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Thursday May 23rd, 2024

Sri Lanka foreign reserves drop to US$2.83bn after bond repayment, liquidity injections

ECONOMYNEXT – Sri Lanka’s gross official reserves dropped to 2,833.5 million US dollars in July 2021, from 4,060 million in June after a billion US dollar bond and some other accounts were repaid in July, official data show.

Sri Lanka has been injecting unprecedented volumes of liquidity into banks as excess rupee reserves triggering a balance of payments deficit under so-called ‘Modern Monetary Theory’ (an extreme form of ‘stimulus’ after cutting taxes in a fiscal ‘stimulus’, triggering a run on reserves and credit downgrades.

The reserves are the lowest since July 2009, when the country had just finished a war and was rebuilding reserves. At the time monetary policy was tight and prevented a monetary meltdown amid the collapse of the Federal Reserve housing bubble.

In 2021 liquidity has also boosted imports, despite controls on items like vehicles, which bring the highest level of taxes, dollar for dollar, hurting tax revenues, triggering more money printing and reserve losses.

Sri Lanka is heavily steeped in Mercantilism and the link between credit, liquidity and monetary instability is not understood.

It is also the practice of Mercantilists to measure forex reserves in terms of imports, through trade bills need not be paid with reserves as long as liquidity is not injected in to commercial banks.

Sri Lanka’s gross forex reserves were 2.6 months of imports measured as the average of past 12 months in June 2020.

Though July import data is not released, but if imports are below the June level of 1.65 billion dollars and reach at least the February level of 1.52 billion dollars reserves are now around 1.8 months of past imports.

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Sri Lanka June 2021 imports, trade deficit hit 3-year high as injections defeat controls

With the Peoples Bank of China swap, which can be drawn down and used to pay for Chinese imports, forex resources are about 2.8 months of imports.

State Minister for Money and Capital Market Nivard Cabraal has said that the reserve fall in July would be temporary.

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Sri Lanka reserve fall after bond payment will be temporary: Minister Cabraal

The International Monetary Fund is expected to disburse around 800 million dollars in special drawing rights in August 2020, and the central bank is also negotiating a 250 million US dollar swap with Bangladesh Bank which has been approved in principle subject to a sovereign guarantee.

Central Bank Governor W D Lakshman had said that a 400 million US dollar swap is also expected from India.

However swaps indebt the central bank and analysts had warned that if liquidity is continued to be injected the monetary authority will end with negative foreign assets.

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Sri Lanka raises de facto one year policy rate by 05bp

Sri Lanka’s central bank should guard against bankruptcy as Fed lights commodity fires

Last week some corrective action was taken in the form of a 05 basis point hike in the 12-month ceiling rate for Treasury bills, through which debt is monetized and liquidity is injected to trigger a run on forex reserves. (Colombo/Aug14/2021)

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Sri Lanka President calls for unity, sacrificing for a better tomorrow on Vesak day

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has recalled a sermon from the Buddha about sacrificing for a better tomorrow, and called for unity to heal and rebuild the country, as Buddhists celebrate Vesak.

Buddhists celebrate Vesak as commemorating the birth, enlightenment and passing away of the Buddha.

“At this challenging moment, we as a nation should cultivate the same great zeal for enlightenment that Buddha exemplified, inspired by his sermon, “Maththasukha parichchaga- passé che vipulan sukhan” – to sacrifice today for a better tomorrow,” President Wickremesinghe said in his Vesak day message.

“We must remember the advice of Lord Buddha, “Sabbattha Sammanaso,” to treat everyone equally and ensure we put it into practice as a country. This is the greatest offering we can present to the Buddha on this Vesak day.

“Regardless of race, religion, caste, or political affiliation, we must all unite to heal and rebuild our country. ”

The full statement is reproduced below:

The Vesak festival is a profoundly sacred day for Buddhists worldwide, commemorating the Buddha’s birth, enlightenment, and passing. Buddhists in Sri Lanka, along with their brethren around the globe, celebrate Vesak with deep devotion. They spend this period engaging in religious observances and venerating the Buddha with fervent devotion.

