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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.


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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)

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  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.

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  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.

Sri Lanka cuts petrol to Rs318 a litre, kerosene to Rs245

ECONOMYNEXT – Sri Lanka has cut petrol 92-Octane by 15 rupees to 318 rupees a litre and kerosene by 50 rupees to 245 rupees a litre from midnight May 31, the Ministry of Energy said.

Petrol 95 Octane will be raised by 20 rupees to 385 rupees, and Lanka Super Diesel 4 Star Euro 4 will be raised by 10 rupees to 340 rupees a litre.

Lanka Industrial Kerosene will be cut by 60 rupees a litre to 270 rupees.

Kerosene which is similar to jet fuel is usually the most expensive fuel in international markets followed by diesel and petrol is usually the cheapest.

Kerosene which is substantially cheaper than diesel is also used by buses to cut costs. (Colombo/May31/2023)

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Sri Lanka opposition slams purported licence-cancelling broadcast authority

ECONOMYNEXT – A purported Broadcast Authority in Sri Lanka that will allegedly have the power to cancel licenses issued to the media have come under criticism from the opposition.

Opposition Tamil National Alliance (TNA) legislator and lawyer M A Sumanthiran told reporters on Wednesday May 31 that the bill on the establishment of this statutory body, if enacted, could violate several fundamental rights including the people’s right to information.

“Everyone knows that there have been many attempts in recent times to impose constraints on people’s right to information. This authority will decide which information is true and whether it can be broadcast,” he said.

The proposed act will also empower the authority to cancel broadcast licenses of those who already hold them, said Sumanthiran.

The MP said that a similar attempt to bring in such legislation in 1997 was thwarted after then opposition United National Party (UNP) MP Gamnii Athukorala challenged it in the Supreme Court, which determined on May 05 that year that the bill would need a referendum in addition to a two-thirds majority in parliament for it to become law.

“The Supreme Court determined that it went against Article 10 of the Constitution,” said Sumanthiran.

“What we can see is that this violates several fundamental rights, so we strongly oppose this bill.

“It’s not just the media, but the people’s right to information is also challenged by this,” said Sumanthiran.

Main opposition Samagi Jana Balawegaya (SJB) MP Harsha de Silva said the purported bill is undemocratic.

“If these people are given the power to cancel a license – this isn’t objective, it’s subjective, meaning four or five people will decide this,” said the MP.

Authorising a person to censor the content of a broadcast channel would be wholly undemocratic, he said.

“They tried to do this through the Counter Terrorism Act but failed, so it seems they’re now trying to bring it in with this,” said de Silva.

“We see it as a death blow to democracy,” he said, urging the government not to go ahead with it.

“If not, we will oppose it vehemently and fight for the people’s democratic rights,” he said.

Meanwhile, the ruling Sri Lanka Podujana Peramuna (SLPP) said that, while it supports media freedom, the abuse of that freedom cannot be permitted.

SLPP general secretary and MP Sagara Kariyawasam told reporters on Wednesday that some media organisations abused their freedom to make false allegations against the party leadership.

“We are of the firm stand that the media must be independent and that that independence must be facilitated, but if anyone abuses media freedom as a sort of freedom of the wild ass, measures must be taken against that too,” said Kariyawasam.

“We saw how that freedom was enjoyed in the recent past making allegations with no basis. We saw how there were severe allegations made through the media that the Rajapaksas had engaged in thievery,” he said.

The MP claimed that the people voted in the UNP-led Yahapalana government in 2015 to investigate these allegations.

“But that government realised that there wasn’t even a single incident,” he said. (Colombo/May31/2023)

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Sri Lanka rupee closes at 290.25/75 to dollar, bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee closed at 290.25/75 against the US dollar in the spot market on Wednesday, while bond yields were steady, dealers said.

The rupee opened at 293.25 /294.00 to the US dollar on Tuesday.

A bond maturing on 01.09.2027 closed at 26.70/90, following a steady from the open at 26.50/80 on Wednesday.

Sri Lanka’s rupee is appreciating amid negative private credit which has reduced outflows after the central bank hiked rates and stopped printing money. (Colombo/ May 30/2023)

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