An Echelon Media Company
Sunday March 26th, 2023

Sri Lanka president orders plantations to grow food after soft-peg collapse

FARMING: A paddy farmer preparing a field on May 10 amid a curfews. Agriculture is expected to be almost normal.

ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa has instructed to identify all underutilized lands owned by plantation companies after the central bank triggered the worst currency crises in its history and has failed to re-establish monetary stability, raising fears of food shortages.

Sri Lanka is still facing forex shortages due to liquidity injections making it difficult to import fertilizer.

The government suddenly banned open account imports from June raising fears that food imports, which were freely happening up to May will stop if banks fail to give dollars on time.

“Plantation companies own more than 9,000 hectares of uncultivated land,” the President’s Media Division (PMD) said in a statement citing Rajapaksa made the remarks at a discussion held at the President’s House, o Friday (03).

“The President pointed out the need to identify suitable crops for cultivation in respective estates owned by 23 companies.”

The nation’s agricultural experts have warned of a possible shortage of rice and other essential foods possibly in September because of lower production due to a chemical fertilizer ban on the main cropping season that ended in April and ongoing forex shortages which were hindering inputs.

The Yala minor cultivation season has been hit by fertilizer shortages and also diesel shortages for tractors as a float failed due to a surrender requirement. However policy rates have been raised and private credit and economic activity is slowing.

Prime Minister Ranil Wickremesinghe has already warned of an acute food shortage by August and said the island nation would require 600 million to import all agricultural inputs including fertilizer for a year.

About 400 to 450 million US dollars are needed at current prices to import a million kilos of rice which is sufficient for five months.

Crop scientists have warned that Sri Lanka could produce enough rice only for seven months of this year due to the fertilizer ban. Before the fertilizer ban, Sri Lanka was produced enough rice for consumption but other cereals were imported.

Sri Lanka has faced high levels of monetary instability and quick currency crises after ‘data driven’ highly discretionary ‘flexible’ monetary policy was adopted from 2015 and money was printed to push inflation up in 2015 and later money was printed to push growth up (output gap targeting) and taxes were also cut as currency collapses reduced growth, triggering further monetary instability.

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka seeks to settle India ACU debt, credit lines over 5-years

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

Continue Reading

Sri Lanka coconut auction prices up 1.16-pct

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

Continue Reading

Sri Lanka in talks for billion dollar equivalent Indian rupee swap

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)

Continue Reading