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Tuesday June 25th, 2024

Sri Lanka finance minister slams neo-feudal bar on youth entry to service sector

ECONOMYNEXT – SrI Lanka’s finance minister Mangala Samaraweera has slammed a shocking neo-feudal law barring unemployed youth from entering the service sector, which showed graphically how state intervention can rob economic freedoms and harm society in general less vocal and weaker sections in particular.

Sri Lanka’s elected ruling class backed by a neo-feudal urban elite who saw shrinking manual workers and their wages going up mooted the law preventing youth who form the bulk of unemployed from buying three-wheeler taxis to fill a glaring gap in public transport.

"I am against the law that only allows those above 35 years to drive a three wheeler," Finance Minister Mangala Samaraweera said at a ceremony Rural Development Bank in Matara to give loans to the self-employed.

"I have asked the rule to be at least reduced to 25. We have to give the freedom for a person to do the job of his choice."

Three wheelers have buily tens of thousands of self-employed entrepreneurs who leveraged Sri Lanka’s credit system to buy a nippy vehicle, which used less capital, space and metal than a car (has a higher capital output ratio) and was more suited especially to urban travel to provide public transport.

Sri Lanka’s public transport is in shambles due to government regulation involving a route license system, which blocks consolation and is allegedly rife in corruption.

Three-wheelers use cutting edge technology leveraging smart phones, ride-sharing apps, making it easy for urban dwellers to exist without cars. Ride sharing apps as well call centres which have also sprung up further boosting the capital output ratio compared to public transport.

Young so-called ‘millennials’ urban have now stopped pressing parents to buy them a car due to the ready availability of three wheelers. Some have sold their cars, with a added problem of finding parking space, anecdotal evidence has showed.

Unlike regulated buses, which stop operating in the night due to lack of night fares three wheelers play a valuable role, keeping the economy ticking into the night.

In a irony that defies belief, the United National Party led administration while blocking opportunities for the youth in an ‘own goal policy’ in one of the most shocking interventionist moves in the country’s history is trying to boost employment through a ‘Gam Peraliya’ and ‘Youth Entrepreneurship’ drive into sectors they think is best for the people.

The Transport Ministry however comes under NImal Siripala de Silva, a minister in the coalition representing President Maithripala Sirisena.

Sirisena had also blocked other economic freedoms, including a proposal to break monopoly in shipping agencies preventing completion. Existing three wheeler drivers also want to block competition, though free entry has kept prices low and encouraged more people to use them.

Analysts say Sri Lanka’s rural and urban elites’ habit of treating manual workers as second class citizens – in elite households masons and carpenters and manual workers are not served tea in the same cups as the other guests if they are served at all – may have made the rulers come up with a the law banning youth from driving owning taxis, and support it without a pang or an ounce of conscience.

Though politicians pay lip service to service sector employment in their eyes it is only limited to the more educated young people in practice, critics say.

Prime Minister Ranil Wickremesinghe has started to scheme for unemployed graduates with tax payer money being doled out, while attempting to block the freedom of less educated youth to enter the service sector with three wheelers, smart phones and ride sharing apps.

Minister Samaraweera however said there were hardly any jobs to be given in the state, with some departments which need 1000 workers already having 3,000 workers.

Sri Lanka’s state railways are a classic example of over-staffing and bad service, critics say.

Sri Lankan youth are also moving to areas like three wheelers to earn more money, because steady currency depreciation has made it difficult to operate as a manual worker, as there is a lag in wage catch-up with each bout of depreciation, making migration to the Middle East and Korea, which have strong currencies, attractive. (Colombo/Aug19/2018)

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Sri Lanka to sign Paris Club debt deals as fresh ISB talks to also start

ECONOMYNEXT – Sri Lanka will sign agreements on restructured debt with Paris Club creditors Wednesday, Cabinet spokesman Minister Bandula Gunawardana said as sources said talks with private creditors are also due to start later in the week.

The relevant senior officials and State Minister Shehan Semasinghe has already left the country to sign the agreements, Minister Gunawardana said.

