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Thursday June 20th, 2024

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 shares debt management experience at global forum

ECONOMYNEXT – Sri Lanka has shared its experiences at a forum on debt management to “provide lessons for others”, State Minister of Finance Shehan Semasinghe has said.

Semasinghe spoke on “The Role of Debt Management in Navigating Crises” at the 14th Debt Management Facility (DMF) Stakeholders’ Forum, in Livingstone, Zambia.

“I shared the experiences of Sri Lanka which can provide valuable lessons for others and explored the critical elements of capacity building and sound institutional practices in managing debt, particularly in the context of economic challenges,” Semasinghe said on X (twitter).

“Sri Lanka’s experience demonstrates that effective debt management is not just about managing numbers but also about building robust institutions and capacities.”

The journey underscores the importance of transparent, accountable governance and the need for international support and cooperation in times of crisis, he said.

“Sri Lanka prioritized addressing gaps in public debt management by drafting a consolidated Public Debt Management Act, ensuring clarity and legal robustness and establishing a centralized Public Debt Management Office with operational autonomy.

“The role of debt management in navigating crises is multifaceted and critical. Further, by investing in capacity building, adhering to sound institutional practices, and strategically managing debt restructuring and liability operations, countries can better withstand economic shocks and pave the way for sustainable recovery.”

Developing countries face severe debt distress as they are more vulnerable to external shocks, Semasinghe said, and “managing global debt requires coordinated international efforts on debt restructuring where necessary, timely fiscal policy adaptation and help sustainable economic growth.”

The state minister also pointed out the financial impact of climate change was an emerging challenge, as countries need investment to mitigate and adapt to climate impacts, “especially through non-debt creating inflows, which would require private capital mobilization.” (Colombo/Jun20/2024)

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Sri Lanka rupee closes stronger at 305.10/30 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger ahead of the long weekend at 305.10/30 to the US dollar on Thursday, up from 305.40/55 to the US dollar Wednesday, dealers said, while some bond yields edged up.

A bond maturing on 15.12.2026 closed at 10.45/80 percent, up from 10.35/75 percent.

A bond maturing on 01.07.2028 closed at 11.20/45 percent.

A bond maturing on 15.09.2029 closed at 12.00/15 percent, up from 11.95/12.35 percent.

A bond maturing on 01.12.2031 closed at 12.05/25 percent.

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Sri Lanka stocks close up, JKH trade pushes turnover

ECONOMYNEXT – The Colombo Stock Exchange closed up on Thursday, data on its site showed.

The broader All Share Index closed up 0.19 percent, or 23.11 points, at 12,249; while the more liquid S&P SL20 Index closed up 0.15 percent, or 5.33 points, at 3,610.

Turnover was 2 billion. Nearly half of this (Rs980mn) came from a crossing on John Keells Holdings Plc. The share closed down at 202.00.

“There were several crossings today which pushed turnover,” market participants said.

“Institutions and high net-worth activity drove the market, while the retail investors we feel are still about uncertain and adopting a wait-and-see approach.”

Melstacorp Plc was among the companies that saw active volumes (Rs194mn) in the day. The share closed up at 87.10.

Top contributors to the index included TeeJay Lanka Plc (up at 41.70), Sampath Bank Plc (up at 79.50), Hatton National Bank Plc (down at 201.00). Hayleys Plc (up at 105.00) and its subsidiary Hayleys Fabric Plc (up at 46.60) were also positive contributors. (Colombo/Jun20/2024)

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