An Echelon Media Company
Thursday August 18th, 2022

Sri Lanka inks US$251mn tea for oil debt deal with Iran

ECONOMYNEXT – Sri Lanka had inked a deal to set off export of tea to Iran against a legacy oil credit owed by state-run Ceylon Petroleum Corporation to the National Iranian Oil Company, without busting US sanctions, the island’s Ministry of Plantations Industries said.

Sri Lanka was unable to settle the credit after US sanctions barred dealings with Iranian banks.

Each month Sri Lanka’s Treasury will release 5 million dollar equivalent in rupees to the Sri Lanka Tea Board, a state-run industry regulator and promotion office.

The Tea Board will then pay individual exporters in rupee at the central bank exchange rate.

“This scheme will not violate any UN or US sanctions since tea has been categorized as a food item under humanitarian grounds while none of the black listed Iranian Banks will be involved in the equation,” Sri Lanka’s Plantation Ministry said in a statement.

“Since the Iranian authorities have been repeatedly highlighting the importance of the early settlement of the debt, this scheme will enable the Ministry of Finance to make the settlement in local currency through trenches of USD 5 million equivalents.”

The deal will neither bring foreign exchange to the country and non will go out, the ministry said.

Sri Lanka is in the midst of a severe balance of payments crisis after record money printing to keep interest rates down.

Sri Lanka usually gets oil credits from friendly countries whenever the central bank prints money, and forces the state-run CPC to run an unhedged forex position. The oil loans then generate massive losses as the currency collapses.

The credit lines also worsens the ‘current account deficit’ which is then conveniently blamed for currency crises in a Mercantilist knee jerk reactions, analysts have said.

The MoU was signed by Ramesh Pathirana, Minister Plantation of Sri Lanka and Alireza
Paymanpak, Deputy Minister of Industry, Mine and Trade of Islamic Republic of Iran in Colombo on Tuesday, the Plantation Ministry said in a statement.

Sri Lanka had exported 14.5 million US dollars of tea to Iran up to November 2021, up 0.39 percent from a year earlier.

Sri Lanka’s Plantation MInistry said Ceylon Tea export to Iran had dropped from a peak of 38.42 million kilograms in 2013.

“Due to US sanctions imposed on Iran in November 2012 and with the absence of an accepted payment
mechanism through the banking system, Sri Lanka tea exporters found it difficult to receive the export
proceeds from Iranian buyers,” the ministry said.

“As at present the payments are usually channeled through intermediary countries and on many occasions export proceeds are received in installments incurring inordinate delays.”

“The additional US sanctions on Iran are creating further impediments for Sri Lanka to export tea to
that destination.”

Iran has been in discussion with Sri Lankan governments for a barter system – exchanging only goods and services without involving US dollars – to get over the problem of making payment to Iran banks.

The monthly payments from the Treasury will continue until the entire 251 million dollar debt is settled.

“The Sri Lanka Tea Board will establish a dedicated account to receive funds from the Ministry of Finance and disburse the same to tea exporters.” (Colombo/Dec21/2021)

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Sri Lanka stocks end steady after CB held policy rates steady; turnover slumps to over 2-wk low

ECONOMYNEXT – Sri Lanka stocks closed steady on Thursday (18) with turnover slumping to more than two-week low after the central bank held the key policy rates steady, dealers said.

The main All Share Price Index (ASPI) edged up 0.04% or 3.22 points to 8,910.57. On Tuesday, it fell from its highest
close since March 30.

“We saw the market stabilizing after slipping for the last two days on profit taking,” a top analyst said.

“But overall there was continued buying interest on the energy sector and in addition, we saw buying coming into the plantation-related stocks and their holding companies.”

There had been selling pressure on the banking sector, he said.

At the monthly policy review meeting held today, the central banks kept the rates unchanged.

Market analysts said investors have been looking for profit taking after the index gained nearly 2,000 points in the 12 consecutive sessions through Monday.

Investors, however, have been shifting from top liquid shares to energy and plantation sectors now, analysts said.

The market generated 2.72 billion rupees in turnover, its lowest since August 3 and less than this year’s average daily turnover of 3.13 billion rupees. This is also the lowest turnover in last nine sessions.

Sri Lanka has already declared sovereign debt default on April 12 this year and failed to pay its first sovereign debt in May amid a deepening economic crisis which later turned into a political crisis and led to a change in the president, cabinet, and government.

