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Sunday February 25th, 2024

Sri Lanka food shortfalls, high prices feared after open account, DA/DP ban

ECONOMYNEXT – Sri Lanka may face higher food prices and shortfalls of foods after authorities banned open account and DA/DP trade, importers warned as the country tried to get out of a currency crisis by raising rates and killing private credit.

Though there were severe forex shortages the country did not face food shortages up to May 2022, due to food importers in the main wholesale market in Colombo somehow kept the nation fed.

Out of about 1.7-1.9 billion US dollars earned every month by the country’s exporters and overseas workers, only about 200 million US dollars a month go for food.

With no mechanism to give priority allocation of foreign exchange for food, many importers have channelled Middle Eastern remittance via the Undiyal system to keep the nation fed, sources familiar with the process say.

This is why the country did not face severe food shortages, but medicines which were under price controls went off the shelves when the rupee fell. The monthly requirement for medicine is estimated at about 25 million US dollars or about half a fuel ship.

Importers who have long term relationships with regional suppliers in particular ship goods at a moment’s notice.

Food suppliers have been willing to extend credit to their local counterparties due to the strong relationship spanning generations.

Foods such as onions and potatoes are also perishable, which will rot in containers unless cleared quickly, while importers go from bank to bank searching for dollars, the food traders said.

Some foods were spiked in the Pettah market Friday, wholesalers said.


Sri Lanka can trigger food shortages as in medicines with new trade controls: Bellwether

Economic analysts had earlier warned that price controls and banning of DA/DP imports were the easiest way authorities could create food shortages.

The import ban came after the central bank raised interest rates in a bid to stop money printing and private credit was starting to fall.

Sri Lanka has an intermediate regime central bank which had created monetary instability and social unrest ever since it was set up in 1950.

The country suffered balance of payments trouble within two years of its creation, an exchange control law was enacted in 1952 and a ‘hartal’ took place in 1953. (Colombo/May20/2022)

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Sri Lanka could get US$500mn from ADB in 2024

ECONOMYNEXT – Sri Lanka could receive 500 million US dollars in support from the Asian Development Bank in 2024 based on the progress of policy reforms, Country Director of the Manila-based lender, Takafumi Kadono said.

The ADB expect to go to its Board around March or April with a 100 million US dollar power sector loan subject to the cabinet of ministers of approving a revised electricity reform bill.

A 100 million dollar loan to support SMEs could also be approved in the early part of the year. Sri Lanka is setting up a credit guarantee agency to support credit for small firms.

A 200 million dollar credit for financial sector was also slated for the year. The ADB gave the first tranche of the financial sector policy loan late last year.

A $100mn for the water sector could also be approved later in the year.

Sri Lanka could get around 200 to 300 million US dollars a year at the lowest rate, or concessional ordinary capital resources (COL) rate of 2 percent.

The balance of would come at the ordinary capital resource rate linked to SOFR.

The ADB has also started work on a ‘Country Partnership Strategy’ for Sri Lanka covering the 2024-2028 period, Kadodo said. (Colombo/Feb25/2024)

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Sri Lanka’s multi-aligned foreign policy based on friendship: Min

ECONOMYNEXT – Sri Lanka’s multi-aligned foreign policy is based on friendship to all and enmity to none, its Minister of Foreign Affairs has said.

“Non-alignment means not becoming a bystander. Non-alignment means you are not forced or coerced into a camp to take sovereign decisions… you make your own choices. Whether it is commercial, security, regional or otherwise,” M U M Ali Sabry said on X (twitter).

“I have repeatedly stressed that sovereignty is the right to have your own opinion on what’s right and wrong, and to stand by your principles. Our multi-aligned foreign policy is based on friendship to all and enmity to none,” Sabry was quoting from his speech at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) Foreign Policy Forum, on the theme ‘Reassessing Non-Alignment in a Polarised World’.

Sri Lanka is one of the founding members of the Non-Aligned Movement.

The strategically located island has been increasingly walking a fine line between opposing global factions as it seeks to come out of a financial crisis. (Colombo/Feb24/2024)

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Sri Lanka’s Commercial Bank Dec net down on tax provisions

ECONOMYNEXT – Sri Lanka’s Commercial Bank of Ceylon reported profits of 6.9 billion rupees from the December 2023 quarter down 21 percent, despite an improvement in net interest income and lower provisions, amid a change in tax provisions.

Pre-tax profits were 8.89 billion rupees up from 2.4 billion rupees. There was a 6.4 billion tax reversal last year compared to a 1.7 billion rupee tax charge this year.

Commercial Bank reported earnings of 5.26 rupees for the quarter. For the year to December 2023 earnings were 16.07 rupees per share on total profits of 21.1 billion rupees, down 11.3 percent.

Net fee and commission income was down 1.2 percent to 6.1 billion rupees.

Net interest income went up 16.8 percent to 25.5 billion rupees, with interest income rising marginally by 1.3 percent to 73.0 billion rupees and interest expense falling 5.45 percent to 47.5 billion rupees.

Loans and advances to customers grew 4.06 percent to 1.17 billion rupees in the year to December. Debt and other financial instruments fell 10.5 percent to 649 billion rupees.

Financial assets measured and fair value through other comprehensive income was at 287 billion rupees, up from 117 billion rupees.

Impairment charges were 13.1 billion rupees, down from 19.6 billion rupees last year.

Gross assets were up 6.45 percent to 2.36 billion rupees. Net assets were up 5.51 percent to 214 billion rupees. (Colombo/Feb24/2024)

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