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Saturday April 20th, 2024

Sri Lanka over the worst, but system change needed: President

ECONOMYNEXT – Sri Lanka is over the worst of its latest currency crisis but is trailing behind other nations as the country approaches its 75th year as an independent nation, President Ranil Wickremesinghe has said.

“We are looking at the New Year 2023 after having undergone the bleakest of times, immense hardships, as well as the uncertainties and hopelessness of the last year,” President Wickremesinhe said in a New Year message.

“I understand the great burdens that are placed on all of us and the setbacks that a majority of us have suffered due to the country’s abject economic collapse.

“Yet I believe that we have already gone through the worst of these times.”

“I sincerely appreciate all of you who are committed to our country first and I thank you for your patience and courage as we took the critical, initial steps to stabilise the economy.”

Sri Lanka is currently in the midst of the worst currency crisis triggered by its 73-year old intermediate regime central bank which printed money for two years to artificially suppress rates

In 2022 it lost all its reserves collapsed the currency from 200 to 360 to the US dollar in a float botched with a surrender requirement.

Sri Lanka has had monetary instability ever since the intermediate regime or impossible trinity central bank was set up in 1950 in the style of Argentina’s central bank with extensive sterilization and money printing powers.

It has become the worst central bank in South Asia, and is now ahead of Pakistan.

Then central bank has allowed rates to go up in April 2022, to slow credit to restore external stability and perhaps prevent a Latin America style hyperinflationary blow off.

The government has imposed taxes on the people to maintain a large public service and military, even as real incomes have halved with prices rising steeply. Inflation hit 70 percent in 2022 after the currency collapse.

The rupee has been stabilized around 370 to the US dollar helped by negative private credit.

Sri Lanka is to celebrate its 75th year of independence from British Empire in February 2023, but the country has not done as well as other former members.

“Indeed, 2023 will be a critical year in which we plan to turn around the economy,” President Wickremesinghe said.

“2023 is also the 75th year of independence from the British Empire. Looking back, it is obvious that we have not done as well as other ex-colonies.

“This is why the youth of our country are calling for a system change – especially at this juncture. This cannot be ignored.

“Therefore, we must boldly implement the proposed social, economic and political reforms to build a prosperous and productive Sri Lanka in the coming decade.”

One system that will not change however is the intermediate regime (flexible exchange rate) central bank which triggered three currency crises in quick succession in the process of operating a ‘flexible’ inflation targeting, according to critics.

Sri Lanka’s progressively closed its post-independent economy after setting up the soft-pegged (intermediate regime or flexible exchange rate) central bank with economic bureaucrats making politicians to exchange and import control laws instead of curbing the liquidity operations of the central bank.

As a result, most post-independent economic frameworks – except a few as in 2001 – have been based on monetary instability as a foundation.

Until about 1978 Sri Lanka followed a policy of imposing tight import and exchange controls after printing money.

After that the currency was allowed to depreciate in response to monetary policy errors according to the so-called BBC policy emanating from Washington based policy circles – now called a flexible exchange rate – leading high inflation, strikes and social unrest.

Sri Lanka’s central bank went to the International Monetary Fund 16 times. However with similar central bank policies the former imperial power UK also went to the IMF and had to impose exchange controls, which were in place for 70 years.

Sri Lanka is to institutionalize the flexible exchange rate, where a reserve collecting peg is bombarded with floating rate style monetary policy with a high inflation target (perhaps 5-6 percent) until it collapses. (Colombo/Jan01/2022)

Comments (2)

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  1. Jagath Wijesooriya says:

    Is that why you are hanging on with and trying to protect, the corrupt Thug mafia and pohhotuwa party politicians?

  2. Cedric Fernando says:

    What comment can one leave when a gun is placed on your head from complaining.

    We need Veera Puran Appu people to save our country from all these useless directors in place..

    Happy has to be taken out and replaced with HOPE NEW YEAR

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Comments (2)

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Your email address will not be published. Required fields are marked *

  1. Jagath Wijesooriya says:

    Is that why you are hanging on with and trying to protect, the corrupt Thug mafia and pohhotuwa party politicians?

