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Sunday December 4th, 2022

Sri Lanka insurers escape Covid mortality but hit by central bank fallout

ECONOMYNEXT – Sri Lanka’s insurers have so far not been hit by Coronavirus mortality or healthcare costs unlike other countries but import controls will hit insurance growth due to controls on vehicle imports, while currency depreciation will also push up claims costs, a ratings analyst said.

Rishikesh Sivakumar, Senior Analyst Fitch Ratings, said Sri Lanka’s insurance companies have not seen claims from mortality rise unlike in other countries.

No Covid Claims

Nor have health claims come, with all cases being treated at state hospitals.

Sri Lanka has seen only 09 deaths in the Coronavirus crises.

Sri Lanka has been aggressively contact tracing and quarantining Coronavirus cases having completely ended the first Wave from China in January along with Vietnam and Cambodia.

Sri Lanka started to quarantine Second Wave arrivals from March, but there was a surge of domestic cases linked to Navy due to an initial reluctance to test frontline workers and random community test which allowed asymptomatic cases to grow.

Of the 900 cases about half are from the military. Most of the military contacts have also been rounded up. Amid random community testing which started two weeks ago, no new cases have turned up.

Vietnam has already opened the country, but Sri Lanka is still watching Colombo and Gampaha where most of the cases turned up.

But Sri Lanka’s economy has been hit by monetary instability and also uncertain fiscal policy after a steep tax cut in January.

Hit from Monetary Instability

Sri Lanka’s central bank also cut rates and printed money from just before the crisis hit, despite worsening deficits, de-stabilizing the rupee, which fell to 200 to the US dollar at one point.

The central bank then tightened exchange controls and then authorities also slapped 1970s era trade controls. Ministers told the public to grow kollu (horsegram).

Coronavirus curfews have led to fall in domestic consumption and private credit is also expected to slow to low single digits.

When private credit is weak, the rupee tends to stabilize, printed money is not loaned out by banks to create excess demand and pressure the rupee.

However there is still the risk that pressure will come from state salaries and expenses financed with printed money as deficits expands, analysts say.

Meanwhile Sivakumar said import controls will slow the growth of insurance market.

While the lockdown is in progress, accident claims may also fall, he said. But the falling rupee will hit claims negatively in the future.

The rupee is now at around 189 to the US dollar from around 182 before money printing began. A weaker rupee will also push up spare parts and repair costs, Sivakumar said.

In Sri Lanka insurance sector growth is sensitive to downturns unlike in some other Asian markets where insurance is not considered a discretionary item but essential, Sivakumar said.

Lower interest rate in 2020 could also hit profits of insurers. With stock market down, insurers will also be hit on their portfolios.

Sri Lanka’s stocks were already hit last year after the rupee collapsed and domestic consumption was hit, leading to bad loans in banks. Analysts had warned in 2018 that monetary policy errors would lead to instability just as the economy recovered.

Fitch had already downgrade state-run Sri Lanka Insurance after the soveriegn rating was cut.

Analysts had warned that a downgrades were inevitable unless the central bank was reformed to and its ability to generate monetary instability was blocked.

Sri Lanka is recovering, Central Bank threat looms: Bellwether

Sri Lanka needs monetary discipline to avoid further downgrades: Bellwether

Analysts and classical economists have called for the reform of the central bank, to stop currency depreciation and monetary instability which had held the country back from 1951. (Colombo/May15/2020)

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Paris Club proposes 10-year moratorium on Sri Lanka debt, 15 years of debt restructuring

ECONOMYNEXT — The Paris Club group of creditor nations has proposed a 10-year debt moratorium on Sri Lankan debt and 15 years of debt restructuring as a formula to resolve the island nation’s prevailing currency crisis, India’s The Hindustan Times reported.

While the Paris Club has yet to formally reach out to India and China, Colombo has yet to initiate a formal dialogue with the Xi Jinping regime, the newspaper reported on Saturday December 03, inferring that the chances of the International Monetary Fund (IMF) approving its 2.9 billion dollar extended fund facility for Sri Lanka in December now ranges from very low to nonexistent.

“This means that Sri Lanka will have to wait for the March IMF meeting of the IMF before any aid is extended by the Bretton Woods institution,” the newspaper reported.

“Fact is that for Sri Lanka to revive, creditors will have to take a huge hair cut with Paris Club clearly hinting that global south should also take the same cut as global north notwithstanding the inequitable distribution of wealth. In the meantime, as Colombo is still to get its act together and initiate a dialogue and debt reconciliation with China, it will need bridge funding to sustain the next three month before the IMF executive board meeting in March 2023. Clearly, things will get much worse for Sri Lanka before they get any better—both economically and politically,” the report said. (Colombo/Dec04/2022)

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Sri Lanka’s Ceylon tea prices up amid low volumes

ECONOMYNEXT – Sri Lanka tea prices picked up at the last auction in November amid low volumes, brokers said.

