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Friday January 27th, 2023

Sri Lanka poverty has doubled to 25-pct in latest crisis: World Bank VP

ECONOMYNEXT – Sri Lanka’s poverty is estimated to have risen to 25 percent in 2022 from 13 percent World Banks’ Vice President for South Asia Region, Martin Raiser said as the country was hit by the worst currency crisis in the history of its intermediate regime central bank.

Sri Lanka’s rupee collapsed from 200 to 370 to the US dollar after two years of money printing by macro-economists to mis-target rates and push growth up (stimulus or output gap targeting).

The island’s 12-month inflation which shot up to around 70 percent is being contained with the exchange rate anchored for the moment at around 360-370 to the US dollar with a ‘guidance peg’ backed by mostly complementary monetary policy.

Poverty

“There are already now people in poverty,” Raiser told an economic forum organized by Sri Lanka’s Ceylon Chamber of Commerce.

“Poverty has doubled this year from 13 percent 2021 we estimate it is about 25 percent now.

“That is as large number of people that fall below what we would consider to be a threshold of poverty for a country like Sri Lanka.”

He did not specify the measure used, but there are definitions of income like one dollar a day or five dollars.

The people needed support but it had to be targeted, he said.

Sri Lanka has raised turnover and income taxes and is also planning some give some economic freedoms to the poor as well as non-poor consumers, by reducing import and other protection given to a few entrenched businesses.

Protection

Some of the businesses in the forum may be affected from reforms, Raiser said but if they became more competitive new jobs would be created giving a future to match the aspirations of young people.

“Sri Lanka ranks among the five most protected import markets in the world,” Raiser said.

“We know that the extent to which you are open to imports is the key factor in the competitiveness of your exports.”

In Sri Lanka no domestic business can hope to be export competitive. Firms in export zones however are allowed duty free imports. Services like information technology is mostly free from protection but forex transactions from credit cards are being taxed now to protect domestic taxi firms and some retailers.

Sri Lanka has got into forex troubles from shortly after a Latin America style central bank was set up in 1950 giving power to economists to print money to mis-target interest rates, leading to progressively draconian exchange and trade controls.

Import substitution and import replacement became catchwords to rob economic freedoms of the poor as macro-economists mis-used the central bank to mis-target rates and push central bank re-financed credit under ‘development economics’ and other then prevailing ideologies.

Though attempts were made to re-open the economy after 1978, from the 1980s in particular errors in mis-targeting rates were compensated by permanent depreciation (called basket band crawl policy or now a flexible exchange rate) leading to extended monetary instability, critics say.

A flexible exchange rate is neither a hard peg nor a clean float and leads to forex shortages and currency crises whenever rates are mistargeted even for a short term to target inflation (a domestic anchor) or for any other purpose (output).

Renewed monetary instability and serial currency crises was seen from 2015 under discretionary ‘flexible’ inflation targeting with the rupee falling from 131 to 182 up to 2018 and rest in the past two years in the current credit cycle.

Turkey

One of the countries Raiser worked in was Turkey. A ‘first world’ Empire that controlled a significant portion of Europe and the Middle East during the gold standard period, the country now has arguably the worst central bank in Europe.

“The country went through a major foreign exchange and banking crisis in 2000,” Raiser said.

“And it adjusted very rapidly. It shifted from an inward looking model and a banking sector that was heavily exposed the public sector.

“For the subsequent 10 years led to a tripling of the Turkish economy in US dollar terms.”

“Since then some of the progress turkey made has been reversed. They are again facing external financial difficulties.”

Reserve collecting flexible exchange rates are generally able to maintain monetary stability for around two Fed cycles with external anchoring and then collapse as rates hiked in the first collapse come down over two cycles and soft-peggers are unwilling to raise them on time, analysts say.

“But looking at the decade 2001/2002 to 2010 Turkey’s experience shows that adjustment led to a rapid economic recovery and an unexpectedly stabilization of the fiscal situation on the back of higher economic growth, on the back of rapidly falling interest rates because the monetary framework is strong.

“That is a possible inspiration.”

