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Thursday March 23rd, 2023

Sri Lanka key current inflows exceed imports for fourth month in Sept

ECONOMYNEXT – Sri Lanka’s main current external inflows have exceeded import for the fourth straight month as tighter monetary policy led to private sector de-leveraging and state enterprises also cut credit funded losses through market pricing of sales.

In September imports exports and remittances were 1,438 million US dollars, 154 million US dollars more than the imports of 1,284 million US dollars.

In August imports were 1,486 million US dollars against the total of exports and remittances of 1,549 million US dollars.

In July the total of imports and remittances were 1,444 million US dollars, against imports of 1,287 million US dollars.

In June the total of exports and remittances were 1,522 million US dollars, outpacing imports of 1,226 million US dollars.

Since most private sector economic agents are net savers, credit has to be positive to turn all inflows into imports.

Loans to fill state energy enterprise losses, directly turn into imports.

In June the total of private and state enterprise credit turned to a negative of 61.4 million US dollars, in July it was a negative of 15.9 billion rupees, in August 113.1 rupees negative and in September 34.1 million rupees negative.

“Central Bank purchases of foreign exchange from commercial banks have been positive on a net basis for two months,” Udeeshan Jonas – Chief Strategist CAL Group, a Colombo based investment banks said.

“Now the balance of payments is starting to turn positive. Rates were hiked and interest rates are now high,”

“Energy is market priced, private credit has declined and taxes have also been raised to contain the deficit and monetary financing is coming down.

“Banks are also building back their net open positions, which were negative six months ago. The currency adjustment also helps in the short term.

“The combined improvement is reflecting in the trade balance. There have also been financial inflows in to the equity and debt markets. We can reasonably say there is an improvement in the current account also.”

If credit was strong, financial account inflows also turn into imports. However at the moment some banks, while building their NOPs are also repaying debt, which tends to contribute towards a current account surplus.

Foreign exchange shortages emerge when a soft-pegged central bank injects money through open market operations to suppress interest rates and fire credit with what classical economists called ‘fictitious capital’, pressuring the rupee.

Since ordinary people – or the government through its budget deficit – cannot print money, the central bank is the only agency that create forex shortages.

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar in 2022, after a two years of money printing by macro-economists to keep interest rates down and boost growth or target an output gap.

The International Monetary Fund in an extraordinary move gave technical support to Sri Lanka’s central bank, an intermediate regime agency which had printed money and gone for IMF bailouts 16 times earlier, to calculate an output gap, with predictable consequences.

Sri Lanka ran into consecutive currency crises from 2015 as money was printed under flexible inflation targeting, a aggressive soft-pegging strategy where floating rate style monetary policy is unleashed on a reserve collecting peg to mis-target rates under ‘data driven’ policy.

The policy errors is then compensated by depreciation (called a flexible exchange) and rates are hiked in a hurry, triggering an output shock and social unrest.

In 2019 after output shocks from two currency crises, taxes were also cut by economists who said there was a ‘persistent’ output gap (low growth) and historically large volumes of money were printed to stop rates from going up to finance the deficit. (Colombo/Nov06/2022)

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Sri Lanka establishes committee to investigate aircraft incidents

An aircraft lands at the Jaffna International Airport, which was opened in October 2019 and promises to push the tourism frontiers in Jaffna.

ECONOMYNEXT: Sri Lanka’s has established an expert committee under the state-run Civil Aviation Authority to investigate aircraft accidents and to implement precautionary methods in the Sri Lankan airspace, an Official said.

“Even if it is only one flight, there is a chance an accident may occur,” Civil Aviation Authority of Sri Lanka, Director General, P. A. Jayakantha said.

“This particular committee is there to investigate aircraft accidents and act as a mechanism to take over if something goes wrong”.

Sri Lanka has encountered around 2,700 minor aircraft accidents and incidents mostly on the ground in the 19 years through 2021, the CAA annual reports showed.

The new committee will analyze the past accidents and take precautionary measures while also conducting investigations and provide independent reports in the future, Jayakantha said.

The team is provided with required training and qualifications by the CAA along with an International organization, free of charge.

“Internationally also it is a requirement to have a team to investigate the aircraft accidents,” Jayakantha added.

“For a long time we have not fulfilled this requirement and that is why we established this team with the cabinet approval. Moreover, recently, Sri Lanka’s two aircrafts, one training aircraft and a commercial aircraft met an accident”

The committee will be on active duty, until the Accident Investigation Act is passed and a proper Aircraft Accident and Incident Investigation Bureau is established. (Colombo/ Mar23/2023)

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Sri Lanka bond yields steady, Rupee 319/325 at close

ECONOMYNEXT – Sri Lanka’s treasury bond yields closed steady on Thursday while rupee closed weaker, dealers said.

A 01.07.2025 bond closed at 30.60/31.00 percent on Tuesday, down from 30.25/75 percent on Wednesday.

A 15.09.2027 bond closed at 27.80/28.10 percent, steady from 27.90/28.00 percent from Wednesday.

Sri Lanka rupee closed at 319/325 against the US dollar depreciating from 318/320 from a day earlier. (Colombo/ March23/2023)

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Sri Lanka shares dive to two-week low on local debt restructuring fears

ECONOMYNEXT – The Sri Lanka market fell for a fourth session to a two-week low on Thursday, led by financials, as worries over domestic debt restructuring continued after the IMF loan was approved earlier this week resulting in investors adopting a wait-and-see approach until further clarity was provided, analysts said.

The main All Share Price Index (ASPI) closed down 1.38 percent or 131.07 points to 9,395.98, lowest since March 02.

Analysts said, majority of the banks have been on slower investment trends on fears of domestic debt restructuring after the IMF approval and waiting for more clarity on the local debt restructuring.

“The market is on muted sentiments despite the IMF loan being approved and is going through a period of consolidation,” Ranjan Ranatunga of First Capital Holdings said.

The market saw a net foreign outflow of 298 million rupees and the total offshore inflows recorded so far in 2023 to 3.3 billion rupees.

The most liquid index, S&P SL20, closed 1.64 percent, or 45.33 points, down at 2,722.94.

The market saw a turnover of 3.4 billion rupees on Thursday, above this year’s daily average of 1.8 billion rupees.

This is the highest turnover generated since March 08, which is when the market was driven off of positive sentiments from International Monetary Fund deal hope after Chinese assurances.

Top contributors to revenue was Agalawatte Plantations, on off board transactions of a stake change, contributing revenue of 1.6 billion rupees, Ranatunga said.

Top contributors to revenue industry wise was Food and Beverage and Telecommunications.

Sri Lanka Telecom has been seeing positive uptrends as the Secretary to the Treasury has informed the Board of Directors of Sri Lanka Telecom PLC (SLT) and Lanka Hospitals PLC that the Cabinet of Ministers has granted approval in principle for the divestment of the stakes held by the Treasury Secretary in the two companies.

Top losers were Sampath Bank, Hatton National Bank and Commercial Bank.

Sri Lanka is looking at options to re-structure domestic debt, or local law local currency debt (LLLC), without harming the banking sector and announce them the International Monetary Fund said in a report.

Banks have been witnessing profit taking and selling pressures after continuous uptrends prior to the IMF loan had been approved.

Analysts said, selling pressures is expected to ease as the IMF hopes to reduce inflationary pressures which will in turn lead to reductions in interest rates. (Colombo/Mar23/2023)

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