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Monday February 6th, 2023

Sri Lanka prints Rs106.7bn rupees to fully sterilize interventions, SRR hike effect

ECONOMYNEXT – Sri Lanka has printed 106.7 billion rupees to fully sterilize liquidity shortages that emerged in the banking system in September from a statutory reserve hike and foreign reserve losses, data show.

On October 04, the central bank’s Treasury bills tock rose to 1,442.7 billion rupees from 1,336 billion rupees.

The central bank withdrew about 150 billion rupees from the banking system through a statutory reserve ratio hike on September 01 and subsequently also intervened in forex markets to lose foreign reserves.

From August 30, 227.6 billion rupees had been printed through outright purchase of Treasury bills and bonds and another 103.5 billion rupees was printed through a term reverse repo auction.

Sri Lanka’s newly re-appointed central bank Governor Nivard Cabraal had lifted a ceiling on yields which had led to failed bond and bill auctions and allowed rates to go up limiting money printing.

Sri Lanka has been printing large volumes of money and also buying bonds into its balance sheet, in a severe deterioration of rule based policy seen under ‘flexible’ inflation targeting and ‘flexible exchange rate’ since 2015.

The central bank jettisoned a ‘bills only’ and started buying up bonds into its balance sheet with printed money even taxes were raised and then started buying bonds from failed auctions, which is against section 112 of its Constitution.

“Provided, however, that except in the case of treasury Bills, for which the Central Bank may make direct tenders, the bank shall
not subscribe to any issue of such securities or agree to purchase the unsubscribed portion of any such issue,” the MLA says.

Sri Lanka’s MLA is however a has enough provisions according which can be used to print money trigger forex shortages destroy the currency, though originally the intention was that there would be no direct government financing except through the 180 day provisional advances.

Until money printing began after the setting up of the central bank, Sri Lanka had an East Asia style currency board which had kept the currency stable through two World Wars and a Great Depression.

While excessively large liquidity shortages may not be required analysts say, higher rates and some liquidity shortages are required to stop a complete collapse of the rupee.

However foreign exchange shortages persists and the latest injection had reduced a liquidity short to 9 billion rupees.

Sri Lanka’s forex reserves are low and the central bank is seeing reserve liabilities rise.

On Monday bond markets continued to limp back seeing some activity as more realistic rates are emerging.

A one year bond maturing on 01.10.2022 was quoted 7.40/8.00 percent.

A 15.11.2023 bond was quoted at 8.20/30 and also traded, dealers said.

A 15.09.2024 bond was quoted at 9.00/20 percent.

A 01.12.2024 bond was quoted at 9.00/30 percent.

A 01.08.2025 bond was quoted at 9.50/75 percent

A 15.10.2027 bond was quoted at 10.25/50 percent. (Colombo/Oct05/2021)

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Sri Lanka to address SME tax problems at first opportunity: State Minister

ECONOMYNEXT – Problems faced by Sri Lanka’s small and medium enterprises from recent tax changes will be addressed at the first opportunity, State Minister for Finance Ranjith Siyambalapitiya said.

Business chambers had raised questions about hikes in Value Added Tax, Corporate Income Tax and the Social Security Contribution Levy (SSCL) that’s been imposed.

It should be explored on how to amend the Inland Revenue Act, Siyamabalapitiya said, adding that the future months should be considered as a period where the country is being stabilized.

Both the VAT and SSCL are effectively paid by customers, but the SSCL is a cascading tax that makes running businesses difficult.

In Sri Lanka SMEs make up a large part of the economy, accounting for 80 per cent of all businesses according to according to the island’s National Human Resources and Employment Policy.

(Colombo/ Feb 05/2023)

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Sri Lanka revenues Rs158.7bn in Jan 2023 up 51-pct

ECONOMYNEXT – Sri Lanka’s government revenues were 158.7 billion rupees in January 2023 but expenditure and debt service remained high, Cabinet spokesman Minister Bandula Gunawardana said.

In January 2022 total revenues were Rs104.5 billion according to central bank data.

Sri Lanka’s tax revenues have risen sharply amid an inflationary blow off which had boosted nominal GDP while President Ranil Wickremesinghe has also raised taxes.

Departing from a previous strategy advocated by the IMF expanding the state and not cutting expenses, called revenue based fiscal consolidation, he is attempting to do classical fiscal consolidation with spending restraint.

President Ranil Wickremesinghe has presented a note to cabinet requesting state expenditure to be controlled, Gunawardana told reporters.

State Salaries cost 87.4 billion rupees.

Pensions and income supplements (Samurdhi program) were29.5 billion rupees.

Other expenses were 10.8 billion rupees.

Capital spending was   21 billion rupees.

Debt service was 377.6 billion rupees for January which has to be done with borrowings from Treasury bills, bonds and a central bank provisional advance of 100 billion rupees, Gunawardana said.

Interest costs were not separately given. (Colombo/Feb05/2023)

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Sri Lanka’s Ceylon Tea prices down for second week

ECONOMYNEXT – Sri Lanka’s Ceylon Tea prices fell for the second week at an auction on January 31, with teas from all elevations seeing a decline, data showed.

“In retrospect, the decline in prices would be a price correction owing to the overall product quality and less interest from some key importers due to the arrival of cargo at destinations ahead of schedule,” Forbes and Walker tea brokers said.

The weekly sale average fell from 1475.79 rupees to 1465.40 rupees from a week ago, according to data from Ceylon Tea Brokers.

The tea prices are down for two weeks in a row.

High Growns

The High Grown sale average was down by 20.90 rupees to 1380.23 rupees, Ceylon Tea Brokers said.

High grown BOP and BOPF was down about 100 rupees.

“Ex-Estate offerings which totalled 0.75 M/Kg saw a slight decline in quality over the previous week” Forbes and Walker said.

OP/OPA’s in general were steady to marginally down.

Low Growns

In Low Grown Teas, FBOP 1 was down by 100 rupees and FBOP was down by 50 rupees while PEK was up by 150 rupees.

The Low Growns sale average was down by 8.55 rupees to 1547.93 rupees.

A few select Best BOP1s along with Below Best varieties maintained.

OP1                     Select Best OP1’s were steady, whilst improved/clean Below Best varieties maintained.   Others and poorer sorts were easier.

PEKOE                 Well- made PEK/PEK1s in general were steady, whilst others and poorer sorts were down.

Leafy and Semi Leafy catalogues met with fair demand,” Forbes and Walker brokers said.

“However, the Small Leaf and Premium catalogues continued to decline.

“Shippers to Iran were very selective, whilst shippers to Türkiye and Russia were fairly active.”

This week  2.2 million Kilograms of Low Growns were sold.

Medium Growns

Medium Grown BOP and BOPF fell by around 100 rupees

The Medium Growns sale average was down by 33.40 rupees to 1199.4 rupees.

“Medium CTC teas in the higher price bracket witnessed a similar trend, whilst teas at the lower end were somewhat maintained subject to quality,” Forbes and Walker brokers said.

“Improved activity from the local trade and perhaps South Africa helped to stabilize prices to some extent.”

OP/OPA grades were steady while PEKOE/PEKOE1 were firm, while some gained 50-100 rupees at times.

Well-made FBOP/FBOPF1’s were down by 50-100 rupees per kg and more at times.

(Colombo/Feb 5/2023)

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