An Echelon Media Company
Friday February 23rd, 2024

Sri Lanka forex reserves at US$1,777mn in Sept 2022

ECONOMYNEXT – Sri Lanka’s foreign reserves edged up 3.6 percent to 1,717 million dollars in September 2022 from a month ago, the latest central bank data showed.

The reserves rose by 60 million US dollars to 1,717 million last month from the previous month’s 1,657 million US dollars.

2022 after money was printed from 2020 to suppress rates and target an output gap. Eventually Sri Lanka defaulted on its sovereign debt in April 2022.

Analysts who watched with increasing alarm the flexible inflation targeting and output gap targeting (printing money for stimulus with a reserve collecting peg) had warned that external default was inevitable under such an extreme ‘impossible trinity’ regime.

Related

Sri Lanka’s Weimar Republic factor is inviting dollar sovereign default: Bellwether

Sri Lanka has to reform soft-peg to avoid monetary instability, default: Bellwether

Sri Lanka ran out of reserves around February 2022 but the central bank continued to get some funds to intervene from Reserve Bank of India through deferred Asian Clearing Union dues, putting the central bank deeper into debt.

About 1.5 billion US dollars of the reserves are borrowed from China through a swap. Fortunately China had barred the use of the money if reserves had already fallen below three months of imports.

Sri Lanka lost foreign reserves as printed money was redeemed to maintain the peg which was pressured by the new money. Large volumes of liquidity was injected in 2020 to repay maturing securities from past deficits, held by commercial banks by scuttling bond auctions through yield controls.

As the liquidity turned into private credit, a large part of the reserves were lost to excess imports triggered by re-financed credit.

A part of the reserves were lost to liquidity injections made by purchasing new gilts to finance current year deficits. A large part of the reserves were also lost to debt repayments after monetary stability was lost and the central bank was unable to buy dollars and mop up liquidity.

In the latter part of 2021 when excess liquidity disappeared, reserves were lost to sterilized sales (liquidity injected after interventions to prevent interest rates from moving up, reserve money from contracting and limiting the ability of banks to give fresh credit).

Bank now have large liquidity shortages finance with overnight money borrowed from central bank, in addition liquidity taken permanently from outright sales of gilts to the central bank. Classical economist David Ricardo called such injections made to de-stabilize a peg ‘fictitious capital’.

Sterilized interventions essentially finance private sector activity though it is later classified as deficit monetization because central banks no longer use private securities for open market operations.

Both Bangladesh and India is losing reserves to sterilized interventions.

Sri Lanka now no longer has foreign reserves to engage in sterilized interventions and finance unsustainable private sector credit and imports. Reserves are broadly hovering around 1.7 to 18 billion US dollars.

A country with monetary stability do not need reserves for imports.

However the central bank is buying dollars through a surrender requirement (injecting liquidity banks) and selling for oil imports (again altering reserve money), intervening in both directions of the peg which has lost credibility.

With interest rates now corrected to around 30 percent, private credit is negative and imports falling. Sri Lanka is also seeing capital outflows from banks, in addition to imports. (Colombo/Oct07/2022)

Comments (1)

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

  1. laksiri says:

    It is better to keep the actual reserve amount to avoid misunderstanding by creditors at least agreeing to restructure knowing the fats are not misleading.

View all comments (1)

Comments (1)

Cancel reply

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

  1. laksiri says:

    It is better to keep the actual reserve amount to avoid misunderstanding by creditors at least agreeing to restructure knowing the fats are not misleading.

India has given “lot of offers” for Ramayana Trail, Sri Lanka state minister says

ECONOMYNEXT – India has given a lot of offers to establish Ramayana Trails in Sri Lanka, State Tourism Minister Diana Gamage said, as the island nation is focusing more on Indian tourists to boost the hospitality industry.

Historians say, according to Hindu mythology, Sri Lanka was the kingdom of Ravana, the ten-headed demon king who abducted Sita, the wife of Rama, the hero of the Ramayana, a smriti text from ancient India, one of the two important epics of Hinduism known as the Itihasas, the other being the Mahabharata.

The epic narrates the life of Rama, a prince of Ayodhya in the kingdom of Kosala.

With the opening of Ram Mandhir in Ayodhya, Sri Lanka has renewed the establishment of Ramayana Trails, which includes all the places believed to be associated with Ramayana.

The places include Sigiriya, Ashok Vatika, a garden in the city of Nuwara Eliya, which is believed to be the place where Ravana kept Sita captive, Ravana Ella Falls, Koneswaram Temple in Trincomalee and Divurumpola Temple in Bandarawela which is believed to be the place where Sita underwent a trial by fire to prove her purity among many other places.

“I think India is even willing to invest in it. They have given proposals that they are willing to invest in it. They will build hotels even around where they can have accommodation for the people who are visiting these areas,” Diana Gamage told reporters in Colombo.

“They (Indians) have given a lot of offers. If we do this in the right way, we can bring 5 million tourists from India alone.”

Indians topped the list of tourists to Sri Lanka last year with over 300,000 visitors.

“At the moment I am having discussions with some of them, and they are in touch with me,” Gamage said.

“If you look at Seetha Eliya, Seetha Temple is one of the main areas in this Trail. So that area also will be developed, specially.”

