An Echelon Media Company
Friday December 9th, 2022

Sri Lanka firms with billions in trade credits exposed as rupee falls

ECONOMYNEXT – Companies with suppliers’ credit and dollar debt are facing large forex losses as the Sri Lanka rupee falls steeply after two years of unusual money printing to keep interest rates down as budget deficits expanded.

In the stock market, punters have been betting on exporters and also companies with overseas operations and assets, which will see translation gains as the domestic currency inflates according to the monetary policy.

Hotels and export firms also have dollar loans but are hedged with future dollar revenues as repayments fall due.

Domestic firms which could raise prices as the rupee falls could also potentially get more future rupee revenues to dollars to repay foreign debt.

However, suppliers’ credits are short term and face an immediate loss especially if stocks have been sold already based on a too low exchange rate.

If a company with suppliers’ credit still has stocks to match the credits, the firm could price up the products and get more rupees to buy dollars.

Forex Exposure

Financial intermediaries say many firms including unlisted firms are stuck with unsettled credits.

“As of the year-end, the Group has a significant amount of foreign currency outstanding trade debts due to foreign suppliers, on which any adverse fluctuations in the exchange rates would have a material impact on the Group’s profits,” Executive Director, Chief Executive Officer of publicly-traded Ceylon Grain Elevators told shareholders when the latest quarterly accounts were released.

CGE said as of December 2021 it had 28.3 million dollars of trade dues which was 5.7 million US dollars at the exchange rate then prevailing.

On December 31, 2021, the rupee was around 203 to the US dollar. The rupee has since fallen to around 265 to the US dollar valuing the debt at 5.7 billion US dollars.

Over the fears of the rupee falling soon, some companies also avoided bringing down stocks as they had done in the past.

Adrian Basnayake, the Past President and Council member of the Sri Lanka Chamber of the Pharmaceutical Industry said a shortage of drugs in the country caused by forex shortages was intensified by fears of getting down stocks and being unable to pay on time.

“Let’s say we get to open an LC for 203 rupees,” Basnayake told reporters before the rupee was allowed to fall according to the monetary policy stance.

“Usually we settle prices after around three months after importing the medicine. But if the Dollar rate has increased to 245 rupees within that three months, who will bear that cost?

“We do not have the capacity to cover that cost. Due to this, importers stop importing and that is another reason for the lack of medicine in the market.”

The rupee has since fallen below 245 to US dollars.

Trade Credits

According to official data trade credits rose steeply over 2021. From January 2021 to September 2021, trade credits went up by 478 million US dollars.

Firms cleared goods, sometimes with support from parent companies to keep the population supplied with foods and other goods as dollars as forex shortages emerged. Many banks stopped issuing letters of credit as they could not settle them on time.

“Many companies resorted to usance bills and suppliers credit to clear goods,” a financial sector source said.

“They had priced goods at dollar rates ranging from 230 to 260 to the US dollar. But the rupee is weaker and they will book a bigger loss. Now there are some dollars available to pay but at higher prices.”

But exporters who have given credit to buyers stand to gain, at least in rupees.

Sri Lanka has had currency troubles ever since a money-printing central bank was set up in 1950 abolishing a currency board that had kept the country safe during two World Wars and the Great Depression.

The central bank blew up 11 months of reserves collected over 85 years of the currency board and started blaming budgets for external trouble.

Classical economists and analysts have called for an overhaul of the monetary law to tie the hands of activist monetary boards by law so that they cannot engage in Keynesian stimulus with a peg and blow the balance of payments apart and credit economic instability and social unrest. (Colombo/Mar16/2022)

Comments (1)

Your email address will not be published. Required fields are marked *

  1. Ruwan says:

    Actually petroleum company and electricity companies are profitable companies whether why we lost our gains petroleum and electricity not only the pandemic of world or weak management or political collusion.

View all comments (1)

Comments (1)

Cancel reply

Your email address will not be published. Required fields are marked *

  1. Ruwan says:

    Actually petroleum company and electricity companies are profitable companies whether why we lost our gains petroleum and electricity not only the pandemic of world or weak management or political collusion.

Sri Lanka bond yields end higher, kerb dollar Rs370/371

ECONOMYNEXT – Sri Lanka bonds yields ended up and the T-bills eased on active trade on Friday, dealers said.

The US dollar was 370/371 rupees in the kerb.

“The bond rates went up, however more interest was seen in the short term bills by the investors” dealers said.

