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Sri Lanka private credit negative in July, government borrowings up

ECONOMYNEXT – Sri Lanka’s credit to private sector was a negative 3.3 billion rupees in July 2019, sharply down from a 63 billion surprise spike in June, while state borrowings from the banking system continued, official data showed.

Private credit grew 7.7 percent from a year earlier to 5,603.8 billion rupees by end July 2019, down from 5,605.0 billion rupees in June., data from the central bank showed.

Sri Lanka’s private credit turned negative in 2019, after the rupee collapsed from 153 to 182 to the US dollar in 2018, when the central bank printed money to target a call money rate just as the economy recovered from a previous balance of payments crisis.

The central bank is operating a so-called flexible exchange rate, where the rupee is pegged to collect forex reserves and preventing appreciation, then unsterilized liquidity is kept for a extended period of time.

Then new money printed through multiple lender of last resort facilities in case when there is a pick-up in credit driving up rates, apparently to bring down the call money rate.

The rupee is then floated with excess liquidity.

However up to July, dollar purchases were mopped up. The central bank stopped mopping up inflows in after July 11 and allowed excess liquidity to build up.

Central bank credit to government ticked up marginally to 344.7 billion rupees in July from 341.4 billion rupees in June.

Credit to government grew 36.4 billion rupees in July on top of a 72 billion rupees in June. Up to May the deficit has been filled mostly by foreign borrowings.

From January to May government borrowings were only 79.5 billion rupees.

But in June and July 103 billion rupees had been borrowed from the banking system.

Credit to government picked up to 21.3 percent in the 12-months to July, from 17.3 percent in June.

Sri Lanka’s import and tax revenues had contracted along with credit, as the rupee collapsed under the flexible exchange rate’.

Sri Lanka also brought credit and restrictions on the import of three wheelers and private cars, which had been filling a gap in transport created by an over-regulated and partly state-run public transport system, as the currency came under pressure from money printing in 2018.

Monetary instability worsened after a political crisis in October sapped foreign investor confidence further. But a total Indonesia-style collapse with high inflation was prevented by tight liquidity analysts say.

State enterprise borrowings contracted 0.9 billion rupees in May to 729.3 billion rupees. Credit to SOEs grew 7.7 percent in the 12-month to July, up from 8.7 percent in June

The central bank in 2019 started an unprecedented program of financial repression involving using the coercive power of the state to deny market rates of return to savers.

Plans have been announced to force down lending rates as well. (Colombo/Sep08/2019)

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  1. Dinuk says:

    If total outstanding private credit was Sri Lanka’s credit to private sector was 5,605.0 billion rupees in June and 5,603.8 billion rupees by end July, hasn’t private credit come down by 1.2Bn rather than 3.3Bn?

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  1. Dinuk says:

    If total outstanding private credit was Sri Lanka’s credit to private sector was 5,605.0 billion rupees in June and 5,603.8 billion rupees by end July, hasn’t private credit come down by 1.2Bn rather than 3.3Bn?

Sri Lankans may need to wait for Monetary Board meeting minutes despite new Act

ECONOMYNEXT – Sri Lankans may have to wait more time to read the meeting minutes of the Central Bank’s Monetary Board, a top official said, despite a new act that has made the central bank to be more transparent and accountable for its decisions.

Many central banks including the United States’ Federal Reserve, India’s Reserve Bank, and Bank of Mexico release the minutes of their monetary policy meeting to ensure transparency.

The new Central Bank Act passed by the Parliament in line with the guidance by the International Monetary Fund (IMF) includes measures for Sri Lanka’s central bank to be more transparent and accountable.

These measures include releasing the Monetary Policy Report every six months and the first such report was released on February 15.

However, the central bank has not taken a decision to release the minutes of the Monetary Board meetings on the monetary policy.

“Going forward, one day this could happen,” Chandranath Amarasekara, Assistant Governor at the Central Bank told reporters on Wednesday (21) at a media briefing.

“Right now, we have just started working on the new Central Bank Act. We are not there yet. There is no such decision on releasing minutes yet.”

The central bank in the past printed billions of rupees to keep the market interest rates artificially low and provide cheap funding for successive governments to propel a debt-driven economy.

It’s decision, however, led Sri Lanka into an unprecedented economic crisis in 2022 with sovereign debt default.

It also propped up the rupee currency artificially in the past to maintain a stable exchange rate at the expense of billions of US dollars. The move also contributed for the economic crisis and later the central bank was forced to allow over 60 percent depreciation in the rupee in March 2022.

However, none of the top central bank officials was held responsible for wrong decisions to hold interest rates artificially low with money printing and propping up the rupee. (Colombo/Feb 23/2024)

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Amid mass migration, Sri Lanka to recruit volunteers as English teachers

ECONOMYNEXT- Sri Lanka is planning to appoint foreign and expatriate volunteers to teach English for Sri Lanka students, the Ministry of Higher Education said, amid thousand of teachers migrating to other countries after the island nation’s unprecedented economic crisis.

Over five thousand teachers have left the country with the Education Ministry permission using the government’s circular of temporarily leaving state jobs while tens of thousands of teachers have left the country without informing the relevant authorities, Education Ministry officials say.

That had led to an acute teacher shortage in the country.

Suren Raghavan, the State Minister for Higher Education said the shortage has aggravated because most of the graduates who have an English degree become writers and join the private sector due to higher salary.

“They do not join government schools. This is a problem all over the country which is why we need to have an online system,” Raghavan told EconomyNext.

Separately he said on Thursday at a press conference that he had spoken to Canadian and Australian High Commissions to get the assistance of where their English teachers who have experience in teaching English as a second language in South Asia.

He also said that there is a number of teachers in the Unite Kingdom have shown interest in teaching English and they have experience in teaching in other Asian countries such as Burma and India while the teaching would be done free of charge.

The new move also comes at a time when the country’s English literacy rate is on the decline, according to the Minister.

President Ranil Wickramasinghe announced the English-for-all initiative three months ago with plans to improve English literacy at school and university level. (Colombo/Feb 23/2024)

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Sri Lanka tea production up 1.4-pct in Jan 2024, exports up 6.8-pct

ECONOMYNEXT – Sri Lanka’s tea production was up 1.4 percent to 18.73 million kilograms in January 2024, with high growns falling and low and mid growns rising, industry data shows.

High grown tea in January 2024 was 3.56 million kilograms, down from 3.36 million, medium growns were 2.6, up from 2.5 million kilograms and low growns were 12.56 million, up from 12.32 million kilograms last year.

Exports, including re-exports were up 6.88 percent to 18.76 million kilograms, industry data published by Ceylon Tea Brokers show.

Export earnings were reported at 102 million US dollars, up from 99.5 million dollars last year. The average FOB price was 5.45 US dollars a kilo down from 5.67 dollars last year.

Tea in bulk was 8.5 million kilograms valued at 12.79 billion rupees, tea in packets was 7.8 million kilograms valued at 13.1 billion rupees and tea in bags was 1.8 million kilos, valued at 5.06 billion rupees.

The top buyer was Iraq with 2.5 million kilos, up from 2.1 million last year followed by the UAE with 1.99 kilos, up from 1.86 million last year.

Russia bought 1.98 million kilos, down from 2.0 last year, Turkey bought 1.72 million kilos, from 2.3 million last year, while Iran bought 1.32 million, up from 614 million last year. (Colombo/Feb23/2024)

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