“I don’t know if you have seen how many millions visited the Ayodhya temple. There are so many millions from around the world. So, there is an interest in this and we have to grab that opportunity being in the country that it actually has taken place.”

“It is so unfortunate that why it has not been done so far. This should have been done a long long time ago. So now I am thinking that we should do it at least now.” (Colombo/Feb 22/2024)

Continue Reading

Sri Lanka offers fresh debt plan to bondholders amid Hamilton case extension hopes: Sources

ECONOMYNEXT – Sri Lanka offered a revised restructuring proposal to sovereign bond holders sources said, as the country tries to wrap up debt restructuring by the middle of the year and a holdout investor sues to force payment on one series of bonds.

A US court had stayed proceedings of case by holdout investor Hamilton Reserve for six months, which has the required volumes of bond with a ‘single series’ collective action clause to file action following request which was supported by the US, UK and France.

The deadline runs out on February 29.

An extension of at least three months may be sought to help wrap up the debt restructuring, sources said.

Sri Lanka is expecting to sign memoranda of understanding with Paris Club, within weeks, according to official sources.

Courts had earlier granted the stay saying Hamilton had the option of renewing case for summary judgement once it is lifted.

Sri Lanka rejected a proposal by bondholders to exchange a ‘downside’ bond linked to gross domestic product which will have a 20 percent hair cut with additional haircuts if GDP growth is low as forecasted by the International Monetary Fund.

Bondholders believe that the growth projections in an IMF debt sustainable analysis is too pessimistic

However bondholders are very keen on the structure, and it may be tough to convince them to accept a ‘plain vanilla’ type of solution, according to sources familiar with their thinking.

Bondholders also do not want a value recovery instrument detached from the underlying bond which is not ‘index eligible’. Earlier VRI’s used in debt re-structures have been upside instruments.

Bondholders had earlier expressed their unhappiness at what they said was “no progress” in negotiations.

Some bondholders were also of the view that the first ask by Sri Lanka from bondholders was deeper than the in-principle re-structure given by bilateral creditors. (Colombo/Feb22/2024)

A US court had stayed proceedings of case by holdout investor Hamilton Reserve for six months, which has the required volumes of bond with a ‘single series’ collective action clause to file action following a request from the US government among others.

The deadline runs out at the end of the month.

An extension of at least three months may be sought to help wrap up the bond restructuring, sources said. It is not clear whether courts will grant the extension.

Sri Lanka rejected a proposal by bondholders to exchange a ‘downside’ bond linked to gross domestic product which will have a 20 percent hair cut with additional haircuts if GDP growth is low as forecasted by the International Monetary Fund.

Bondholders believe that the growth projections in an IMF debt sustainable analysis is too pessimistic

However bondholders are very keen on the structure, and it may be tough to convince them to accept a ‘plain vanilla’ type of solution, according to sources familiar with their thinking.

Bondholders also do not want a value recovery instrument detached from the underlying bond which is not ‘index eligible’. Earlier VRI’s used in debt re-structures have been upside instruments.

Bondholders had earlier expressed their unhappiness at what they said was “no progress” in negotiations.

Some bondholders were also of the view that the first ask by Sri Lanka from bondholders was deeper than the in-principle re-structure given by bilateral creditors. (Colombo/Feb22/2024)

Continue Reading

Sri Lanka to consolidate all vocational training institutes into one college: president

ECONOMYNEXT — Sri Lanka plans to consolidate all vocational training institutes in the country into a single vocational college, offering contemporary subject-related courses, President Ranil Wickremesinghe said.

Speaking at an observation tour at the Ratmalana Lalith Athulathmudali Vocational Training Centre on Thursday February 22, Wickremesinghe highlighted the need to restructure vocational education to align with the demands of the modern world.

A statement from the president’s office said quoting the president that such restructuring is needed to ensure that Sri Lanka’s youth are equipped to excel in the competitive global job market.

According to the statement, Wickremesinghe had also outlined to students at the institute the government’s plans for a swift digital transformation and the prioritisation of advancements such as Artificial Intelligence (AI).

“He expressed optimism about Sri Lanka’s trajectory in embracing evolving technologies,” the statement said.

A University of Vocational Technology was established in 2008 under the University of Vocational Technology Act Number 31 of 2008. The institute has the same legal and academic status as any other national university in Sri Lanka.

According to former Vice-Chancellor of University of Vocational Technology Dr T A Piyasiri, Sri Lanka sees a 30 percent dropout rate in its tertiary education sector.

One reason dropouts were high among those who joined state-owned tertiary education institutes after leaving school, was that they were free, he said speaking at an event in December 2023.

“The reasons for the dropouts; The first is that students have found employment – 21.5 percent of students have dropped out for employment. The second reason is economic hardships, and the third is incorrect choice by students,” said Piyasiri.

According to World Bank Country Manager for Sri Lanka and Maldives Chiyo Kanda, around 20 percent of Sri Lankan school graduates go on to further education while one-third of them enroll at training colleges.

Half of Sri Lanka’s students do not receive a post-secondary education, or tertiary education, including college, university, and vocational courses.

Related:

Sri Lanka tertiary education dropouts at 30pct: Vocational training professional

(Colombo/Feb22/2024)

Continue Reading