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Tuesday January 31st, 2023

Sri Lanka private credit tumbles in May, state credit also falls

ECONOMYNEXT – Sri Lanka’s private credit from commercial banks grew only 2.5 billion rupees in May 2022, amid a soft-peg collapse the lowest since a 2020 strict lockdown when credit turned negative for three months, while credit to government also fell, official data showed.

Sri Lanka’s private credit grew to only 7,754.5 billion rupees in May 2022 from 7,752.5 billion rupees in April with rupee denominated loans barely growing from 6,659.8 billion rupees to 6,659.8 billion rupees.

Loans dollar banking units to private sector fell to 794.6 billion rupees from 797.5 billion rupees in May which in dollar terms reflects a fall of about 130 million US dollars based on official end month exchange rates.

Meanwhile credit to state enterprises grew to 1,750.1 billion rupees in May from 1,725 billion rupees in April with rupee denominated debt rising by 71.6 billion rupees in May.

While the Ceylon Petroleum Corporation has raised prices, the Public Utilities Commission has failed to hike electricity prices for 7 years, leading to higher borrowings from banks, leading to pressure on interest rates and also money printing when rate rises are resisted.

State enterprise loans from foreign currency banking units fell to 222.1 billion rupees in May from 268.5 billion rupees a month earlier indicating a fall of around 160 million US dollars.

Credit to government fell marginally from 6548.1 billion rupees to 6,499.1 billion rupees, with both domestic and foreign banking units contributing.

Net central bank credit to government also marginal, though the central bank bought some bonds outright injecting permanent money into the banking system and reducing overnight injections.

In May Sri Lanka imported oil on a credit line from India, and state-run Ceylon Petroleum Corporation gave the balance rupees from customer sales to the Treasury after covering its losses.

However in June the credit line ran out.

There is another credit line for essential services which will bring some money to the Treasury as long is it used by private sector who will pay rupees to the government.

Sri Lanka’s rupee collapsed from 200 to 370 to the US dollar in a botched float after March though interest rates were raised in April to slow private credit and help save the soft-peg to the US dollar.

Sri Lanka’s private credit and the broader economy has to be smashed to pay state worker salaries without printing money try and save a soft-pegged exchange rate regime in 70 years of monetary instability since a soft-peg was set up in 1950.

The economic smashing has to be greater than in the past due to existence of a surrender requirement that pushes down the rupee, as well as delays in raising rates.

Soft-peggers call monetary instability ‘macro-economic instability’ and also manage to transfer the blame to imports and tax payers though private citizens are net savers and who have no ability to print money and de-stabilize the balance of payments and impose exchange and trade controls.

In May the rupee was transacting around 380 to the US dollar when a 360 to the US dollar and Undiyal premiums were falling, when a guidance peg was slammed at 360 to the US dollar with a surrender requirement still in place.

Sri Lanka is in a severe monetary crisis, with rising prices increasing malnutrition due to the collapse of a soft-peg after two years of money printing and failed float with a surrender requirement.

Inflation topped 50 percent in June.

Soft-pegs or flexible exchange rates cooked up in Latin America and the US after the Great Depression are peddled to third world countries where ‘economists’ have ‘fear of floating’ and ‘fear of currency boards’ and adopt unstable regime with anchor conflicts instead. (Colombo/July04/2022)

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Sri Lanka shares down for 2nd day as tax hike, delay in Chinese debt assurance weigh

ECONOMYNEXT – Sri Lanka’s shares edged down on Tuesday as worries over delay in financial assurances from China which is mandatory for a $2.9 billion dollar IMF loan and rise in protests against tax hike kept investors in check, analysts said.

The main All Share Price Index (ASPI) edged down by 0.28 percent or 24.62 points to 8,865.05. It fell for the second session after hitting more than three-month high.

“The market is looking for more macro cues because of faster Chinese debt assurance was expected. The market is also hit by fall in corporate earnings due to high taxes,” an analyst said.

China has given an initial response on debt re-structuring to Sri Lanka though analysts familiar with the process say it is not a ‘hard assurance’ sufficient for the IMF program to go through.

