can’t walk the talk??

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  1. Trevor Jayetileke says:

    If I was still the Adviser to the Petroleum Resources Development Ministry, Sri Lanka would be having US$ coming through its ears, but I could not suffer fools.
    Oil Exploration program Phase 2, which started in 2001 has only drilled 4 oil wells. I quit in disgust in March 2014 and no wells have been drilled since? Fools can’t walk the talk??

Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings


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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.


Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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300 out of 1,200 Sri Lanka central bank staff works on EPF: CB Governor

ECONOMYNEXT – About 300 central bank staff out of 1,200 are employed in the Employees Provident Fund and related work, Governor Nandalal Weerasinghe said, with the function due to be transferred to a separate agency after a revamp of its governing law.

“When it comes to the EPF there is an obvious conflict of interest. We are very happy to take that function out,” Governor Weerasinghe told a forum organized by Colombo-based Advocata Institute.

“We have about 300 staff out of 1,200 including contract staff, almost 150 of permanent staff is employed to run this huge operation. I don’t think the central bank should be doing this business,”

The EPF had come under fire in the past over questionable investments in stocks and also bonds.

In addition, the central bank also faced a conflict of interest because it had another agency function to sell bonds for the Treasury at the lowest possible price, not to mention its monetary policy functions.

“There has been a lot of allegations on the management of this fund. This is the biggest fund of the private sector; about 2.6 million active, I think about 10 million accounts.

“When it comes to EPF, obviously there’s another thing. We obviously have, in terms of resources, on the Central Bank, that has a clear conflict because we are responsible for the members.

“We have to give them a, as a custodian of the fund, we have to give them a maximum return for the members.

“For us to get the maximum return, on one hand, we determine the interest rates as multi-policy. On the other hand, we are managing public debt as a, raising funds for the government.

“And on the third hand, this EPF is investing 90 percent in government securities. And also, interest rates we determine, and they want to get the maximum interest. That’s a clear conflict, obviously, there’s no question.”

A separate agency is to be set up, he said.

“It’s up to the government or the members to determine to establish a new institution that has a trust and credibility and confidence of the members that this institution will be able to manage and secure an interest and give them a reasonable return, good return for their lifetime savings,” Governor Weerasinghe said.

“The question is that how whether we have whether we can develop that institution, whether we have the strong institution with accountability and the proper governance for this thing.

“I don’t think it should be given completely to a private sector business to run that. Because one is that here we have no regulatory institution. Pension funds are not a regulated business.

“First one is we need to establish, government should establish a regulatory agency to regulate not only the EPF business fund, there are several other similar funds are not properly regulated.

“Once we have proper regulations like we regulate banks, then we can have a can ensure proper practices are basically adopted by all these institutions.

“Then you can develop an institution that we who can run this and can be taken back by the Labour Department. I’m not sure Labour Department has the capacity to do all these things.”

While some EPF managers had come under scrutiny during the bondscam and for questionable stock investments, in recent years, it had earned better returns under the central bank management than some private funds that underwent debt restructuring according to capital market analysts with knowledge of he matter. (Colombo/May24/2024)

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