  2. Cedric Fernando says:

    What comment can one leave when a gun is placed on your head from complaining.

    We need Veera Puran Appu people to save our country from all these useless directors in place..

    Happy has to be taken out and replaced with HOPE NEW YEAR

Sri Lanka discussing giving extra land, water for Chinese oil refinery

ECONOMYNEXT – Sri Lanka is in discussions with China’s Sinopec to give extra land and assure water supplies after the company decided to expand the capacity of a planned oil refinery in Hambantota, Energy Minister Kanchana Wijesekera said.

“There are concerns on how the water supply is going to be provided for the refinery,” Minister Wijesekera told reporters Friday.

The refinery will need more land and also revise conditions in a Board of Investment agreement, he said.

Read more
Sinopec to double capacity of new refinery in Sri Lanka’s Hambantota

Recommendations and decisions from Sri Lanka’s side had already been sent and Sinopec is expected to revert back in May.

“We are hoping to sign the agreement once everyone has agreed,” Wijesekara said.

The principle agreements are expected to be signed by June, he said.

The refinery could sell up to 10 percent of its output in the domestic market.

“There is no commitment by the government to purchase anything,” Minister Wijesekera said. (Colombo/Apr19/2024)

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Sri Lanka rupee closes weaker at 302.00/50 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 302.00/50 to the US dollar in the spot forex market on Friday, down from 301.50/302.00 a day earlier, dealers said.

There was increased demand for dollars after the central bank bought 715 million dollars from forex markets. In the previous two months it was buying on average about 200 million US dollars, leaving market participants and bank in a ‘oversold’ position.

There were some official dollars sales Friday dealers said.

READ Sri Lanka rupee quoted wide to US dollar as peg inconsistencies flare up

Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed at 11.30/40 percent down from 11.35/40 percent.

A bond maturing on 15.09.2027 closed at 11.95/12.05 percent up from 11.90/12.05 percent.

A bond maturing on 15.12.2028 closed stable at 12.15/25 percent.

A bond maturing on 15.09.2029 closed stable at 12.30/40 percent.

A bond maturing on 01.10.2032 closed stable at 12.40/50 percent. (Colombo/Apr19/2024)

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Sri Lanka stocks close down, banks trade down

ECONOMYNEXT – The Colombo Stock Exchange closed down on Friday, data on its site showed.

The broader All Share Index closed down 0.38 percent, or 44.80 points, at 11,753; while the S&P SL20 Index closed down 0.53 percent, or 18.46 points, at 3,456.

Turnover was at 1.4 billion. The diversified financials (Rs366mn) and banks (Rs266mn) sectors continued to see selling pressure.

“This was possibly due to uncertainty around the bond discussions,” market participants said.

With the exception of Sampath Bank Plc (up at 77.50) all other banks traded down in the day. Commercial Bank of Ceylon Plc was down at 104.50, Hatton National Bank Plc was down at 188.50, and DFCC Bank Plc was down at 77.00.

LOLC Finance Plc saw the most trades and closed up at 6.40. Another LOLC company, Browns Investments Plc, also saw high traded volumes and closed up at 5.60.

Softlogic Capital Plc was up at 7.00, and Softlogic Holdings Plc was up at 11.20. A trading suspension imposed on SHL.N0000 was lifted effective today as the company submitted the annual report for the year ended 31st March 2023.

However, shares of the Company will remain in the Watch List “due to Qualified Audit Opinion and Emphasis of matter on going concern in the Independent Auditor’s Report in the Audited Financial Statements for the year ended 31st March 2022.”

Dialog Axiata Plc, which announced its merger with Bharti Airtel Thursday, saw its share price close up at 11.90.

“There was some traction on index heavyweights,” market participants pointed out.

Top contributors to the APSI included Aitken Spence Plc (up at 134.50), Ceylon Tobacco Company Plc (up at 1,245.25, and Lion Brewery (Ceylon) Plc (up at 1,048.50).

There was a net foreign inflow of 5 million. (Colombo/Apr19/2024)

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