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Tuesday April 16th, 2024

Sri Lanka EPF gets US$1.85bn in value back as central bank strengthens rupee

ECONOMYNEXT – Sri Lanka’s central bank has restored about 1.85 billion US dollars’ worth of lost value to the Employees Provident Fund in a currency collapse, as it appreciated the rupee from March 2022, an analysis of data shows.

Sri Lanka’s central bank engineered a balance of payments surplus from around September 2022, with deflationary monetary policy, and ended a surrender rule in March 2023, allowing the currency to appreciate.

The end-2022 value of the EPF fund which was 3,459 billion rupees (with interest earnings and net contributions) up from 3,166 billion in 2021.

As a result of the rupee collapsing from 200 to 363 after money printing and flawed exchange rate policy (a surrender rule with an attempted float) the dollar value of the fund fell to 9.53 billion US dollar equivalent by end 2022, from 15.80 billion in the previous year, despite the earnings and net contributions.

In March 2023, the surrender rule was lifted amid deflationary policy, allowing the exchange rate to appreciate.

When deflationary policy reduces outflows compared to imports in a pegged regime (reductions of domestic assets of a pegged bank against foreign assets), the exchange rate can be appreciated at will.

It is not transparent on what basis the exchange rate is appreciated but macro-economists have developed a number of statistical methodologies to arrive at what they claim to be an ‘equilibrium value’ for an exchange rate, as knowledge of operational frameworks and note-issue banking in general, deteriorated in the last century.

“The exchange rate is determined by monetary policy not the market, as claimed by post 1970s Mercantilists, and in the case of reserve collecting central banks, also by exchange rate policy,” says EN’s economic columnist Bellwether.

“Exchange rates did not move before before 1971 and especially before the 1930s, unless money was printed for war.

“One of the attributes of money is to be a stable store of value, not to fluctuate all over the place as started to happen after 1971, triggering uncertainty and social unrest or destroying lifetime savings and current salaries instantly.”

“After the Second Amendment to the IMF’s articles in 1978, money, especially in countries like Sri Lanka, also lost the attribute of being a unit of account.

“In times of printing it also lost the ability of being a medium of exchange, particularly across borders. That is why we have trouble with importing oil and have forex shortages.

“In the end the only use for money was for macro-economists to deploy macro-economic policy, to push exports or growth or employment and breaking up the economic and social fabrics of entire nations by denying stability and also driving countries into default.”

The central bank, which manages the EPF has drawn flack for interest rate hair-cuts imposed on pension funds in a debt restructuring by the government.

However, the rupee appreciation has reversed initial capital losses to the EPF in dollar terms. The EPF’s end 2022 value is now around 11.38 billion dollars at 304 rupees to the US dollar, up about 1.85 billion dollars.

A back of the envelop calculation of food prices also show that the central bank has reversed price rises of most foods from levels seen 2022, when an apparent slide towards hyperinflation was arrested by Governor Nandalal Weerasinghe by allowing suppressed interest rates to market-price and by ending central bank driven credit.

Since September 2022, when monetary stability was restored, price inflation measured by the official index had increased only by 5.9 percent as services in particular corrected for the currency collapse and earlier inflationist policy.

A quick re-appreciation of the currency can also slow the adjustment of services prices. However once salaries have fully adjusted to deprecation, exports firms in particular may have trouble with margins and may lose business, as productivity can only be boosted slowly. (Colombo/Mar26/2024)

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IMF urged Sri Lanka to preserve “hard earned gains” after economic crisis: State FinMin

ECONOMYNEXT – The International Monetary Fund has urged Sri Lanka to preserve the hard earned gains after an unprecedented economic crisis under the global lender’s programme, State Finance Minister Shehan Semasinghe said.

The Sri Lankan delegation led by Shehan Semasinghe met Kenji Okamura, the Deputy Managjng Director of the IMF on the first day of the IMF and  World Bank Spring meeting.

“Mr. Okamura commended the Sri Lankan authorities on strong programme implementation and excellent reform progress. He emphasised the need to preserve the hard earned gains Sri Lanka has experienced since the beginning of the IMF programme and continue strong ownership,” the State Minister said in his X (Twitter) platform.

He said the Sri Lankan delegation including Central Bank Governor Nandalal Weerasinghe and Secretary to the Treasury Mahinda Siriwardana explained the recent socio-economic developments to Okamura.

He also affirmed the IMF top official on the authorities’ commitment to ensuring continuity and consistency of macroeconomic policies and reforms undertaken under the programme. (Colombo/April 16/2024)

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Sri Lanka State FinMin meets BCIU in US; discusses post-crisis investment prospects 

ECONOMYNEXT – Sri Lanka’s State Finance Minister Shehan Semasinghe met Business Council for International Understanding( BCIU) in Washington on the sideline of the IMF/World Bank Spring Meetings late on Monday and discussed investment prospects in the island nation which is gradually recovering from an unprecedented economic crisis.
“Our discussion centered on the potential that Sri Lanka offers for international investors. Explored various sectors, including education, tourism, renewable energy, agriculture and technology, where strategic investments can drive sustainable economic growth and development,” Semasinghe said in his X (Twitter) platform. 
“We reviewed the current macro-economic landscape of Sri Lanka, including recent reforms that have transformed to results. Glad to concluded the forum by marking constructive dialogue and a shared commitment to support the economic development of Sri Lanka.” 
“We thank participants, stakeholders holders and global partners for the significant interest shown in unlocking the full potential of the Sri Lankan economy and fostering greater international understanding and cooperation.” (Colombo/April 16/2024) 
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India allows Sri Lanka to import 10,000MT of onions

ECONOMYNEXT – India has relaxed an export ban allowing 10,000 metric tonnes of onions to be shipped to Sri Lanka, the Indian High Commission in Colombo said.

“The exemption for Sri Lanka reiterated India’s Neighbourhood First policy, adding to the Sinhala and Tamil New Year festivities here,” the statement said.

Onion prices went up in Sri Lanka after India and Pakistan banned exports.

The Directorate General of Foreign Trade has issued a notice allowing National Co-operative Exports Limited to ship 10,000 MT of onions.

The UAE has also been allowed to import 10,000MT of onions on top of 24,400MT already permitted.

A large Indian and South Asian expat community lives in the UAE. (Colombo/Apr15/2024)

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