A bond maturing on 01.05.2024 closed at 31.90/32.20 percent on Friday, up from 31.25/70 percent at Thursday’s close.

A bond maturing on 15.05.2026 closed at 30.30/31.30 percent steady from 30.30/31.00 percent.

The three-month T-bills closed at 30.75/31.30 percent, down from 32.00/32.25 percent.

The Central Bank’s guidance peg for interbank transactions was at 363.18 rupees against the US dollar unchanged.

Commercial banks offered dollars for telegraphic transfers between 371.78 and 372.00 for small transactions, data showed.

Buying rates are between 361.78 – 362.00 rupees. (Colombo/Dec 09/2022)

Continue Reading

Foreign minister, US ambassador discuss future assistance to crisis-hit Sri Lanka

ECONOMYNEXT — In a meeting in Colombo, Sri Lanka Foreign Minister Ali Sabry and US Ambassador to Sri Lanka Julie Chung discussed ways in which the United States can continue to support Sri Lanka going forward, the Ambassador said.

Chung tweeted Friday December 09 afternoon that the two officials had reflected on the “twists and turns” of 2022, at the meeting.

Minister Sabry was recently in Washington D.C. where he US Secretary of State Antony Blinken.

A foreign ministry statement said the two officials held productive discussions at the Department of State on December 02 on further elevating bilateral relations in diverse spheres, including the 75th anniversary of diplomatic relations which will be marked in 2023.

Incidentally, Sri Lanka also celebrates the 75th anniversary of its independence from the British in 2023, and President Ranil Wickremesinghe has given himself and all parties that represent parliament a deadline to find a permanent solution to Sri Lanka’s decades-long ethnic issue.

The US has been vocal about Sri Lanka addressing concerns about its human rights record since the end of the civil war in 2009 and was a sponsor of the latest resolution on Sri Lanka passed by the United Nations Human Rights Council. Unlike previous resolutions, this year’s iteration makes specific reference to the country’s prevailing currency crisis and calls for investigations on corruption allegations.

In the lead up to the UNHRC sessions in Geneva, Minister Sabry Sri Lanka’s government under then new president Wickremesinghe does not want any confrontation with any international partner but will oppose any anti-constitutional move forced upon the country.

On the eve of the sessions on October 06, Sabry said countries such as the United States and the United Kingdom, who led the UNHRC core group on Sri Lanka, are greatly influenced by domestic-level lobbying by pressure groups from the Sri Lankan Tamil diaspora.

These pronouncements notwithstanding, the Wickremesnghe government has been making inroads to the West as well as India and Japan, eager to obtain their assistance in seeing Sri Lanka through the ongoing crisis.

The island nation has entered into a preliminary agreement with the International Monetary Fund (IMF) for an extended fund facility of 2.9 billion dollars to be disbursed over a period of four years, subject to a successful debt restructure programme and structural reforms.

Much depends on whether or not China agrees to restructure Sri Lanka’s 7.4 billion dollar outstanding debt to the emerging superpower. Beijing’s apparent hesitance to go for a swift restructure prompted Tamil National Alliance MP Shanakiyan Rasamanickam to warn of possible “go home, China” protests in Colombo, similar to the wave of protests that forced the exit of former pro-China President Gotabaya Rajapaksa.

The TNA will be a key player in upcoming talks with the Wickremesinghe government on a solution to Sri Lanka’s ethnic issue. (Colombo/Dec09/2022)

Continue Reading

India smogs out Sri Lanka’s China tower observers

 

ECONOMYNEXT – Sri Lanka’s Chinese-built Lotus Tower has halved visitors to its observation deck an official said as dirty air flowing from India triggered air quality warnings and schools in the capital closed.

“Masks are mandatory at the observation deck and roughly around 50 to 60 can go up to the observation deck at a time, time limits have not been altered and still persists at 20 minutes for observation,” the official told EconomyNext.

Prior to the smog, 120 observers were permitted at once to the deck.

However, even after limitations the Lotus Tower has continued to draw visitors, and revenues are coming in, the official said.

The tower built with a Chinese loan by the cash rich Telecom Regulatory Commission has been described by critics as a white elephant that eats the money earned from telecom operators mainly as spectrum fees.

Sri Lanka’s National Building Research Organization (NBRO) said India air heavily polluted with particulate matter was flowing across the island into a depression in the South West Bengal Bay. (Colombo/Dec09/2022)

 

 

Continue Reading