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Tuesday June 18th, 2024

Sri Lanka prints Rs19bn despite lifting Treasuries price controls

ECONOMYNEXT – Sri Lanka has printed 19 billion rupees out right after partially successful Treasuries auctions over the week as a note-issue bank took up the balance amid continuing external trouble and mounting reserve related liabilities, data show.

The central bank’s Treasury bill stock went up to 1,469.84 billion rupees on October 14, from 1,450.21 billion rupees a day earlier as Treasuries were bought outright to keep rates down.

Meanwhile window borrowings went up to 188 billion rupees from 147 billion rupees.

Sri Lanka’s monopoly note-issue bank has been steadily losing reserves amid ‘Modern Monetary Theory’ from 2020 and less aggressive Keynesian stimulus which started on top of bad fiscal policy in 2015/2016.

In 2018 a milder version of MMT was practiced by bombarding the credit system with liquidity from overnight reverse repo, term reverse repo, dollar/rupee central swap.

Sri Lanka’s net borrowings have been rising steadily from 2015 as monetary policy deteriorated.

With call money rate targeting Sri Lanka lost the protection of a wide policy corridor which limits reverse repo injections and sterilization when economic activity picks up and the peg is defended. The corridor itself was narrowed in a damaging move later.

In another damaging move which is appears to violate Section 112 of the is constitution the note issue bank started buying bonds to its balance sheet.

While some progress has been made with bond auctions analysts say it is vital to get them fully operational as soon as possible to end reserve losses and monetary instability.

The central bank now has a net dollar liability instead of reserves on it reported 2.5 billion dollar gross reserves and can run quasi-fiscal losses and can even default unless corrective action is speeded up.

Analysts have warned that it is vital for bond auctions to succeed and a partially failed auction is as bad as fully failed auctions in terms of forex shortages and possible external default.

The central bank withdrew 10.5 billion rupees from plus banks getting in a sterilization trap after printing money in the auction.

Up to now 24.45 billion have been withdrawn after printing money in the style of Zimbabwe’s central bank, before the country hit hyper-inflation, though there is still a positive gap between the two rates.

“The central bank itself is likely to be insolvent on its dollar liabilities before the end of the year unless money printing is halted,” EN’s economic columnist Bellwether warned when price controls were in effect and foreign reserves were still positive.

“However any kind of half-hearted Treasury bill and bond auctions, partially failed bond or bill auctions with some volumes of printed money will lead to progressively higher interest rates but the reserve losses and currency depreciation will continue.”

The same would apply to any eventual float of the currency (a suspension of convertibility) if partial interventions are made for petroleum payments. (Colombo/Oct18/2021)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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Sri Lanka telecommunications bill some clauses ruled unconstitutional by SC: Speaker

ECONOMYNEXT – Sri Lanka’s Supreme Court has found a number of clauses in a proposed amendment to the Telecom Telecommunications Amendment bill unconstitutional, speaker Mahinda Yapa Abeywardana said.

“Clause No 8, proposed section 9A 2 of the bill is inconsistent with Article 12 1 of the constitution, however this inconsistency shall cease if word ‘may’ will be replaced with word ‘shall’ as set out in the determination of the supreme court.”

“Clause No 9 is inconsistent with Article 12 1 of the constitution and only can be passed with special majority required under paragraph 2 of the Article 84. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.

Clause No 12, proposed section 17 10 of the bill is inconsistent with Article 12 1 of the constitution and can only be passed with special parliament majority required under Article 84 paragraph 2. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.”

Sections of clauses 13, 18, 20, 33 and 35 were also in violation of the constitution, and could only be passed by a special majority of parliament. (Colombo/Jun18/2024)

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Sri Lanka to exempt one house from imputed rent wealth tax: President

ECONOMYNEXT – Sri Lanka will exempt one house from a proposed wealth tax outlined in an International Monetary Fund program, President Ranil Wickremesinghe said.

About 90 percent of the people’s houses are likely to be exempt from the proposed tax, he said.

“[O]ne house will be exempt from this,” President Wickremesinghe told parliament Monday.

“It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house

“Don’t worry your house will be safe.”

The IMF program document however did not mention an exempt on one house, but did mention a threshold.

Taxing houses and thrift in general could have detrimental effects on people’s well-being housing stock and their willingness to remain in the country without migrating, critics say.

Related Sri Lanka to tax imaginary rents on houses under IMF deal

The mechanism of imputed rents was used because rates on houses was assigned to provincial councils and courts could strike it down.

Opposition legislator Harsha de Silva said the Samagi Jana Balwegaya welcomed President Wickremesinghe’s statement. (Colombo/June18/2024)

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