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Thursday June 8th, 2023

Sri Lanka president apologises to Japan for cancellation of light rail project

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has apologised to the Japanese government for the unilateral cancellation of a Japan-funded 1.5 billion dollar light rail transit (LRT) project.

Wickremesinghe, who met Japanese Prime Minister Fumio Kishida in Tokyo on Thursday May 25, spoke on the need for legislation to ensure that large-scale bilateral projects cannot be cancelled without mutual agreement, a statement from Wickremesinghe’s office said.

The cancellation of the Japan International Cooperation Agency (JICA)-funded project was controversial in Sri Lanka after the government under then President Gotabaya Rajapaksa, which was closer to Beijing, unilaterally suspended the project as well as another 500-million US dollar tripartite deal to develop the Colombo Port’s Eastern Container Terminal (ETC) together with India. Relations soured between Sri Lanka and Japan as a result. The east Asian nation has long been considered a friend of Sri Lanka with mutually beneficial diplomatic ties going back decades.

Since his appointment as prime minister in the wake of widespread protests in Sri Lanka after its currency crashed in early 2022, Wickremesinghe has shown a keen interest in repairing ties between the two countries.

Blaming poor foreign policy on the country’s international “marginalisation”, Prime Minister Wickremesinghe in June 2022 said: “Japan is our long time friend; a nation that has helped our country greatly. But they are now unhappy with us due to the unfortunate events of the past.”

The statement from President Wickremesinghe’s office on Thursday said he had expressed his gratitude to Japan during his meeting with Prime Minister Kishida for Tokyo’s support in helping Sri Lanka recover from its ongoing macroeconomic crisis. New opportunities to enhance cooperation between the two countries were also discussed, the statement said.

In another meeting held on the same day with Japanese Finance Minister Shunichi Suzuki, Sri Lanka’s debt restructuring and the island nation’s ongoing International Monetary Fund (IMF) programme were discussed. A subsequent meeting with Foreign Minister Yoshimasa Hayashi had focused on strengthening long-term bilateral relations including increased cooperation in economic and cultural fields.

Wickremesinghe and former Prime Minister of Japan Yasuo Fukuda had participated in a breakfast meeting earlier Thursday organised by by the Japan-Sri Lanka Association where the latter had been briefed on Sri Lanka’s recovery efforts.

The statement said the president had highlighted the favourable investment climate in Sri Lanka and extended an invitation to Japanese investors to return and invest in the country.

In another meeting with a former Japanese premier, Taro Aso, Wickremesinghe had discussed potential steps to strengthen the existing close and friendly relationship with Sri Lanka, the statement said.

In a separate round of discussions with Singapore’s Deputy Prime Minister Lawrence Wong, also in Tokyo, President Wickremesinghe had reaffirmed Sri Lanka’s commitment to implementing the Singapore Free Trade Agreement (FTA), the statement added.

The president’s office said quoting Wickremesinghe that many Asian nations have already made a choice between China and the United States in a polarising geopolitical situation and that choice is Asia accommodating the ambitious projects by both Beijing and Washington.

The president had made these comments when he addressed the “Nikkei Forum: Future of Asia‟ held in Tokyo, where, according to the statement, he had highlighted the importance of Asian states having a voice in shaping the region’s role amidst the evolving geopolitics on the global stage.

“We in Asia don’t want to choose between the U.S. and China,” Wickremesinghe said.

“Many of us cannot make that choice because we have already made our choice, and that choice is Asia,” he said.


Sri Lanka President bets for China-inclusive Asia-led economy


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  1. sacre blieu says:

    An apology alone wilt not do. The minister and any others who were figured in this fiasco by fishing for the dollar bribe should be named and prosecuted. Sri Lanka must not be, anymore, a heaven for fraudsters and crooks. And this includes the others who brought this country down into a state of bankruptcy.

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  1. sacre blieu says:

    An apology alone wilt not do. The minister and any others who were figured in this fiasco by fishing for the dollar bribe should be named and prosecuted. Sri Lanka must not be, anymore, a heaven for fraudsters and crooks. And this includes the others who brought this country down into a state of bankruptcy.

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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