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Monday March 4th, 2024

Sri Lanka eyeing investment only deal with India, RCEP hits roadblock: President

ECONOMYNEXT – Sri Lanka has started discussions on separate agreements on investment and trade with India and an attempt to join the Regional Comprehensive Economic Partnership has been hit by a lack of rules to admit new members President Ranil Wickremesinghe said.

Sri Lanka was earlier attempting to have a Comprehensive Economic Partnership Agreement (CEPA) which was scuttled by economic nationalists during Rajapaksa administration.

“We have recommenced the talks with India,” President Wickremesinghe told an economic forum organized by the Ceylon Chamber of Commerce.

“Earlier it was to be one. India has told us … they want one separate one on investment, and one separate one on trade. The investment one I think will take off first.”

Sri Lanka is also talking to Bangladesh and is eyeing a free trade deal with India.

Sri Lanka has informed China that it may take

“All of this means within 5 – 6 years we have to open up. But with China we have taken the stand that we need a much longer period.”

Sri Lanka is to sign a free trade deal with Thailand next February, where tariffs will be brought down over a 15 year period.

Lack of free trade has been blamed by critics for exploitation of domestic customers, loss of tax revenues to import substitution or geriatric firms through tax arbitrage and weakening export competitiveness, which eventually hits growth.

“We applied to join the RCEP. The RCEP has informed us that they do not have a procedure to admit new members. So that is going to take a bit of time.

Nguyen Ngoc Huy, Deputy General Director of Vietnam’s HoaSen Group to the forum his group expanded due to numerous free trade agreements that Vietnam’s government entered into.

Vietnam started to open its economy in 1986 under its ‘renewal’ program (Doi Moi) and its economy imploded as the currency collapse from around 20 to the US dollar 600 triggering a new wave of boat people due to central bank re-financed credit.

Central bank reforms started from 1987 but significant monetary stability was achieved about 5 years later with the dong at 12,000 to the US dollar. There were no vested private interests to block free trade in the country and exploit the public in the state enterprise driven country.

Vietnam is part of ASEAN and struck a bilateral trade deal with the USA in 2001. The US-Vietnam BTA committed the country to deep legal and structural reforms including the current public listing of state banks, analysts say.

The BTA was signed at a time when the US deeply believed in free trade as a tool of mutual prosperity and global peace in line with classical liberal thinking.

The Hoa Sen group which started in 2001 as distribution firm, has now grown into a steel produced group with annual sales of 2.2 billion US dollars.

Free trade agreement with the EU and other countries allowed the firm duty free access, subject to rules of origin, Huy said.

The RCEP also allows the group to export to Mexico using raw material from other RCEP members like Japan, Huy told EconomyNext.

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Sri Lanka’s CEB reports Rs61bn profit for 2023 with Dec quarter gains

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Bord has reported a profit of 61.2 billion rupees for the year to December 2023, turning around from a loss of 298 billion last year, with all the profits coming in the last year amid heavy rain and price hike, interim accounts show.

The CEB reported profits of 77.9 billion rupees for the December quarter, compared to a loss of 182 billion rupees last year.

About 94 billion rupees in losses were forex losses, coming from the central bank, which printed money to suppress rates and triggered a steep currency collapse in a failed float with a surrender rule.

CEB revenues rose 55 percent to 156 billion rupees in the December quarter, cost of sales fell 45 percent to 78 billion rupees amid heavy rains, giving a gross profit of 78.2 billion rupees for the quarter.

In the year to December, CEB revenues were 606.6 billion rupees, up 96 percent from 308 billion rupees, while cost of sales rose from 444 billion rupees to 506 billion rupees. Gross profits were 99.6 billion rupees.

At group level, which includes LTL Holdings, profits were 75 billion rupees for the year, with income taxes of 6.3 billion rupees, provided.

CEB consolidated profits were 68.4 billion rupees, with other shareholders of subsidiaries accounting for 7.2 billion rupees.

Equity was 498 billion rupees at company level by December 31, with 126 billion rupee capital contribution as well as profits earned in the last quarter. (Colombo/Mar05/2024)

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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