The more liquid S&P SL20 index ended 0.52% or 15.33 points up at 2,962.33.

Sri Lanka is facing its worst fuel and economic crisis in its post-independence era and the economy is
expected to contract 7 percent this year.

The main ASPI gained 15.2 percent in August so far after gaining 5.3 percent in July. It lost 9.3 percent in
June, 23 percent in April, and 14.5 percent in March.

The market index has lost 27.1 percent so far this year after being one of the world’s best stock markets
with an 80 percent return last year when large volumes of money were printed.

Net foreign inflow was 83 million rupees on Thursday, but the total net foreign outflow so far this year is 1.09 billion rupees.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

LOLC pushed the index up, closing 3.4 percent firmer at 589.3 rupees a share.

Sri Lanka Telecom closed 24.9 percent up at 42.2 rupees a share, and Dipped Products slipped 5.5
percent to 44.3 rupees. (Colombo/Aug17/2022)

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Sri Lanka rupee, yields in govt securities slightly changed

ECONOMYNEXT – Sri Lanka Central Bank’s guidance peg for interbank transactions weakened on Thursday (18) and yields in Treasury bonds picked up slightly while in T-bill edged down in dull trade after the central bank kept key monetary policy rates steady, dealers said.

On Thursday, before the market opened, the central bank held its key policy rates steady at 15.50 percent, while data showed market interest rates are close to twice the rate of them while private credit and imports falling as a consequence.

The central bank is injecting 740 billion rupees of overnight money to banks at 15.50 percent, which were originally injected mostly after reserves were sold for imports (or debt repayments) to artificially keep down rates (sterilized interventions), effectively engaging in monetary financing of imports.

The injections (sterilizing outflows) prevent the credit system from adjusting to the outflows and encourage unsustainable credit without deposits, which is the core problem with soft-pegged central banks, triggering a high rate and an economic slowdown later.

A bond maturing on 01. 06. 2025 closed at 27.90/28.00 percent, slightly up from 27.75/90 percent on Wednesday.

The three-months bill closed at 28.30/29.25 percent, down from 29.25/30 percent on Wednesday.

Sri Lanka’s central bank announced a guidance peg for interbank transactions weakened by one cent to 360.97 rupees against the US dollar on Thursday from 360.96 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 367.97 and 370.00 for small transactions.  (Colombo/ Aug 18/2022)

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Japan grants medical equipment worth 500-mn yen to Sri Lanka govt hospital

ECONOMYNEXT –  The  Japanese government has granted medical equipment worth 500 million Japanese yen to the Sri Jayawardenepura government hospital to improve the hospital’s treatment facilities under Japan’s Non-Project Grant Aid Programme.

A statement by the Department of External Resources said the grant was given in response to a request by Sri Lanka’s government.

Under the 500 million Japanese yen (approximately 1,265 million rupees) grant assistance, angio-CT machine, other radiology equipment, ophthalmic instruments, surgical instrument sets (stainless steel with satin finish), 15 dental units with accessories, liver transplant instrument sets, and a cardiac catheterization laboratory will be provided, a statement said on Thursday August 18.

Sri Lanka due to its worst economic crisis in its post-independence history is currently facing shortages of essential medicine, non-essential and lifesaving medicines pressuring the health sector to only attend to emergency cases to preserve available limited medicine stocks.

On Thursday at the policy rate announcement media briefing by the Central Bank of Sri Lanka (CBSL), Governor Nandalal Weerasinghe said, with the strict measures taken in the recent past, Sri Lanka is currently managing the limited forex income coming into the country to purchase essential goods such as fuel and medicine.

Sri Lanka has received various grants from several countries including China and India which gave a 200 million US dollar credit line to purchase medicine from India.

In June, Minister of Health Keheliya Rambukwella said there is no shortage of vital medicines in the country and all medicines will be restocked by August 2022. However, shortages of medicine aer still being reported in various hospitals islandwide.

“This improvement at the hospital will facilitate the enhancement of the quality of the care provided especially to the patients with non-communicable diseases while enabling high quality medical professional training to medical undergraduates and postgraduates from the National School of Nursing at the aculty of Medical Sciences of the University of Sri Jayawardenepura,” the External Resources Department statement said.

“This project will eventually assist the development of human resources of the health sector in Sri Lanka,” it said. (Colombo/Aug18/2022)

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