Sri Lanka however is about to enact a new monetary law to legalize ‘flexible’ inflation targeting and ‘flexible’ exchange rate. (Colombo/Dec06/2022)

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Sri Lanka’s Dialog Axiata hopes to hold prices despite rising costs

ECONOMYNEXT – Sri Lanka’s Dialog Axiata hopes to hold prices despite higher taxes, rising costs like energy, officials said as the country goes through the worst currency crisis in the history of its intermediate regime central bank.

High inflation following a collapse of the currency has reduced real incomes of customers.

“There are many factors to consider, especially with the last price increase we did in last year did not resulted in a significant increase in revenue” Pradeep De Almeida · Group Chief Technology Officer at Dialog Axiata said at the launch of its Future zone at Lotus tower.

In September,2022 following an electricity tarrif hike dialog increased its tariffs on Mobile, Fixed Telephone, Broadband Plans and Value Added Services (Prepaid and Postpaid) by 20 percent while tariffs on all Pay Television Services were raised 25 percent.

Value Added Tax (VAT) was also raised by the government from 12 percent to 15 percent on all Telecommunications and Pay TV services.

“Even though we increase the prices we only saw around 8-9 percent increase in revenue,” Almeida said.

“That is because many users cut off their usage to limit the spending”.

Dialog will increase efficiencies and manage costs in an attempt to avoid prices increases for customers, he said.

Over the 24 months to December 2022, Sri Lanka;s central bank has generated inflation of 76 percent, based on the Colombo Consumer Price Index official data shows. Following the currency collapse, more power tariff hikes are planned.

“We are trying to mainly bear the cost from our side. We are getting a massive support from our parent company Telekom Malaysia International,” Navin Peiris, Group Chief Enterprise Officer at Dialog told EconomyNext.

“Therefore as of now, there is no plan to increase prices”. (Colombo/Jan 26/2023)

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Sri Lanka shares fall at market close on profit taking

ECONOMYNEXT – Sri Lanka shares fell on Thursday as profit taking entered the market mainly on financial and diversified sectors, brokers said.

The main All Share Price Index (ASPI) fell 0.13 percent or 11.50 points to close at 8,926.56.

“The market was trading on dull trade mainly due to profit taking,” an analyst said.

“Also we saw investors taking a sideline as quarterly reports started to come”.

The earnings in the first quarter of 2023 are expected to be negative with revised up taxes and an imminent electricity tariff hike.

Earnings in the second quarter are expected to be more positive with the anticipation of IMF loan and possible reduction in the market interest rates as the tax revenue has started to generate funds.

The central bank’s policy decision was expected and investors have been eying on IMF deal with hopes of rapid economic recovery from the current unprecedented economic crisis, however since the market gained in the last sessions profit taking has come about, analysts said.

The market has been on a rising trend on the hopes of a faster IMF deal. However, the central bank government said the IMF deal is likely in the quarter or in the first month of the second quarter.

The most liquid index S&P SL20 fell  0.33 percent or 9.21 points to 2,798.

LOLC had seen some attention by investors as the firm disposed 90,256,750 shares held with Agstar PLC at 15-17.50 rupees a share.

The market witnessed a turnover of 1.2 billion rupees, lower than the month’s daily average of 1.9 billion rupees.

Expolanka dragging the market down closed 2.36 percent down at 186.7 rupees a share. Sampath bank fell 1.41 percent to close at 42 rupees a share while Royal Ceramic Lanka closed 2.59 percent dwn at 30.1 rupees a share.

(Colombo/Jan26/2023)

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Sri Lanka bonds yields steady at close

ECONOMYNEXT – Sri Lanka bond yields were steady at close on Thursday, dealers said, while a guidance peg for interbank transactions by the Central Bank remained steady.

A bond maturing on 01.05.2024 closed at 31.00/20 percent unchanged from the last close.

A bond maturing on 15.05.2026 closed at 26.60/90 percent, up from 28.50/70 percent on Wednesday.

A bond maturing on 15.09.2027 closed at 28.60/85 percent, up from 28.50/60 percent at the last close.

The three months bill closed at 29.75/30.25 percent unchanged from the last close.

The Central Bank’s guidance peg for interbank US dollar transactions appreciated by another 2 cents to 362.14 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 360.49 rupees on Thursday, data showed.  (Colombo/Jan 26/2022)

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