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Sunday April 14th, 2024

Sri Lanka injects Rs459bn from Feb 2020, spends US$1.3bn in forex reserves

ECONOMYNEXT – Sri Lanka’s central bank had injected 459 billion rupees in to banking system from late February to avoid selling government securities at market rates or for private credit and spent at least 1.3 billion US dollars in foreign reserves for current and debt payments, official data reveals.

The central bank has printed 227.4 billion rupees to finance the deficit (directly monetize debt) by avoiding bill or bond auctions in March and April and another 67.4 billion rupees to undermine bill auctions held and keep rates down.

The central bank also transferred 24 billion rupees in profits on February 26.

On March 13 central bank said it printed 50 billion rupees to give cash to the government ‘under exceptional circumstances’, in a lengthy statement detailing its actions after President Gotabaya Rajapaksa blamed the agency for not printing 150 billion rupees to re-finance private credit.

On March 13, another 50 billion rupees was printed for an ‘energy stabilization fund’, the central bank said.

The central bank also cut reserve ratios twice injecting 65 billion rupees in March and 115 billion rupees in June, a statement on the monetary authority’s recent actions shows.

SRR cuts while releasing liquidity and putting pressure on the currency, also takes away a structural problem in the banking system, lowering rates by increasing the efficiency of the banking system by allowing banks to lend more of their real deposits.

Many developing countries that set up soft-pegged central banks after World War II and printed money ended up with double digit SRRs as they tried to keep inflation adding to structurally high interest rates that come from chronic depreciation.

Sri Lanka slashed value added and other taxes after a new administration came into office in a ‘fiscal stimulus’ undermining state revenues, while the central bank followed up with pro-cyclical rate cuts and liquidity injections from late January, triggering monetary instability.

Injections from February to June totaled 459 billion rupees.

When loans are financed by central bank credit, a ‘foreign exchange shortage’ occurs in a pegged exchange rate regime, requiring interventions.

“Debt repayments of the government are usually settled using the government foreign reserves,” the central bank said.

“As the government could not raise adequate liquidity owing to the unprecedented adverse market conditions, the Central Bank continued to provide liquidity from the foreign reserves of the Central Bank since 08 April 2020.

Accordingly, during the period of 08 April to 22 June 2020, the Central Bank has settled US dollars 1,007 million of government debt utilising the Central Bank’s foreign reserves.”

“In order for the government to be able to buy enough foreign exchange from the market, it has to sell Treasury bills for real money through successful bond or bill auctions and reduce domestic debt or tax people to reduce their ability to consume or both,” says EN’s economic columnist Bellwether.

“Either way domestic consumption and imports are reduced.

“In countries like Sri Lanka which go to the IMF frequently there is classical economic illiteracy by definition, which results in forex shortages. Keynes also believed this. In Keynesian Mercantilism it is called the ‘transfer problem.”

“Classical economists like Bertil Ohlin tried to explain this but it is a difficult concept for anyone who believes in Mercantilism it is a difficult concept to grasp.

Singapore is now engaging in ‘stimulus’ using forex reserves directly instead of printing money and losing foreign reserves after generating monetary instability by expanding reserve money and triggering forex shortages.

That is also why Singapore avoided building a soft-pegged central bank after independence unlike many countries that became developing countries.”

“One way to try to understand this is to imagine that the economy is dollarized. While there can be sovereign default if the government is unable to sell domestic debt and raise cash (dollars) to settle foreign debt, it cannot result in a ‘forex shortage’ “, says Bellwether.

“That is why developing countries in Latin America and other countries with pegged exchange rates have to impose exchange and import controls attract downgrades and eventually default in foreign debt.”

The central bank had also sold at least 308 million US dollars in forex markets to stabilize the exchange rate after it fell close to 200 to the US dollar as market participants panicked and bank credit also soared in March amid liquidity injections.

In April private credit had fallen to low levels, data showed and the central bank bought dollars.

Known interventions totalled 1.3 billion US dollars or the equivalent of 244 billion rupees from currently available data. The central bank said it had also engaged in rupee/dollar swaps. At least 175 million in dollars had been provided by swaps, data showed.

The problem of printing money, forex shortages and difficulties making outward payments, is generally labeled the impossible trinity of monetary policy objectives by economists.

When pegged central bank prints money to keep rates down (independent monetary policy) it has to control forex flows to keep the currency from falling.

Information Minister Bandula Gunawardana said foreign exchange controls would be continued for another six months from July 02 to keep the exchange rate falling.


Sri Lanka to extend exchange controls for six months: Minister

According to published data, there was 209 billion rupees of excess liquidity remaining in money markets by June 25.

