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Tuesday February 27th, 2024

Sri Lanka gross foreign reserves at US$3562mn in Oct

ECONOMYNEXT – Sri Lanka’s gross foreign reserves grew marginally to 3,562 million US dollars in October from 3,540 million US dollars in September after falling in the previous three months, in the wake of a reserve ratio cut.

Sri Lanka cut the statutory reserve ratio in August dumping large volumes of liquidity into the interbank market, though the central bank sold some of the bills it bought in the previous two years to target potential output and trigger a currency crisis and mop some of it up.

The central bank’s reserve collections slowed or fell especially after June as the initial confidence in the currency weakened as the agency moved to the confidence busting ‘flexible exchange rate’ that is found in most defaulting countries in Africa and Latin America that go to the IMF.

The central bank’s net foreign assets also fell in September, indicating a rise in borrowings.

There have been several one-off events in the period linked to debt restructuring, in the period which has cost reserves.

However private credit is expected to pick up in the months ahead, leaving less room for mis-targeting rates.

Analysts have called for the central bank’s powers to borrow through swaps to be outlawed as part of measures to prevent a second sovereign default, stop social unrest and high nominal interest rates though monetary instability.

Under a new monetary law backed by the IMF, the central bank can continue to borrow through swaps and ‘print’ money also also print money to sterilize outflows and mis-target rates.

Meanwhile, printing money to target potential output (a so-called John Law clause/IS-LM) which was dis-allowed under the previous law but practised in the run-up to sovereign default, has been legalized giving more room to continue to deny monetary stability for either economic agents or elected governments to operate, critics say.

READ MORE: Sri Lanka’s new central bank act with John Law clause reverts to classical Mercantilism

Sri Lanka’s reserve collecting central bank tends to cut rates, print money through open market operations to enforce the rate cut and miss reserve targets in the second year of an IMF program, as credit picks up, analysts have warned.

Interest rates cannot be kept low with open market operations, but only through maintaining stable exchange rates (and the consequent low inflation) for a few years and keeping the currency stable in the next Fed cycle by timely hikes in rates.

In addition to printing money for growth, the central bank has also got legal powers to print money to boost inflation to 5 percent which is more than twice the level of central banks which provide monetary stability to economic agents, under the new IMF backed law.

IMF-prone central banks tend to go back to the agency, a phenomenon known as recidivism (or Many Happy Returns), due to running operational frameworks which try to defy laws of nature, generally known as the impossible trinity of monetary policy objectives or IS/LM-BOP, in the process of either targeting potential output or cutting rates with inflationary open market operations claiming inflation is below target.


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Sri Lanka halts parate execution of defaulted SME loans

ECONOMYNEXT – Sri Lanka will suspend the procedure for banks to acquire properties used as a collateral in the event the loans are not paid off, until December this year.

“Various parties have pointed out issues existing in paying off the loans obtained by small and medium scale businessmen from banks,” Cabinet spokesman minister Bandula Gunawardena said Tuesday.

“Therefore, it is apparent that a sufficient grace period to pay off relevant debts without being a burden to the banking system should be allowed.”

“Accordingly, the Cabinet of Ministers granted approval to the proposal furnished by the President in his capacity as the Minister of Finance, Economic Stabılızation and National Policies to suspend the procedure by the banks to acquire properties of loans not paid off, until 15 December 2024, and to amend Section 4 of the Recovery of Loans by Banks (Special Provisions) Act No, 4 of 1990 to impose legal provisions required for the above.” (Colombo/Feb27/2024)

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Sri Lanka parliamentary committee says electricity tariffs should be reduced by 20 pct

ECONOMYNEXT — A parliamentary Sectoral Oversight Committee on Alleviating the Impact of the Economic Crisis has recommended to the Public Utilities Commission of Sri Lanka (PUCSL) that electricity tariffs be reduced by at least 20 percent.

A statement from parliament said on Monday February 26 that, following an analytical review of the figures presented by the Electricity Board, Public Utilities Commission, etc. and taking into consideration all other factors affecting the price of electricity, including considering the opinion given by experts that the existing electricity price can be reduced by about 33%, price of electricity should be reduced by at least 20% in the year 2024 so that the state-run Ceylon Electricity Board (CEB) will not suffer any loss.

