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Sunday June 23rd, 2024

Sri Lanka paying highest ever price for oil in depreciated rupees: Minister

ECONOMYNEXT – Sri Lanka is currently facing its highest ever crude oil price in the local currency because of a steep depreciation in the rupee, Energy Minister Udaya Gammanpila said, though global prices are below the level when the Fed’s housing bubble collapsed in 2008.

The global crude oil price was at 95 US dollars per barrel as of February 16 in the current bubble fired by Fed Chief Jerome Powell, much lower than the record price of 147 US dollars fetched in May 2008 amid the Bernanke-Greenspan bubble which collapsed shortly after.

However, Minister Gammanpila said Sri Lanka is already facing its historically highest price.

“When the global crude price was at 147 US dollar per barrel in 2008, our rupee was 108 per dollar. So we paid only 15,876 rupees per barrel of crude at that time,” he told a media briefing on Friday (18).”

“However, now the rupee is 203 to dollar and the crude price is 95 US dollar per barrel. As a result, now we have to pay 19,285 rupees. This is the highest ever price.”

Sri Lanka rupee has collapsed in a series of currency crises in 2012 (to 131), 2015/2016 (to 151), 2018 (182) as the central bank printed money to control short term interest rates and ‘stimulate’ the economy.

The rupee is facing downward pressure in the latest currency crisis, which is still ongoing. The rupee has is now around 202 to the US dollar and parallel exchange rates are around 248 rupees.

Countries with untamed central banks like Pakistan and Sri Lanka face ever depreciating currencies, ever rising fuel and electricity prices, as well as ever rising debt, when the ruling class tries to deceive the public by not market pricing energy to reflect global prices and central bank depreciation.

So-called ‘circular debt also expands between the petroleum utility and the power utility and between the power utility and independent power producers (IPPs) as the currency is depreciated from money printing and prices are controlled.

Sri Lanka and Pakistan central banks have also among the highest reported inflation in Asia.

In sharp contrast Singapore has now started to appreciate its currency to ward off inflation generated by the Federal Reserve and European Central Bank which was misled by modern monetary theory and Keynesian ‘stimulus’ dogma.

In 2008 June, when Brent crude hit 138 US dollars a barrel, it was worth 181 Singapore dollars and 14,261 Sri Lanka central bank rupees.

By January 2022, when a Brent crude barrel hit 83 dollars, it is measured in 135 Monetary Authority of Singapore dollars.

In Central Bank of Sri Lanka rupees the same Brent barrel has to be bought at 17,000.

Singapore resisted setting up a money printing central bank based on Anglo-US stimulus dogma.

Sri Lanka is now in serious economic trouble with looming sovereign default after printing money (expanding central bank credit) to create a ‘production economy’.

“The way to a better life was through hard work, first in schools, then in universities or polytechnics and then on the job in the work place,” Singapore’s first Finance Minister Goh Keng Swee has said.

“Diligence, education and skills will create wealth, not Central Bank credit.

“There was no effective way of exchange control in an open trading economy like ours to deal with the inevitable balance of payments troubles.

“Hence, we were not impressed by claims — excessive as they turned out to be — that government could bring about prosperity through spending. It did not surprise us that the Anglo-Saxon countries which adopted such policies got into trouble.

“We also noted that the Germans and Japanese did not believe they could “spend their way to prosperity”, as the phrase went. Like Singaporeans, they set store on diligence, education and skills.”

Keynesian dogma became fashionable especially after the Federal Reserve printed money and created the Great Depression.

Such teachings, a regurgitation of Mercantilist teachings of John Law among others, became the standard dogma in many UK and US universities going against 200 years of classical economic theory.

“When nearly two-thirds of our citizens’ expenditure is spent on imported goods, a strong Singapore Dollar helps to keep consumer prices down,” Goh said.

“…[W]e wanted to indicate to academics, both local and foreign; that what is fashionable in the West is not necessarily good for Singapore. A perceptive mind is needed to distinguish the peripheral form the fundamental, transient fads from permanent values.”

”…[I]n poor countries, punishment comes quickly in a cruel way — high rates of inflation, economic decline and political instability. These three factors reinforce each other in a way which makes escape from misery difficult.

RelatedSri Lanka struggles as Singapore further appreciates currency to counter inflation


Sri Lanka’s UNP pays the price for currency depreciation, REER targeting: Bellwether

During the last Yahapalana administration the rupee was deliberately busted to target a real effective exchange rate (REER) based on Mercantilist dogma to supposed to get trade advantages at the expense of society, while Singapore targets a nominal effective exchange rate (NEER) to keep inflation down.

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India supports Sri Lanka Coast Guard to boost maritime security

ECONOMYNEXT – India has given 1.2 million US dollars’ worth spare parts to Sri Lanka’s Coast Guard to be used in a vessel also gifted to the Indian Ocean Island on an earlier occasion, the Indian High Commission in Colombo said.

“Handing over of the large consignment of spares symbolizes India’s commitment to support capability building towards addressing the shared challenges of Maritime Security in the region,” the Indian High Commission said

The spare parts were brought to Sri Lanka on the Indian Coast Guard Ship Sachet, an offshore patrol vessel that was on a two-day visit to the island.

