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Friday June 2nd, 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.


“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.


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.


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 to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

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.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

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.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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