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Tuesday November 29th, 2022

Sri Lanka fuel stabilization fund has not grown as expected: Minister

ECONOMYNEXT – A fuel price stabilization fund which was to collect 200 billion rupees in 2020 as global prices fell has not grows as expected due to fall in consumption and stocks already bought at high prices, Information Minister Bandula Gunewardene said.

“The fund has not grown as expected because consumption has fallen sharply,” Minister Gunewardene said.

“Also some of the stocks have been bought at higher prices earlier.”

Sri Lanka clamped down a sever lockdown using cufew laws over the past two months, leading to a collapse in consumption of goods and reduced transport.

He said a customs will charge a surcharge at the point of import and the funds will go to a account in state-run Bank of Ceylon, which will managed by six additional secretaries of the finance ministries.

The funds are expected to settle loans taken by the Ceylon Petroleum Corporation and Ceylon Electricity Board.

The reduced interest costs of CEB and CPC will bring down their operating costs over the longer term he said.

Related

Sri Lanka to fix fuel prices, build energy stability fund amid COVID-19 crude collapse

Under fire Sri Lanka central bank defends money printing

Sri Lanka’s CPC ran an 80 billion rupees loss in 2018 by running an unhedged forex loss via dollar borrowings despite market pricing fuel as the central bank injected liquidity in 2018 bringing down the rupee.

Analysts have also called for reform of Sri Lanka’s central bank so that it cannot print money in a monetary stimulus, permanently depreciate the currency, pushing up costs, driving cost of living up lowering living standards while also driving Sri Lanka closer to default.

A 2018 bought of money printing saw the rupee downgraded to ‘B’ despite improving budgets and market pricing of oil.

The latest bought of money printing coupled with tax cuts in the form of a fiscal stimulus, has brought the credit rating down to ‘B-‘. (Colombo/May28/2020)

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Sri Lanka rubber farmers to get boost from France, Michellin

ECONOMYNEXT – Sri Lanka will start a project supported by France and Michellin group to support 6,000 rubber farmers, cabinet spokesman Minister Bandula Gunawardena said.

Rubber farmers in Badalgama and Medagama in the Moneragala district will be supported improve their capacity and supply chains at a cost of 726,700 Euros.

Financial support will be provided by France’s Michellin group which has a subsidiary in Sri Lanka and the government of France.

The project will be implemented by France’s Ksapa group under the guidance of Ministry of Industries.

The cabinet of ministers had cleared a proposal by the Plantations Industries Minister to enter into an agreement to implement the project. (Colombo/Nov29/2022)

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a twitter.com message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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