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Thursday June 8th, 2023

Sri Lanka looking to mix organic, inorganic fertilizer in hopes of higher yield: minister

Paddy farmers are protected in Sri Lanka and provided free inputs including water and fertilizer. Source: FAO Photo.

ECONOMYNEXT – Sri Lanka is looking to increase productivity in agriculture by mixing organic and “chemical” (inorganic) fertilizer after a controversial decision to go organic-only was reversed late November, a cabinet spokesman said.

Finally rectifying a dragging and self-inflicted crisis brought about by the almost overnight decision in April 2021 to ban agrochemicals, the government last week formally decided to import agrochemials and sell it at unsubsidised market prices while continuing to promote organic agriculture.

Co- cabinet spokesman Ramesh Pathirana told reporters on Tuesday (30) that the government has permitted the agriculture ministry and the plantations ministry to import the quantities of chemical fertilizer needed for harvest.

“But the policy of the government is to give prominence to organic cultivation and organic fertilizer would be provided at a subsidized rate,” said Pathirana.

“But chemical fertilizer, once imported and made available in the market, will be sold at a market price. It will not be subsidised.

“We are very hopeful that a proper mixture of organic and chemical fertilizer will provide new impetus and a boost to productivity that will see production gradually go up.”

President Gotabaya Rajapaksa in April banned imports of agro chemicals claiming the move was based on his policy framework outlined in his 2019 election manifesto Vistas of Prosperity and Splendour.

President Rajapaksa before his election promised to provide fertilizer free of charge while in his policy manifesto said he would replace the existing fertilizer subsidy scheme with an alternative system while providing “both inorganic and organic fertilizer free of charge to farmers”.

However, cash-strapped Sri Lanka, which spends around 400 million US dollars annually on agrochemicals, stopped the imports of chemical fertilizer in April, which drew protests by farmers in various pockets of the country on a small scale. The protests soon went out of control when farmers were unable to get any fertilizer for the October Maha cultivation season.

The government resisted for two months, but finally caved in late November, allowing the import of agrochemicals.

Farmers have already complained about a drop in their yield in addition to deformed fruits and vegetables due to lack of pesticide and weedicide.

The government tried to import organic fertilizer from China and Nano fertilizer from India, but both moves were allegedly riddled with corruption. (Colombo/Nov30/2021)

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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