Sri Lanka has held detailed negotiations with bilateral creditors ever since a sovereign default in 2022 and President Ranil Wickremesinghe has personally met leaders of friendly countries to expedite the restructuring, he said.

The finalizing of the restructure was a ‘great victory’ for Sri Lanka he said.

Details will be revealed to parliament by President Wickremesinghe and an address to the nation on Wednesday he said.

Discussion with private bondholders are also taking place separately, he said.

Face to face talks with bond holders are likely to start Thursday, sources said.

Investors in a steering committee representing key bondholders have halted trading and are in a ‘restricted’ period Bloomberg Newswires reported.

Sri Lanka is attempting to restructure 12.5 billion dollars of sovereign bonds and about 1.7 billion dollars of past due interest following the declaration of an external default in 2022.

Private investors are seeking some so-called macro-linked bonds whose final haircut is linked to dollar GDP as well as some standard or ‘plain vanilla’ bonds with an upfront haircut.

The style of bonds have not been used in sovereign restructurings before. In the latest round of talks more plain vanilla bonds may be discussed, sources aware of the thinking of some bond investors said.

The ISB holders have proposed a 28 percent haircut and a 1.8 percent consent fee. The macro-linked bonds would have principle re-stated up to 92 percent of the original depending on the evolution of gross domestic product.

Sri Lanka is restructuring debt using an IMF debt sustainability model applied to middle income countries with market access as opposed to debt sustainability model used in countries like Ghana applicable to low income countries requiring deeper haircuts on both domestic and foreign debt.

Hair cuts may also depend on the maturity of bonds and the coupon interest.

Ghana has higher levels of commercial debt having started to access capital markets from around 2007.

Ghana also has a bad central bank like Sri Lanka and has gone to the International Monetary Fund 18 times.

The country is also operating flexible inflation targeting (inflation targeting without a clean float), which critics say is the latest spurious monetary regime peddled to hapless unstable countries without a doctrinal foundation in sound money.

Having done broad domestic debt restructuring as well as continued currency volatility both interest rates and inflation remains above 20 percent.

Ghana’s central bank has a worse monetary anchor (8 percent inflation plus 2 percent) compared to 5 percent plus two in Sri Lanka and runs into currency trouble despite being an oil producer like Iran, Venezuela and neighboring Nigeria.

Nigeria has an inflation target of 6-9 percent but ends up with around 20 plus inflation and currency trouble.

Sri Lanka has undershot its inflation target since reaching monetary stability in September 2022 and has appreciated the currency, amid deflationary policy giving a strong foundation for economic activity to resume. (Colombo/June26/2024)

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Sri Lanka to seek investors for 200MW BOOT power plant

EONOMYNEXT – Sri Lanka’s cabinet has given approval to seek investors for a 200 MegaWatt independent power plant on a build-own-operate-and-transfer (BOOT) basis, a government statement said.

The internal combustion power plant will be capable of running on natural gas and is part of the Long-Term Generation Expansion of state-run Ceylon Electricity Board.

The investor will get as 20-year power purchase agreement.

Land next to the ‘Sobhadanavi’ combined cycle plant will be made available for the developer.

According to the generation plan, the 200MW IC plant is expected to come on stream by 2026.

In 2026, a 115 MW gas turbine, a CEB owned diesel plants of 68 MW and 72 MW are due to be retired. (Colombo/June25/2026)

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Sri Lanka rupee closes steady at 305.25/35 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed fairly flat at 305.25/35 to the US dollar on Tuesday, down from 305.20/30 to the US dollar on Monday, dealers said, while bond yields up.

A bond maturing on 01.06.2026 closed at 10.75/11.05 percent.

A bond maturing on 15.12.2026 closed at 10.65/11.05 percent, up from 10.45/85 percent.

A bond maturing on 15.10.2027 closed at 10.65/11.10 percent.

A bond maturing on 15.03.2028 closed at 11.20/11.50 percent.

A bond maturing on 15.09.2029 closed at 12.10/15 percent, up from 12.05/17 percent.

A bond maturing on 01.12.2031 closed at 12.10/20 percent, up from 12.08/15 percent.
(Colombo/Jun25/2024)

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