The International Monetary Fund is working with China on extending maturities of Chinese loans to defaulted countries like Sri Lanka, as there is resistance to hair-cuts, Managing Director Kristalina Georgieva told reporters on January 14.
The earnings for first quarter are expected to be negative for many corporates with higher taxes and rising costs. However, investors had not expected earnings to be low in the December quarter because of year end pick ups on heavy counters, the analyst said.
Earnings in the second quarter of 2023 are expected to be more positive with the anticipation of IMF loan and possible reduction in the market interest rates as the tax revenue has started to generate funds.

However, the central bank said the IMF deal is likely in the first quarter or in the first month of the second quarter.

The most liquid index S&P SL20 dropped by 0.64 percent or 17.74 points to 2,764.51 points.

The central bank has said it could cut interest rates in future when the country sees fall in inflation, which has already started decelerating.

The market saw a turnover of 1.7 billion rupees, slightly lower than the month’s daily average of 1.8 billion rupees and while being significantly lower than 2022’s daily average turnover of 2.9 billion rupees.

The bourse saw a net foreign inflow (NFI) of 93 million rupees extending the net offshore buying to 413 million rupees so far this year.

Top losers were LOLC, Royal Ceramics Limited and Hayleys. (Colombo/Jan31/2023)

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Sri Lanka exports fall in December as global recession weighs

ECONOMYNEXT – Sri Lanka’s merchandise exports earnings fell 9.7 percent in December year-on-year as the island nation saw a drop in buying from its key export destinations which are facing a looming recession after the Russia-Ukraine war.

The earnings from the merchandise exports recorded $1.04 billion  in December 2022 compared to the same month in the previous year as per the data released by the Sri Lanka Customs.

“This was mainly due to the decrease in export earnings from Apparel & Textiles, Tea, Rubber based Products, and Coconut based Products, Food & Beverages, Spices & Essential Oils and Fisheries products,” the Export Development Board (EDB) said in a statement.

“The reason for this decline was due to the ongoing recession in major markets due to rising cost of production, energy etc. Imports declined sharply due to inflation and demand for goods and services are reduced.”

However, Sri Lanka saw a record export earning of $13.1 billion in 2022 due to increased demand in the key exports throughout the year

Earnings from all major product sectors except Electrical & Electronic components as well as Diamonds, Gems & Jewellery fell in December.

Exports of Apparel & Textiles decreased by 9.6 percent to $480.3 million in December 2022.  Export earnings from Tea fell by 3 percent to $107.3 million, Rubber and Rubber Finished products dropped 20.3 percent to $74.5 million,

However, export earnings from the Electrical & Electronics Components increased by 16.18 percent to $42.9 million in December 2022, while Diamond, Gems & Jewelry jumped 35.7 percent to $30.8 million. (Colombo/Jan31/2023)

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Sri Lanka records over 6,000 dengue cases in first three weeks of January

ECONOMYNEXT – Sri Lanka recorded over than 6,000 dengue cases in the first three weeks of January 2023 after a spell of heavy monsoon rain though a drop in cases is likely from February, officials said.

Health officials identified 6,204 dengue patients by January 22, up from 5,793 recorded in the corresponding period last year.

“A rise in cases can be observed in the November-January period with the heavy rain due to the northeast monsoon,” an official from the National Dengue Control Unit told EconomyNext.

Of all reported cases, 46.3 percent were from the Western Province, official reports showed.

Akuressa, Batticaloa, Eravur, Trincomalee, Madampe, Badulla, Eheliyagoda, Kegalle, Kalmunai North and Alayadivembu MOH areas were identified as high-risk areas for dengue during the third week of January by the health officials.

“We are expecting a decline in dengue cases soon. The Western province is always in the top position with the highest number of dengue cases. Apart from that, we are seeing a higher number of cases during this period in areas like Puttalam, Jaffna districts. A certain number of cases have also been recorded in the Kandy district,” the official said.

“Usually the cases peak in December, but they decline by February. This year, too, we are facing this scenario. There is an increase of dengue during the months of November, December and January”.

Due to the economic situation in the country, the Public Health Inspectors (PHIs) in an earlier report said, diesel and pesticides are not being provided by the ministry.

However, rejecting the allegation, the official from the NDCU said the government has provided enough funds for get the necessary pesticides but it is being used according to a scientific method to avoid building a resistance in the dengue mosquito.

“The recommendation is to do the fogging if there is a dengue outbreak or if there are few patients reported from the same locality.

“If you use this pesticide haphazardly, the mosquitos will develop resistance against it,” the official said, adding that there are adequate stocks of the chemical available. (Colombo/ Jan 31/2023)

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