An Echelon Media Company
Wednesday June 7th, 2023

Sri Lanka needs quick bilateral creditor consent if IMF money is to come this year: Minister

ECONOMYNEXT – Sri Lanka is planning to have another meeting with creditors shortly after sessions with official and private creditors in Washington, State Minister for Finance Shehan Semasinghe said as the country tries to wrap a up deal with the International Monetary Fund.

IMF officials have asked Sri Lanka to complete prior actions under a staff level agreement early, he said.

A key requirement is to get assurance of debt restructuring from bilateral lenders, including China and India.

“If we are go get IMF funds this year we need to get bilateral creditor agreement by the beginning of next month,” Minister Semasinghe told parliament.

Sri Lanka’s delegation has met representatives of all official creditors in a common platform for the first time, and shared information on current economic situation and answered their queries.

“As part of the restructuring process the Sri Lanka delegation had a chance to meet all bilateral lenders on a common platform,” Minister Semansinghe said.

“We told the current economic situation, the financial situation and medium term middle term. We gave information on IMF support and economic reforms and main requirements.

“We hope to have another meeting and clarify more questions.”

Sri Lanka had also met Paris Club (representing Western lenders and Japan) officials, and committed to share more data and information, he said. India and China are non-Paris Club lenders.

In the case of Zambia, there was a delay with China giving debt restructuring assurances.

In the case of Sri Lanka, India and China are top lenders, but the tow geopolitical rivals.

President Ranil Wickremesinghe said he had talked with China’s Finance Minister. More consultations were expected after Chinese Communist Party congress ends.

The IMF has also urged Sri Lanka to complete prior actions under the program quickly, Minister Semasinghe said.

Prior actions include passing a budget for 2023 which will legitimize tax increases needed to raise revenues and reduce the budget deficit.

Sri Lanka also has to float the currency.

However the central bank in April hiked rates reducing private credit, and allowed government securities yield also to go up reducing the need to print money, the reason for forex shortages and balance of payments deficits in a pegged regime.

Sri Lanka has also raised utility tariffs and also imposed new taxes to reduce the deficit and domestic credit and money printing has largely reduced.

An approval of the IMF Executive Board for a deal will also unlock budget support loans from other lenders.

Sri Lanka has already requested the World Bank group not to consider Sri Lanka as a Middle Income country and give concessional lending, Semasinghe said. (Colombo/Oct10/2022)

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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 amid weak credit and better inflows.

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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SriLankan Airlines expects $50 mln profit in FY 2023/24 

ECONOMYNEXT – Sri Lanka’s loss making national carrier is aiming to earn a profit of 50 million US dollars, its Chief Executive Officer said, after it incurred a loss of nearly 500 million US dollars in the previous financial year.

“I think the outlook for next year is even stronger,” Richard Nuttall, CEO at SriLankan said in an interview with Channel News Asia.

“Assuming that the world stays the same in the year ahead, we expect Sri Lanka’s economy to rebound and tourism to come back, we are forecasting $50 million profit next year,” he said.

‘The Airlines incurred a whopping loss of 168.6 billion Sri Lanka rupees in the financial year 2021/22 ended in March 31, 2022, compared to the loss of 49.7 billion rupees in the previous year, the Sri Lankan has said in the past.

SriLankan Airlines is one of the 52 loss making state enterprises that the International Monetary Fund had recommended for restructuring. President Ranil Wickremesinghe’s government has been considering absorbing the cumulative losses of more than $1 billion and privatizing the national career.

Nuttall said though the currency depreciation did not have any impact on the profitability last year, the country’s short supply of jet fuel hurt the airline.

“So if you look at the year we just had, the year started with the economic challenges in the country in Sri Lanka. We had travel advisories. and the country ran out of jet fuel in July and August. I have never worked for an airline which does not have jet fuel in its home country before,” he said.

“So everything had to stop in India. We lost payload.” (Colombo/June 07/2023)

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