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Thursday December 1st, 2022

Sri Lanka imports surge to US$2.2bn in Dec 2021 after reserves sales

ECONOMYNEXT – Sri Lanka’s imports are estimated to have soared to 2.2 billion US dollars in December 2021, central bank said amid sterilized forex sales to maintain a policy rate of 6.0 percent as inflation urged to 12.1 percent.

The central bank said December 2021 imports are estimated to have risen to 2.2 billion US dollars, up from a pre-Covid 1.7 billion US dollars in 2019 and 1.5 billion dollars in 2020, when private credit was negative till July.

Up to October 2020 imports have averaged around 1.6 to 1.7 billion US dollars.

Sri Lanka has been hit by balance of payments deficit as money was printed to create outflows greater than inflows from the beginning of 2020.

In a knee jerk Mercantilist reaction Sri Lanka imposed controls including in cars which bring taxes in excess of 200 percent for every dollar spent but promoted investment and consumption with low interest rates and money printing.

Such controls have been imposed in previous money printing episodes.

Some iport controls to allow so-called import substitution ‘cronies’ to arbitrage taxes that would have otherwise gone the government are also in place.

“Sri Lanka has not placed restrictions on imports other than vehicles, tiles and gold rest of the imports are allowed,” Ajith Nivard Cabral, Sri Lanka Central Bank Governor said at the policy review meeting held on Thursday (20)

“That’s why we are seeing an excess import of certain items that are not considered essentials as a result of which some of the essential items were in containers that got stuck.”

Sri Lanka’s low interest rates have spurred private credit and the government is also building roads which transfers money to contractors.

Sri Lanka’s central bank in December and January gave 664 million dollars in reserves.

When monetary reserves are given for imports at a given exchange rate peg, an equal amount of rupees are injected in order to fixe interest rates, pushing credit and imports up in a vicious cycle when an economic activities are strong.

At a monetary policy meeting on January 19, Cabraal raised rates to 6.5 percent from the current 6.0 percent.

Remarkably earlier in January Mercantilists and some members of the business community called for reserves to be given for imports maintaining the peg.

However many businessmen had objected to pegging earlier, calling for the exchange rate to float(suspension of reserve sales).

Any reserve sale is accompanied by a shrinking of reserve money and tightening of credit to maintain a pegged regime. In floating regime there are no reserve sales.

Full year imports are estimated at 20.6 billion US dollars.In the money printing year of 2018, imports rose to 22.2 billion US dollars with tourism inflows.

Meanwhile Governor Cabraal said banks are being asked to prioritize fuel and essential foods when allocating dollars.

In October out of 1.7 billion US dollars of imports, food and beverages were 97 million dollars down from 124 million last year, wheat and maize were 70 million up from 40 million a year earlier.

But machinery and equipment were 205 million US dollars and building materials were 103.7 million US dollars. Fuels were at 385 million US dollars.

Meanwhile Sri Lanka’s President Gotabaya Rajapaksa told parliament on January 18 said after he took over the administration he had banned 16 items including green gram, cowpea, turmeric and ginger to give profits to local producers.

Many importers say their containers stuck at the port due to a lack of dollars in the market therefore imports are being delayed arriving in the country.

Some including intermediate goods importers for export sectors are also finding it difficult to get dollars. (Colombo/Jan20/2021)

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Sri Lanka China-backed port to welcome second cruise ship

ECONOMYNEXT – Sri Lanka’s China-backed Hambantota Port said it was getting ready to welcome MV Azamara Quest, a cruise ship, as another passenger vessel departed.

Mein Schiff 5, operated by TUI had departed Hambantota International Port for Pulau Penang Island, Malaysia on November.

“As well as being her maiden call at the port, Mein Schiff 5 is the first passenger cruise ship to call at the port since the pandemic began,” said Johnson Liu, CEO of Hambantota International Port Group (HIPG) said in a statement.

“It was undoubtedly a great boost for the tourist economy in the south when the vessel called at the Hambantota International Port.”

Mein Schiff 5’s passengers had also visited the Bundala National Park, Hambantota Botanical Gardens, Galle and Kataragama.

Passengers had explored Hambantota by tuk-tuk, while others had enjoyed the beaches in the Shangri La Hotel, the port said.

MV Azamara Quest will arrive in Hambanota on on December 05. (Colombo/Dec01/2022)

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Sri Lanka’s shares gain in mid market trade

EXONOMYNEXT- Sri Lanka’s shares gained in mid market trade on Thursday (1), pushed up by strong positive sentiments on interest rates easing in line with inflation and speculation on government to hold talks with multilateral creditors ADB and World Bank for a possible loan facility.

Market has continued to gain for the past four sessions.

“Shares were moving on positive strong sentiments flowing in from yesterday (30), we are seeing a rally in the hotels, while the retail favorites such as LIOC and Expolanka,” analysts said.

Positive investor sentiments have been established, from positive comments from the Governor of the Central Bank over market rates eventually seeing an ease despite the fears of a domestic debt restructuring as inflation falls, increased liquidity in dollar markets, and the inter-bank liquidity improves.

Analysts further stated that, Treasury related stocks are also activated due to downward movements in yield.

All Share Price Index (ASPI) gained by 1.4 percent or 123.41 points to 8,774.64, while the most liquid share gained by 1.31% or 35.68 points to 2,765.

The market generated a turnover of 1.6 billion rupees at 1130 hours. (Colombo/Dec1/2022)

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Sri Lanka electricity losses from overpriced fuel, no tariff hike considered: regulator

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board’s high operating costs are partly due to excessive prices paid for fuel and no tariff hike is being considered, Chairman of the Public Utilities Commission of Sri Lanka, Janaka Ratnayake said.

The CEB itself does not buy fuel but depends on state-run Ceylon Petroleum Corporation and Lanka Coal, another state firm to buy fuel. Both firms are periodically caught in procurement scandals.

“They are paying about 385 plus rupees per litre for furnace oil,” Ratnayaka told EconomyNext.

“That is too much. From the global market we can buy it to much lower price. It can be imported below 200 rupees,”

“I ask the government to take the necessary steps to create a system to import furnace oil, like they did for fuel, to be imported at the lower price levels. If that happens, we can go without going for a price hike.”

Sri Lanka’s CEB generally gets furnace oil and residual oil from the domestic refinery and usually do not import furnace oil.

The refinery however is not regularly operating due to inability to get crude amidst the worst currency crisis in the history of the island’s intermediate regime central bank.

Ratnayake had earlier brought to light import costs of the CPC.

Pushing for operations efficiency of the CEB is a role of the regulator. Regulating costs based on global benchmark prices to push for procurement efficiencies is a standard practice. However the PUCSL is not the official regulator of the petroleum sector.

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Sri Lanka power tariff revisions sought in Jan and July: Minister

Power and Energy Minister Kanchana Wijesekera told parliament that cabinet approval was sought to twice yearly tariff hikes in January and July of each year.

No Electricity tariff hikes are being considered yet, Ratnayake said.

Wijesekera blamed the regulator as well as successive administrations for not regularly revising power prices and pushing the sector into crisis.

In Sri Lanka activists had also blocked cheap coal power. (Colombo/Dec01/2022)

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