Sri Lanka’s economic problems from fiscal and monetary stimulus comes despite making Vietnam style gains in the battle against Coronavirus.

There have been calls to reform the central bank to stop monetary instability.

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LGBTQIA+ Rights: Europe and South Asia See Similar Discriminatory Practices

ECONOMYNEXT – The rights and protections of the LGBTQIA+ community have been fraught with challenges and continue to be so, despite the many gains achieved in recent years.

Nor are those handful of rights universally applied, a recent discussion which looked at the European and South Asian perspectives on same-sex rights and unions revealed. Most developed nations have introduced protections for those identifying as LGBTQIA+, and a view from a distant lens paints a picture of tolerance. Yet, a closer look at the European arena throws up the many gaps that are evident in the application of the law.

In the so-called conservative South Asian nations, changes to legislation are slow to be implemented. That may come as a surprise, for, contrary to popular belief, same-sex relationships were culturally acceptable in the South Asian region and is not a Western concept points out Ruhaan Joshi, a Public Policy Practitioner from India.

Society’s view on same-sex relationships dimmed with the imposition of Western values and the criminalisation of such relationships with the advent of colonial rule.

While the LGBTQIA+ communities in South Asian countries currently battle to have same-sex relationships decriminalised and their unions legally accepted, the irony is that countries that first made such relationships punishable by law have moved on to be more welcoming, though some discriminatory practices continue.

Joshi was part of a discussion themed ‘On Being Queer and LGBTQIA+ in South Asia and Europe, held in Germany on April 9 this year. The discussion which included the release of two papers which examined the rights and protections of the LGBTQIA+ community in Europe and South Asia, respectively, was organised by the Friedrich Naumann Foundation for Freedom.

Joining Joshi in the discussion were lawyer and parliamentarian Premnath C Dolawatte from Sri Lanka, Milosz Hodun, President, Projekt Polska Foundation, Poland, Michael Kauch, a Member of the European Parliament and RENEW Europe Group and Inaya Zarakhel, a Dutch-Pakistani actress and an activist on Queer Rights, who moderated the discussion. The two papers were presented by Hodun and Joshi, respectively.

In his opening remarks, Kauch pointed out that while the view of the liberals is that the rights recognized in one member nation of the EU must be accepted by all member countries, that is not the ground reality, the issue of Rainbow families being a case in point.

In the context of the European Union, though the Court of Justice has ruled on the freedom of movement of those in same-sex partnerships and their families, the ruling is not universally applied by member nations.

In Italy, and some European nations, surrogacy which helps childless couples to become parents is illegal. In other situations where same-sex parents are of different nationalities a child in that union faces restriction of movement or the possibility of being stateless if one parent hails from a country where such parental rights are not recognised.

Hodun meanwhile stated that in Poland transgender persons must first sue their parents for the gender assigned to them at birth, to have their gender marker changed on documents.

Some countries such as Russia and Azerbaijan resort to State-sponsored homophobia, and in many instances politicians and political parties promote such biases to boost their voter base it was pointed out. Even where laws are in place for the protection of LGBTQIA+ rights, there is no political will to implement them.

In Europe where migrants arrive in droves seeking asylum, and are frowned upon by many of those countries, LGBTQIA+ members face even more discrimination Hodun says, both by other refugees and governments, where most often the state ignores the situation despite the guidelines issued by the UN and the European Court of Justice. Hate speech and hate crimes too are on the rise he adds stating that at least 80 per cent go unreported.

Increasingly the LGBTQIA+ community has experienced a diminishing of their safe spaces as right-wing and populist governments are elected across the globe. Taking a dig at feminism, meanwhile, Kauch states that though feminists uphold a woman’s right to opt for an abortion, they take a different approach on the topic of surrogacy.

Dolawatte who waded into unchartered waters when he presented a Private Member’s Bill to decriminalise same-sex relationships through an amendment to section 365 of the Penal Code and the repealing of section 365A in its totality, is hopeful that the Bill will pass its third reading. It’s been an uphill battle he says, referring to the case filed in the Supreme Court against the Bill. The court ruled in his favour.

He had little or no support from his own party members, but says the President of the country, and younger party members are with him on this issue. Apart from making Sri Lanka a safe space, it would encourage foreign nationals identifying as LGBTQIA+ to visit without fear, and thus boost tourism he opines.