“Auction offerings continued to record a further decline and totalled 4.2 million Kilograms, of which Ex-Estate offerings comprised of 0.6 million Kilograms. There was good demand,” Forbes and Walker Tea brokers said.

“In the Ex-Estate catalogues, overall quality of teas showed no appreciable change. Here again, there was good demand in the backdrop of extremely low volumes.”

High Growns

BOP Best Westerns were firm to 50 rupees per kg dearer. Below best and plainer types were Rs.50/- per kg easier on last.

Nuwara Eliya’s were firm.

BOPF Best Westerns were firm to selectively dearer. Below best and plainer teas declined by 50 rupees per kg.

Uva/Uda Pussellawas’ were generally firm and price variances were often reflective of quality with the exception of Select Best Uva BOPF’s which were firm and up to 50 rupees per kilogram dearer.

CTC teas, in general, were mostly firm.

“Most regular buyers were active, with perhaps a slightly more forceful trend from the local trade,” brokers said.

Corresponding OP1’s met with improved demand. Well-made OP/OPA’s in general were fully firm, whilst the Below Best varieties and poorer sorts met with improved demand. PEK/PEK1’s, in general, were fully firm to selectively dearer.

In the Tippy catalogues, well-made FBOP/FF1’s sold around last levels, whilst the cleaner Below Best and cleaner teas at the bottom appreciated. Balance too were dearer to a lesser extent.

In the Premium catalogues, very Tippy teas continued to attract good demand. Best were firm to selectively dearer, whilst the Below Best and cleaner teas at the bottom appreciated

Low Growns

Low Growns comprised 1.8 million Kilograms. Market met with improved demand, in general.

In the Leafy & Semi Leafy catalogues, select Best BOP1/OP1’s were fully firm, whilst the Below Best/bolder BOP1’s were barely steady.

Low-grown teas, farmed mainly by smallholders and exported to the Middle East and Central Asia, are the most sought-after and expensive Ceylon Teas.

Low-grown CTC prices have gained this week to 982.80 per kilogram this week from 934.76 per kilogram last week.

Few Select best BOP1s maintained, whilst best and below best were irregularly lower. Poorer types maintained.

BOPF’s in general, firm market.

FBOPF/FBOPF1’s select best and best increased in value, whilst the below best and bottom held firm.

Selected best BOP1’s maintained, whilst best and below best were irregularly lower.Poorer types maintained.

OP1’s selects best together with best and below best were firm to dearer. Poorer sorts were fully firm.

Medium Growns

BOPF’s, select best gained by 50 rupees per kilogram. Others maintained.

BOP1’s select best dearer by 100 rupees per kg whilst all others moved up by 50 rupees per kg.

OP1: select best gained by 100 rupees per kg whilst all others dearer by 100 rupees per kg.

OP/OPA’s in general, dearer by 50 rupees per kg whilst the poorer sorts were firm.

PEK’s Select best gained by 50 rupees per kg whilst all others maintained. PEK1: In general, dearer by 50 rupees per kg. (Colombo/Dec 04/2022)



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Sri Lanka Ports Authority East Terminal contractor paid: Minister

ECONOMYNEXT – Sri Lanka’s Ports Authority had paid a deposit for a gantry crane and made the required payment for the contractor to complete building the East Container Terminal, Minister Nimal Siripala De Silva said.

The East Container Terminal, a part of which is already built is being completed as a fully SLPA owned terminal at a cost of 480 million dollars Ports and Shipping Minister de Silva said.

“ECT we are funding with money available in the ports authority,” he said.

“Up to now we have paid an advance for the gantry crane. And for the construction we have paid all the money agreed with the contractor. So that is going on well.”

Sri Lanka is undergoing the worst currency crisis in the history of the island’s soft-pegged (flexible exchange rate) central bank which has created difficulties in funding the project.

“Every penny we collect as dollars we are keeping them separately and utilizing that for the Eastern Terminal work,” Minister de Silva said.

“We are confident that the ECT will be completed within the envisaged time. It is a difficult task in view of the dollar problem.

Banks were also not releasing the dollar deposits of the SLPA earlier but are now doing so, he said.

“Our deposits in banks they have utilized for urgent other national purposes,” he said.

“So they are releasing that money slowly. I am happy that they are releasing that money little by little. So with that we will be able to manage that.”

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