The spares were formally handed over to the Sri Lanka Coast Guard Ship Suraksha which was gifted to Sri Lanka in October 2017 by India.

India has gifted spare parts for the ship in June 2021 and April 2022 and also provided assistance in refilling of Halon cylinders in January 2024. (Colombo/June23/2024)

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Sri Lanka Water Board makes profits, tax-payers inject Rs28bn

ECONOMYNEXT – Sri Lanka’s state-run National Water Supply and Drainage Board has made a profit of 5.2 billion rupees in the year to December 2023, after a tariff increase despite not getting money for 25 percent of its water it pumps out.

Total revenues went up to 61.8 billion rupees in 2023 from 35.4 billion rupees, a Finance Ministry report said.

Water revenue surged to 58.5 billion rupees from 33.1 billion rupees, cost of sales also went up to 32.8 billion rupees from 23.14 billion rupees, helping boost gross profits from 12.3 billion rupees to 29.0 billion rupees.

Finance costs surged to 14.9 billion rupees from 3.9 billion rupees,

NSWD reported net profits of 5.2 billion rupees for the year, against a loss of 2.7 billion rupees a year earlier.

The Treasury had given 28 billion rupees from tax payer money to settle loans.

During the Rajapaksa administration, macroeconomists who ran the Finance Ministry made state enterprises borrow money from banks through Treasury guarantees listing them as ‘contingent liabilities’, claiming they were ‘off balance sheet’.

The Road Development Authority, which had no revenues to speak of borrowed large amounts of money from banks which were listed as ‘contingent liabilities’ though they were a responsibility of the state from day one, allowing macroeconomists to understate both the budget deficit and national debt, critics say.

The water tariffs were raised by 81 percent after macroeconomists printed money to supress interest rates for flexible inflation targeting/potential output targeting. The currency collapsed after macroeconomists tried to float the rupee with a surrender rule in place.

Non-revenue water for which no money is collected was 25.2 percent. The agency was supposed to reduce non-revenue water. In some districts religious establishments are responsible for non-revenue water, according to an official who said it on condition of anonymity.

The water board is also unable to collect money from some services like common toilets for underserved communities. (Colombo/June23/2024 – Update II)

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Sri Lanka will expedite Indian projects: President

ECONOMYNEXT – Sri Lanka will expedite Indian-backed projects in the island, President Ranil Wickremesinghe told Indian business people after a visit by Indian External Affairs Minister S Jaishankar this week.

“I discussed with Prime Minister Modi the need to accelerate the joint program that we have decided, agreed on. So the major ones are identified, and Foreign Minister Jaishankar came down today [20] to have a discussion. Now this will show the new path we are taking,” president Ranil Wickremesinghe said.

“It won’t be individual projects. We’ve discussed a fair number of them. First is the grid interconnection between Sri Lanka and India, so that sustainable energy can be transmitted to India.

“We have the Sampur solar power project, which is a Government to Government (G2G) project, and a three island project, which is where we hope the ground breaking can take place in July,” he told Indian business people at the 31st All India Partner’s Meet 2024 (AIPM 2024), held at ICT Ratnadipa in Colombo.

The AIPM 2024 which was organised by KPGM Sri Lanka and India provided a platform for both countries to reaffirm their commitment to collaborative projects that promise to redefine bilateral relations and propel socio-economic growth.

“It’s a great pleasure and a privilege to have you in Sri Lanka, in Colombo, holding this meeting. It shows on one hand the close friendship that our two countries have, and on the other hand, the confidence that you have in Sri Lanka.

“Having now survived two difficult years, I must acknowledge that this was possible because India gave us a loan of $3.5 billion. All that will be repaid.”

Cooperation between the two nations needed to be enhanced, particularly in the energy sector, aiming to foster new development for the Northern region, Wickremesinghe said.

“We are looking at developing Palk Straight for wind energy and solar energy, both countries to get together and have a large farm for solar energy, for renewable energy. It also means that we will have a new economy for the northern province, which was worst affected by the war.”

Several Indian-backed projects in Sri Lanka have stalled due to protests from some parties, with some going to courts.

India is helping expand the Kankesanturai port, and is discussing development of the Palali and Colombo airports.

The National Livestock Development Board of Sri Lanka, in collaboration with India’s Amul Dairy Company, is involved in a project to enhance liquid milk production in the country.

The two nations are also considering establishing land connectivity.

Discussions have also taken place regarding expediting the Trincomalee Development Project, which encompasses industrial investment zones and tourist areas.

“Plans are underway to construct a multi-product oil pipeline from Nagapatnam to Trincomalee, pending the final observation report. Trincomalee is poised to become a hub for oil refining, with the development of ports and investment zones, transforming Trincomalee Port into a significant hub on the Bay of Bengal.

“Today, the entire East Coast is being opened up for tourism, with additional land earmarked for hotels in Galle and southern areas. Moreover, there are plans to establish more investment zones across the country, alongside expanding our professional training programs. In these endeavours, we are collaborating closely with India.” (Colombo/Jun22/2024)

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