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Tuesday December 5th, 2023

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)

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  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.

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  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 stocks close up as some investor interest returns

ECONOMYNEXT – The Colombo Stock Exchange closed up on Monday, CSE data showed.

The All Share Price Index was up 0.22 percent, or 23.33 points, at 10,743.59.

The S&P SL20 index was up 0.68 percent, or 20.60 points, at 3,067.73.

Turnover was at 708 million. The banks sector contributed 189 million, while the food, beverage and tobacco sector contributed 176 million of this.

Sri Lanka’s stock market has seen some investor interest return after last week’s news that the country had managed an agreement on a debt restructuring deal with an official creditor committee, and foreign funds for some development projects resumed.

Top positive contributors to the ASPI in the day were Sampath Bank Plc (up at 71.50), LOLC Holdings Plc (up at 379.00), and Commercial Bank of Ceylon Plc, (up at 90.90).

There was a net foreign outflow of 52 million.

Citrus Leisure Plc, which announced that its banquet hall and revolving restaurant at the Lotus Tower would launch on or around Dec 9, saw its share price rise to 6.20 rupees. (Colombo/Dec4/2023).

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Sri Lanka rupee closes broadly steady at 328.10/30 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 328.10/30 to the US dollar on Monday, from 328.00/10 on Friday, dealers said.

Bond yields were stable.

A bond maturing on 01.06.2025 closed at 13.70/14.00 percent from 13.70/95 percent.

A bond maturing on 01.08.2026 closed at 13.90/14.10 percent from 13.90/14.05 percent.

A bond maturing on 15.01.2027 closed at 14.00/14.10 percent from 14.05/10 percent.

A bond maturing on 01.07.2028 closed at 14.20/35 percent from 14.15/25 percent.

A bond maturing on 15.05.2030 closed at 14.25/45 percent, from 14.20/45 percent.

A bond maturing on 01.07.2032 closed at 14.05/40 percent, from 14.00/45 percent. (Colombo/Dec4/2023)

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Gov minister highlights abortion rights, sex-ed for children, and Sri Lanka men killing their women

ECONOMYNEXT – Sri Lanka’s legislators have politicized the topics of rape and violence without addressing the elephant in the room, Jeevan Thondaman, Minister of Water Supply and Estate Infrastructure Development said in parliament on Monday (4).

“All the members here are talking about rape. What happens after that? We must talk about abortion rights. That is not something anyone wants to touch on, and that is why we are in this place right now,” Thondaman said.

“Despite alarming statistics on rape and violence, women are often blamed and punished for it. The criminalisation of abortion is a major example of this.”

Sri Lanka has some of the most restrictive abortion laws in the world. According to a 2016 estimate by the Health Ministry, he said, approximately 658 abortions take place a day, and close to 250,000 a year.

“That’s 250,000 women whose lives you are endangering.”

He added that what was needed at this point in time was comprehensive sexual education (CSE) for children and young people.

“Only through CSE in schools will children and young people develop, accurate, age appropriate knowledge attitude and skills; positive values such as respect for human rights, gender equality, diversity and attitude and skills that contribute to a safe, healthy and positive relationship.”

Thondaman pointed out that CSE plays a pivotal role in preparing young people for a world where HIV, AIDS, sexually transmitted infections, unintended pregnancies, and sexual and gender based violence still pose a risk to their well-being.

“CSE basically empowers children take control and make informed decisions freely and responsibly.”

Thondaman also highlighted the findings of a 2021 study (Fatalities_20211109_UNFPA) by the UNFPA and the University of Kelaniya that showed that a majority of women killed in Sri Lanka were murdered by those close to them.

“62 percent of homicides of Sri Lankan women are committed by either an intimate partner, ex-partner or family member. 84 percent are killed in their own homes by someone they know.”

Police and the judiciary have failed Sri Lanka’s women, the minister pointed out.

“Only 5 percent of these cases, between 2013-2017, were ever concluded. Men claim they were provoked, or are of unsound mind or have mental illness: These have been successful defenses. And the Police often express sympathy to this narrative as opposed to the victim’s.”

“We have a history of protecting oppressors.”

It takes 7-10 years for a child rape case to conclude, he pointed out.

Establishment of child courts are needed, he said, as well as several legislative amendments. “The government is working on a new law to reform the domestic violence act, reform of marriage and divorce laws to ensure there is an easier path to divorce: no one should be forced to remain in a marriage that is either abusive or not healthy.” (Colombo/Dec4/2023)

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