PUCSL officials have informed the Committee that by the end of this month, they can submit the necessary recommendations to reduce the electricity bill, according to the statement.

The matter was taken up for discussion when the committee, chaired by MP Gamini Waleboda, met in the Parliament on February 22.

Officials from the Ministry of Industry, Ministry of Finance, Central Bank of Sri Lanka, Public Utilities Commission, Industry Development Board, Enterprise Development Authority, Department of Population and Statistics, Department of Inland Revenue and from government institutions including the Micro, Small and Medium Scale Industries Board and a group of industrialists had also been called for the meeting.

“The Committee gave several directives to the relevant institutions and officials to identify the micro, small and medium scale industries that are directly affected by the economic crisis and to activate the local economy and increase the foreign exchange earnings by reviving the industry sector.

“The Committee pointed out that due to the increase in electricity bills, the number of electricity connection cuts reported across the island has exceeded one million. It was also emphasised that in order to alleviate the pressure on the industry and the society, it should be arranged to provide electricity connections again by charging only 50 percent of the outstanding charges at the initial stage with the concessional basis of payment of outstanding electricity charges on installment basis,” the statement said.

The committee was also of the view to allow the customer to pay the connection fee in installments so as to avoid discouraging new entrepreneurs to start micro, small and financial industries due to high charges for getting fixed electricity connection and instructed to review the new connection fee and work to reduce it as much as possible.

The committee chair has instructed the PUCSL to conduct an audit on the electricity consumption in the public sector as an approach to ensure energy security.

“The Committee recommended to the Ministry of Finance and the Central Bank to start a loan scheme at subsidised interest for the purchase of solar panel systems with a view to promoting solar energy as a source of energy supply to industries. The Ministry of Finance expressed its agreement to provide refinancing facilities subject to a maximum as per the proposal made by the Committee to implement a loan scheme targeting micro, small and medium scale industrialists under subsidized interest rates.

The committee has also recommended that raw materials that must be imported from abroad and impose tax concessions on such raw materials be identified to ensure the supply of raw materials required for the smooth running of micro, small and medium scale industries. Copper, lead, aluminum and other industrial scraps used as raw materials in various domestic industries currently being sold by the CEB to external buyers and other entities should also be issued to micro, small and medium scale industrialists recommended by the Ministry of Industry and the Industrial Development Board, the committee has recommended.

The definition used by the Department of Population and Statistics for micro, small and medium industries and the definition used by other institutions such as the Industrial Development Board and the Central Bank for those industries are different from each other, which is an obstacle in making policy decisions, the committee had noted, directing the Department of Population and Statistics to support to the policymakers by releasing statistical data based on a common definition.

“The committee also recommended that the Credit Information Bureau should take prompt action to remove their credit information from the blacklists so as to facilitate access to credit facilities for micro, small and medium scale industries facing financial crisis to activate their balance sheets and to review all existing laws and procedures for registration of micro, small and medium scale industries as well as to obtain licenses and introduce a simple system.

“The committee informed all the parties to establish a steering Committee headed by the Ministry of Industry to implement the recommendations given by the Committee and to report its progress within a week,” the statement said. (Colombo/Feb27/2024)

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Sri Lanka sets up fund to help children of Gaza

The United Nations Relief and Works Agency for Palestine Refugees in the Near East is mandated to provide education, health, relief and social services, and emergency assistance to refugees. (Pic courtesy UNWRA)

ECONOMYNEXT – Sri Lanka’s cabinet of ministers have approved a proposal by President Ranil Wickremesinghe to set up a fund to help children caught in the war in Gaza, a statement said.

The government will contribute a million US dollars and use funds allocated by state agencies for Ifthar celebrations.

Public contributions are also called.

The Presidential Secretariat is requesting public donations citizens for the “Children of Gaza Fund” to be contributed to account number 7040016 at Bank of Ceylon (7010), Taprobane Branch (747) by 11th April.

Deposit receipts should to be forwarded to 0779730396 via WhatsApp. (Colombo/Feb27/2024)

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