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Wednesday June 7th, 2023

Sri Lanka expects tourist arrivals to fully recover in weeks: minister

ECONOMYNEXT – Sri Lanka is expecting its tourism industry to recover from Easter Sunday attacks, to prior year levels within weeks after a hit from the Easter Sunday terror attack, Tourism Development Minister John Amaratunga said.

"In August, arrivals have reached 5,000 in some days, and even 6,000," Minister Amaratunga told reporters in Colombo.

In August 2018, arrivals had averaged 6,463.2 a day.

Kishu Gomes, Chairman of the Sri Lanka Tourism Promotions Bureau, said the arrivals started that average arrivals were 4,700 in the first 20 days with arrivals picking up to 5000 to 6,000 in the past few days.

Amaratunga said that with the current momentum, arrivals to Sri Lanka will recover in weeks, rather than months, backed by a re-endorsement of the country as the world’s top destination by Lonely Planet, and Travel and Leisure naming it the world’s top island.

"We are almost there and it is now a matter of weeks rather than months for the industry to return to normal," he said.

Sri Lanka’s current administration had re-built links with the West and key markets like UK and Germany, which also influenced global travel insurers and operators by relaxing advisories fast, as police rapidly shut down an Islamist group that carried out the bombing.

Sri Lanka had earlier expected arrivals to recover over a 13 to 18 month period given the experience of other countries that had seen bomb attacks.

July and August form a mini-peak with a Perahera cultural festival in Kandy.  Sri Lanka’s winter season peak runs from about October to March. The blasts hit during the off-season.

Gomes said that arrivals are expected to reach 175,000 in August, compared to 200,359 a year earlier, with a late month boost from a Bohra convention which will bring 25,000 visitors to Sri Lanka.

He said that visitor levels may even surpass the September and October records set in 2018, in the run to achieve a 2 million arrivals target set after the Easter Sunday setback.

"September last year was 149,000 tourists and October was 153,000, so we believe with the trend we see, we will be able to surpass those numbers this September and October."

Two million tourist arrivals would mean a 14.3 percent fall for 2019 from a year earlier.

However, arrivals had not met state-set targets in recent years.

Despite a fast recovery in arrivals from a 70.8 percent fall in May following the bombings, the central bank had said that tourism earnings would take longer to recover, as hotels are full in the winter season due to large discounts offered.

Some hotels had offered half-priced rooms running as far ahead as August 2020, amid the panic after the attack. (Colombo/Aug23/2019)

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed amid weak credit and better inflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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