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Tuesday November 29th, 2022

Sri Lanka housing hit by protectionist taxes, monopoly power: Developers

ECONOMYNEXT – Sri Lanka’s residential construction costs are kept artificially high with protectionist taxes creating monopolies and prices of steel, tile and fitting costs have rocketing after rupee collapsed, condominium developers have said.

Protectionist import duties have led to a fall in quality, the Condominium Developers Association ofSri Lanka said said calling for a “review of protectionism and the revisiting of negative lists.”

“Condominium Developers are being held to ransom by suppliers of building materials, fittings, fixtures and even services to an extent that the continuity of this vital sector of the economy is under serious threat,” the association said.

The industry is also facing re-imposition of value added tax, a new social security contribution levy on top of import duties and multiple layers of PAL, CESS and Excise Duty.

There was “needless and unjustified protectionism such as in the case of Tiles, Steel, Cement, Furniture, Kitchen, and Doors, which affect choice, product quality, availability and price and create a monopoly for a few players with dire consequences on an entire industry.”

“…Floor tiles that were Rs 150 sq. ft in 2021 are today Rs 450 to 600 and moreover have a delivery time of 4 months with no guarantee of prices being held.”

President Ranil Wickremesinghe this week allowed property developers to import tiles direct.

Related Sri Lanka property developers allowed to import tiles

Price of steel has shot up 350 percent from 100,000 rupee a tonne in 2021 to 450,000 rupees now.

Price of cement has increased from 800 rupees to 3100 rupees per 50kg bag or about 287 percent.

Prices of some fittings are more than 500 percent the condominium developers association said.

About 600,000 person are employed in the construction industry, the association said, while there were more indirectly dependent.

“It is this vast multitude whose livelihood is being subverted by short-sighted policies of greed and unfettered profiteering.”

The industry has already stopped new developments, and developers are forced to raise prices. Meanwhile developers and buyers who have contracted at fixed prices are in a quandary. (Colombo/Aug26/2022)

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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 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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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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