At this challenging moment, we as a nation should cultivate the same great zeal for enlightenment that Buddha exemplified, inspired by his sermon, “Maththasukha parichchaga- passé che vipulan sukhan” – to sacrifice today for a better tomorrow.

We must remember the advice of Lord Buddha, “Sabbattha Sammanaso,” to treat everyone equally and ensure we put it into practice as a country. This is the greatest offering we can present to the Buddha on this Vesak day. Regardless of race, religion, caste, or political affiliation, we must all unite to heal and rebuild our country. The principles of Lichchavi Raja Dharmaya will guide us in this endeavour.

Let us keep in mind that the primary aim of the Vesak festival is to foster spiritual growth and character development in a world rapidly advancing physically. I wish everyone a blessed Vesak festival.

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Sri Lanka to host foreign artistes, Sigiriya fashion show to promote tourism

ECONOMYNEXT- Sri Lanka plans to bring down international artistes, and hold water festivals to boost tourists, Sri Lanka Tourism Promotion Bureau Chairman, Chalaka Gajabahu said.

“We will be hosting a few international artists in September to December,” Gajabahu told EconomyNext.

“We would also be having a fashion show in Sigiriya.”

Sri Lanka is targeting 2.3 million tourists in the year 2024 with expectations that it may go up to 2.5 million Gajabahu said.

Sri Lanka is also planning on having a water festival in coastal towns such as Trincomalee, Arugambay  and Kalpitiya in order to showcase Sri Lanka’s capacity for watersports, Gajabahu said. (Colombo/May22/2024)

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Sri Lanka opposition drops bombshell on Mannar wind power tender

ECONOMYNEXT – A tender for a 50 MegaWatt wind power plant by state-run Ceylon Electricity Board has been blocked to prevent sharply lower power purchase prices from competitive bidding being revealed to the public, opposition legislator Kabir Hashim charged in parliament.

A technical evaluation of three companies which had submitted bids had been completed according to information coming to him, Hashim told parliament Wednesday.

“The financial bids were due to be opened on May 17 based on information we are receiving,” Hashim said.

“But due to pressure from certain officials we are learning that there is an attempt to cancel the financial bid. I am asking why the bid was not opened on May 17.

“We learn that the Sustainable Energy Authority Chairman and officials have engaged in a big operation to stop this. I do not know who these people are representing.”

“This is something that is required for the country. We believe the wind power unit could be purchased at a price below 6.0 cents t under competitive tender.

“This tender has been blocked to stop this. So, blocking this is big problem.”

Hashim said he was demanding an answer.

“I do not know whether some corrupt officials are connected to some companies and acting on behalf of these companies (kade yanawader danney ne). I am asking the chairman of the Committee on Public Finance, Harsha de Silva, to summon the officials and ask them to open the bids.”

Hashim said he had urged Sri Lanka authorities in parliament itself on earlier occasions not to agree on a power purchase price for a 484MW plant by India’s Adani group which came without tender until competitive bids for the smaller Mannar plant were opened.

Related Sri Lanka to buy wind power from Adani for 8.26 US cents

The energy ministry said Adani would be paid 8.26 cents per unit for its Mannar and Pooneryn plant project for 484 MegaWatts.

India’s Adani project has come as a government-to-government project, by passing tender, officials said.

CEB’s own plant in Mannar, built before an economic crisis with Asian Development Bank funds, was estimated to have a levelized cost of only 4.2 US cents over its lifetime.

But at commercial rates of borrowing, a profitable project could be run at around 6.0 US cents, according to industry analysts.

Mannar in particular is an area with high winds.

The CEB’s old wind farm with a shorter height has experienced an actual plant factor of 44 percent last year, according to sources with knowledge of the matter. (Colombo/May22/2024)

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