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Sunday February 25th, 2024

Sri Lanka private credit contracts in August, SOE credit down

ECONOMYNEXT – Sri Lanka’s private credit contracted 58.9 billion rupees in August 2022, falling for the third straight month, while credit to state enterprises also fell, central bank data showed as efforts are made to end a balance of payments crisis triggered by mis-targeted interest rates.

Credit to private sector grew 12 percent to 7,612 billion rupees in the 12 months to August down from 15.2 percent a month earlier.

Credit to state enterprises fell 54.2 billion rupees with the stock growing 49.5 percent to 1,699.8 billion rupees by September 2022, down from 53.7 percent a month earlier.

Sri Lanka has market priced fuel and electricity to reduce losses and credit to state enterprises and raised interest rates to curb private credit and investment to stop credit driven outflows and stabilize the rupee. Energy utility losses surge when the currency collapses.

When credit demand goes up, a soft-pegged central bank prints money to maintain its policy rate, injecting liquidity in to the banking system driving up bank credit without deposits usually by purchasing Treasury bills, pressuring the currency.

A soft-pegged central bank s set up from around 1940s onwards usually injects money purchasing Treasury bills after selling foreign reserves to maintain policy rates, injecting into banks what classical economists like David Ricardo called ‘fictitious capital’, preventing the automatic correction of balance of payments.

The central bank may also buy Treasury bills directly to finance the deficit and suppress Treasuries yields.

When private credit contracts after interest rates are corrected, banks and the public buys Treasury bills and bonds allowing a larger deficit to be financed.

Credit to government from banks went up by 163.7 billion rupees in August. Sri Lanka has raised taxes in a bid to reduce government borrowings and limit money printing.

Central bank credit (printed money) expanded 47.2 billion rupees in August down from 169.8 billion rupees in July. (Colombo/Sept03/2022)

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Sri Lanka could get US$500mn from ADB in 2024

ECONOMYNEXT – Sri Lanka could receive 500 million US dollars in support from the Asian Development Bank in 2024 based on the progress of policy reforms, Country Director of the Manila-based lender, Takafumi Kadono said.

The ADB expect to go to its Board around March or April with a 100 million US dollar power sector loan subject to the cabinet of ministers of approving a revised electricity reform bill.

A 100 million dollar loan to support SMEs could also be approved in the early part of the year. Sri Lanka is setting up a credit guarantee agency to support credit for small firms.

A 200 million dollar credit for financial sector was also slated for the year. The ADB gave the first tranche of the financial sector policy loan late last year.

A $100mn for the water sector could also be approved later in the year.

Sri Lanka could get around 200 to 300 million US dollars a year at the lowest rate, or concessional ordinary capital resources (COL) rate of 2 percent.

The balance of would come at the ordinary capital resource rate linked to SOFR.

The ADB has also started work on a ‘Country Partnership Strategy’ for Sri Lanka covering the 2024-2028 period, Kadodo said. (Colombo/Feb25/2024)

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Sri Lanka’s multi-aligned foreign policy based on friendship: Min

ECONOMYNEXT – Sri Lanka’s multi-aligned foreign policy is based on friendship to all and enmity to none, its Minister of Foreign Affairs has said.

“Non-alignment means not becoming a bystander. Non-alignment means you are not forced or coerced into a camp to take sovereign decisions… you make your own choices. Whether it is commercial, security, regional or otherwise,” M U M Ali Sabry said on X (twitter).

“I have repeatedly stressed that sovereignty is the right to have your own opinion on what’s right and wrong, and to stand by your principles. Our multi-aligned foreign policy is based on friendship to all and enmity to none,” Sabry was quoting from his speech at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) Foreign Policy Forum, on the theme ‘Reassessing Non-Alignment in a Polarised World’.

Sri Lanka is one of the founding members of the Non-Aligned Movement.

The strategically located island has been increasingly walking a fine line between opposing global factions as it seeks to come out of a financial crisis. (Colombo/Feb24/2024)

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Sri Lanka’s Commercial Bank Dec net down on tax provisions

ECONOMYNEXT – Sri Lanka’s Commercial Bank of Ceylon reported profits of 6.9 billion rupees from the December 2023 quarter down 21 percent, despite an improvement in net interest income and lower provisions, amid a change in tax provisions.

Pre-tax profits were 8.89 billion rupees up from 2.4 billion rupees. There was a 6.4 billion tax reversal last year compared to a 1.7 billion rupee tax charge this year.

Commercial Bank reported earnings of 5.26 rupees for the quarter. For the year to December 2023 earnings were 16.07 rupees per share on total profits of 21.1 billion rupees, down 11.3 percent.

Net fee and commission income was down 1.2 percent to 6.1 billion rupees.

Net interest income went up 16.8 percent to 25.5 billion rupees, with interest income rising marginally by 1.3 percent to 73.0 billion rupees and interest expense falling 5.45 percent to 47.5 billion rupees.

Loans and advances to customers grew 4.06 percent to 1.17 billion rupees in the year to December. Debt and other financial instruments fell 10.5 percent to 649 billion rupees.

Financial assets measured and fair value through other comprehensive income was at 287 billion rupees, up from 117 billion rupees.

Impairment charges were 13.1 billion rupees, down from 19.6 billion rupees last year.

Gross assets were up 6.45 percent to 2.36 billion rupees. Net assets were up 5.51 percent to 214 billion rupees. (Colombo/Feb24/2024)

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