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Thursday June 8th, 2023

Sri Lanka power minister lambasts regulatory chief, defends planned removal

Power & Energy Minister Kanchana Wijesekara (l) and PUCSL Chairman Janaka Ratnayake

ECONOMYNEXT – Sri Lanka Power Minister Kanchana Wijesekara has defended a controversial move to remove the sector’s regulatory chief Janaka Ratnayake, insisting that it was not government overreach but an attempt to prevent the politicisation of an independent commission.

Wijesekara told parliament during a debate proceeding a vote to remove Ratnayake as chairman of the Public Utilities Commission of Sri Lanka (PUCSL) that the official had acted obstinately without the concurrence of fellow commission members.

Five charges were levelled against the PUCSL chief by the minister, the first two which were based on a February 10 verdict by the Court of Appeal rejecting an application filed by Ratnayake against an electricity tariff hike.

The verdict said: “This kind of conduct of responsible officers of public institutions may erode the basic principles of good governance. The majority decision of the PUCSL should not be overridden by a single member or a minority to amplify a personal view on an official matter to win the hearts of a certain portion of the public. Hence such conduct simply cannot be identified as steps taken for the interest of public and similarly, this Application cannot be considered as public interest litigation.”

Ratnayake was appointed to the position in March 2021 by then President Gotabaya Rajapaksa in whose government Wijesekara was a prominent State Minister.

The fourth charge, according to the minister, is that Ratnayake had unilaterally decided that the CEB would not be permitted to increase electricity tariffs by even 1%, a decision Ratnayake had allegedly reached without any substantial study of the tariff hike before the CEB had even officially proposed it.

Finally, Wijesekara said, the PUCSL chair had taken it upon himself to make pronouncements on who should or should not be ministers in the government.

“Being a member of an independent commission does not give one the right to make political decisions. He can’t decide who ought to be ministers,” the minister said.

Wijesekara said the opposition was making out Ratanayake’s removal to be an attack on independent commissions. The minister was emphatic that that was not the case.

“The court decision itself holds that this commission member has acted against the independence of the commission. There are five members in a commission and there should be majority support for its decisions,” he said.

“The individual statements of one member don’t become opinions of the commission,” he added.

Wijesekara recalled that SJB legislator Kabir Hashim had on two separate occasions objected to the appointment of Ratnayake as PUCSL chief in 2021. The minister expressed his surprise that the opposition had sought a full day’s debate on Ratnayake’s removal.

The minister also accused Ratnayake of being politically motivated in his pronouncements that he claimed were strongly critical of the government’s efforts to impose cost-reflective tariffs. Ratnayake’s statements were increasingly reflective of the populist anti-reform rhetoric of the opposition, claimed Wijesekara.

Some purportedly independent officials and opposition MPs are aligned in their wish to see prolonged power cuts, queues for essentials and energy shortages, the minister went on to say, adding that attempts to disrupt the imposition of cost-reflective tariffs were part of a political agenda.

He also spoke disparagingly of Ratnayake’s reported presidential ambitions.

“He does not act independently. There is a lot of turmoil in the power sector because of him,” he said, claiming that not all in the opposition were fully on board the decision to back the official.

“A lot of opposition MPs have also phoned and told us that they’re privately against the opposition decision to vote against his removal,” he said.

The debate was still ongoing at the time of writing and the vote had yet to be taken. (Colombo/May24/2023)

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

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.

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.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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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 as deflationary policy and weak credit reduced ‘above the line’ outflows.

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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