As Joshi states society has come a long way from when LGBTQIA+ were made fun of and were subject to violence to the positive portrayal in movies. Such movies are also well-received by society. Transgender identity has a distinct recognition in South Asian religious beliefs. Hijra, Khwaja Sara or Kinnar are some names given to transgender folk and they have, since ancient times been an accepted group in society. On the one hand, there’s Afghanistan and the Maldives which make no allowances for the LGBTQIA+ community, while Nepal became the first South Asian nation in 2023, to register a same-sex marriage, Joshi states. In most South Asian nations, the courts have ruled in favour of relaxing the rules against this community, and, like in Europe, it is the governments that drag their feet.

For governments to change their stance, society must take the lead in fighting for the unconditional dignity of the individual, freedom of movement, and safeguarding the tenets of democracy, he says adding that it must also run parallel with the LGBTQIA+ community looking beyond themselves at issues that impact democratic values, and the societal restrictions non-LGBTIQIA+ groups face, such as opposition to inter-caste marriage and the right to adopt outside their caste systems and equal access to many other privileges.

While the panellists advocated working together across the global divide as a step towards achieving equal rights for all, Dolawatte also called for caution; too much pressure on such issues from Europe he said may not be welcome, and must be handled with care.

With right-wing and populist governments getting elected across the globe, Kauch claims the forthcoming EU elections will prove crucial in deciding how future and current governments ensure tolerance and diversity amongst their citizenry.

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Sri Lanka making new economic laws to embed structural reforms

ECONOMYNEXT – Sri Lanka is making new laws and also revising old legislation following a comprehensive review of past experience and lessons learned, Treasury Secretary Mahinda Siriwardana has said.

Most of these new laws focus on structural changes of the existing executive and administrative structures, Siriwardana was quoted as saying in a speech to ministry officials on April 08.

The laws related to public finance, procurement, public private partnerships, state enterprises and also a law on the offshore economy.

The following new laws are being made:

a. Public Financial Management Bill
b. Public Debt Management Bill
c. Economic Transformation Bill
d. Management of State Owned Enterprises Law
e. Public Private Partnership (PPP) Law
f. Investment Law
g. Public Procurement Bill
h. Unified Labor Law Bill
i. Food Security Bill
j. Public Asset Management Bill
k. Microfinance and Credit Regulatory Authority Bill
l. Secured Transaction Bill
m.Offshore Economic Management Bill
n. New law for facilitating proposed agricultural land lease programme
Public Service Employment Bill
o. Sri Lanka Accounting and Standard Monitoring Act

Changes are planned to the following laws

a. Amendments to Agrarian Development Act
b. Amendments to Excise Ordinance
c. Amendments to Customs Ordinance
d. Amendments to Finance Act
e. Amendments to Foreign Exchange Act. Colombo/Apr15/2024)

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After PM’s Chinese visit, US NSA talks to Sri Lanka President’s advisor on peace, security

ECONOMYNEXT – The United States National Security Advisor (NSA) Jake Sullivan held talks with Sri Lanka President’s Senior Advisor on National Security Sagala Ratnayaka focusing on regional security issues this week.

The conversation between the two comes days after Sri Lanka Prime Minister Dinesh Gunawardena ended an official visit to China in which he met President Xi Jinping and his counterpart Li Qiang in Beijing amid discussions over further investments in Sri Lanka and concerns over banning Chinese research ships.

The United States along with India is highly concerned over increasing Chinese influence in Sri Lanka, which is located in a strategic location in the Asia.

China already owns a port and a proclaimed land next to the main Colombo port in Sri Lanka and analysts say the Beijing’s ownership of assets has raised doubts if China is planning to use Sri Lanka as a military base. China has denied this and said its relationship with Sri Lanka is only based on commercial aspects.

The discussion between Sullivan and Ratnayaka focused on a range of crucial topics aimed at bolstering bilateral relations between the two nations, the President’s Media Division (PMD) said.

“Central to their discussion was the unwavering U.S. commitment to supporting Sri Lanka’s security and sovereignty,” the PMD said in a statement.

“Acknowledging Sri Lanka’s ongoing endeavours, Sullivan emphasized the importance of completing the fiscal, monetary, and governance aspects of the IMF program.”

The US along with India has raised possible threats of increasing Chinese influence in Sri Lanka, government officials have said. Both  countries see China as a security threat to the Indian Ocean region, they say.

“The conversation also delved into future prospects for collaboration between the two countries, exploring avenues for enhanced cooperation in various spheres,” the PMD said.

“Sullivan conveyed his keen interest in fostering continued engagement with Sri Lanka, underscoring the mutual objective of advancing peace and security in the region.”

“This dialogue marks a pivotal moment in U.S.-Sri Lanka relations, demonstrating a shared commitment to promoting stability and prosperity in the Indo-Pacific region.” (Colombo/April 13/2024)

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