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Friday June 2nd, 2023

Sri Lanka import licenses will worsen economic crisis, promote corruption: think tank

ECONOMYNEXT – Sri Lanka’s new import licensing wave will worsen an economic crisis, promote corruption and will not solve the foreign exchange problems, Advocata Institute, a Colombo based think tank has said.

Forex shortages are a problem associated with pegged exchange rates which do not allow short term rates to float, but prints money to enforce a fixed policy rate.

Import controls enforced from 2020, when large scale money printing began, including bans on cars failed to solve the country’s balance of payments deficits.

However in March 2022, in addition to raising taxes on some imported products (which however can bring more tax revenues and mildly reduce the pressure to print money, which create forex shortages) a large number of items have been brought under licensing.

“The proposed license regime will add to the costs of doing business,” Advocata said.

“Net economic losses in the wider economy will increase as this restricts competition.

“These economic inefficiencies will be transferred as costs that will have to be borne by consumers through higher prices, fewer jobs and reduced economic activity.

“This will add to the country’s economic woes and lead to … corruption.”

When the central bank printed money in the 1970s Sri Lanka’s economy was closed and widespread corruption of the public sector began due to licenses while price controls triggered black markets.

Licensing tends to trigger smuggling and corruption of customs authorities, in addition to the capturing of issuing authorities themselves, critics say.

Meanwhile current import restrictions and tariffs have created so-called import substitution oligarchs who exploit consumers to make super-normal profits or ‘rents’, critics say.

Advocata said import restrictions have reduced competition and hurt small businesses and consumers.

“Import restrictions have caused market power to become concentrated among a few players in the supply of commodities such as tiles, rice, maize etc allowing them to enjoy supernormal profits, to the detriment of SME’s and consumers,” the think tank said.

Import restrictions will eventually hurt exporters by raising costs overall.

Sri Lanka has attempted to shift to a floating regime from a peg which had lost credibility due to liquidity injections but the float has not yet succeeded and more money has been printed in March, perpetuating forex shortages.

In Sri Lanka trade deficit are thought be a ‘problem’. However foreign exchange earned from services exports including remittances, as well as government projects funded with foreign loans triggers are trade deficit, but does not create balance of payments problems.

Balance of payments problems, including forex shortages and reserve losses are due to printing money to maintain a fixed policy rate, while trying to maintain a fixed exchange rate as well. (Colombo/Mar23/2022)

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Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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