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Tuesday May 30th, 2023

Sri Lanka GDP to contract -9.2-pct in 2022, Maldives to grow 12.4-pct: World Bank

ECONOMYNEXT – Sri Lanka’s gross domestic product is expected to contract 9.2 percent in 2022 and a further 4.2 percent in 2023, a World Bank report said as the country suffers from the worst currency crisis in the history of its intermediate regime central bank.

The Maldives which has the best externally anchored monetary regime in South Asia is to grow 12.4 percent.

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar n 2022 after two years of money printing to suppress interest rates, leading to a loss of foreign reserves and sovereign default. Private credit has been smashed to stop forex shortages and help drive money to the deficit.

Sri Lanka has also been hit by import controls which are worsening the effect of the currency crisis on real economic activity.

“Countries have also resorted to restrictive measures to curb imports, but with potentially detrimental effects on the economic recovery,” the World Bank report said.

“Many households face severe economic hardship. Since earlier this year, a full-on economic crisis has unraveled in Sri Lanka, leading to wide spread shortages of essential items.”

Sri Lanka’s exports have recovered up to the second quarter of 2022, but lagged other countries in the region.

“Industrial production in real terms has risen, except in Sri Lanka” the report said.

Sri Lanka and Pakistan has the worst soft-pegged central banks in the region with aggressive open market operations and outright purchases of bonds to suppress rates despite having reserve collecting pegs.

In South Asia Maldives has to be best pegged exchange rate with the least activist monetary policy. The fairly firm peg has provided the greatest monetary stability to economic to operate and provided a social safety net for the people.

The International Monetary Fund also tolerates the peg in the Maldives, while flexible inflation targeting, probably the most dangerous intermediate regime every cooked up by Washington based Mercantilists is peddled to larger countries.

Maldives is expected to grow 12.4 percent in 2022 on the back of a 37.4 percent recovery in 2021. Maldives will also grow 8.2 percent in 2023. Maldives contracted steeply during the Covid crisis as the tourism sector was hit but the peg held.

Maldives’ Rufiyaa currency has fallen to only 15 to the US dollar from the original 4.70 to the US dollar rate (linked to the Indian rupee) money that South Asia had before separate money printing central banks were created.

Bhutan is still maintaining the rate, Nepal is also ahead of others in South Asia but both countries are vulnerable ‘monetary policy modernization’, which defies the impossible trinity of monetary policy objectives.

Both countries are also pegged to the Indian rupee and is exposed to Reserve Bank of India depreciation and policy errors, unlike Maldives which is anchored to the US Fed which has comparatively better policy. (Colombo/Oct07/2022)

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Sri Lanka food producers on countdown; 6-months to reduce trans fat content

ECONOMYNEXT – Sri Lankan food manufacturers only have another six months to reduce the amount of trans fat in food items as the government plans to ban high trans-fat food from January 2024 onwards, an official said.

“A six-month grace period has been given to existing manufacturers, sellers and distributors whose products contain trans-fat,” an official of the Ministry of Health told EconomyNext requesting anonymity.

According to a Ministry of Health gazette issued on… a person shall not sell, offer for sale, expose or keep for sale or advertise for sale, any packaged food product containing trans-fat unless the total amount of trans-fat of such food product per 100 grams or 100 milliliters of the food product is declared on the label of such packaged food product.

However, these regulations will not be applicable for export oriented food products.

Trans-fat is a type of fat that has certain chemical properties and is usually found in processed foods such as baked goods, snack foods, fried foods, shortening, margarine, and certain vegetable oils.

Eating trans-fat increases blood cholesterol levels and the risk of heart disease.

Meanwhile, the World Health Organization (WHO) has praised Sri Lanka for enacting a legislation on trans-fat to protect health and prevent premature deaths from coronary heart disease, a statement from the WHO said.

“Eliminating trans-fats from food supplies is a cost-effective measure with enormous health benefits,” the statement quoting Poonam Khetrapal Singh, Regional Director, WHO South-East Asia said.

“By enacting legislation on trans-fat, Sri Lanka has once again demonstrated its resolve to protect and promote the health of its people”.

The regulations are coming into effect as Sri Lanka is struggling with food insecurity as the country recovers from its worst economic crisis.

However, an improvement in food security across all provinces has been recorded, according to an assessment by a Crop and Food Security Assessment Mission (CFSAM) of two UN agencies. (Colombo/ May 30/2023)

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India extends under utilized $1 bln credit facility to Sri Lanka by one year 

ECONOMYNEXT – India has extended a $1 billion credit facility to Sri Lanka by another year after the loan that was given to help the crisis-hit island nation to continue import of essentials was not fully utilized in the 12 month period originally agreed, officials said.

Sri Lanka faced with a looming sovereign default signed the credit facility in March 2022 for one year through March 2024. However, the full $1 billion had not been utilized yet.

The Facility has been used for urgent procurement of fuel, medicines, food items and industrial raw materials, as per the requirements and priorities of Sri Lanka.

“The initial agreement was signed in 2022 March and out of the 1000 million US dollars allocated materials were imported for $576.75 mil,” Shehan Semasinghe, State Finance Minister said in his official twitter platform.

“The agreement is extended for the remaining $423.25 mil. We will prioritize the import of essential medicines till March 2024.”

Indian High Commission in Colombo said the State Bank of India (SBI) has extended the tenure of the $1 billion Credit Facility provided to Sri Lanka in response to a request from the Government of Sri Lanka.  (Colombo/May 30/2023)

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Sri Lanka President cleared to discuss cancelled LRT after soured Japan relations

ECONOMYNEXT – Sri Lanka’s Cabinet of Ministers approved a proposal by President Ranil Wickremesinghe discuss resuming a Japan funded. Light Rail Transit (LRT) project cabinet spokesman said, as the island nation is in the process of mending ties with Tokyo.

However, any such deals are likely to take place after the debt restructuring and Sri Lanka starts to repay its foreign loans to come out of default, analysts say.

Former President Gotabaya Rajapaksa unilaterally cancelled the 1.5 billion US dollar LRT and East Container Terminal (ECT) projects in 2021. Japan agreed to fund the LRT project while it was one of the tripartite members of the ECT project along with India and Sri Lanka.

The abrupt cancellation hit the diplomatic ties between the two countries and Sri Lankan government officials have said Japan had given the project to Sri Lanka at a very lower financing cost.

President Wickremesinghe returned from Japan late last week after having met top officials of the Japanese government including its prime minister.

“In recent history, due to the stopping of several agreements and proposals suddenly, President Wickremesinghe went to Japan after creating the background to clear some of the worries we have,” Cabinet Spokesman Bandula Gunawardena told the weekly media briefing.

“Before he went, he got the approval from the cabinet to resume the discussion on the light railway project. He got the approval from the cabinet to get parliament approval for bilateral agreements signed or any other investments project. Any change or cancellation of a project could be done only with the approval of the parliament.”

Japan has backed Sri Lanka under Wickremesinghe’s presidency after the island nation declared sovereign debt default. (Colombo/May 30/2023)

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