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Tuesday February 7th, 2023

Sri Lanka removes ban on open account food imports

ECONOMYNEXT – Sri Lanka has lifted a ban on open account food imports allowing rice, lentils and potatoes to come freely to the island in the worst currency crises in the history of the island’s intermediate regime central bank.

Sri Lanka only needs about a 100 million US dollars a month for key food imports according to industry officials but a ban on open account imports in May threatened the country’s food supplies as the banks are unable to allocate foreign exchange on time for food, amid forex shortages driven by money printing.

Under open account trade, suppliers can send goods on credit which can be settled later based on their personal relationships. Perishables have to be cleared quickly from the Port but banks are unable to give dollars in time for importers of most items.

Some foods like onions and potatoes are vegetables which perish.

“A big share of essential food imports come from India,” Trade Minister Nalin Fernando told reporters. “They need to get the food out of the exporting country in a day or two and clear them as quickly as possible.

“They give credit and delayed payment facilities because they cannot kept for a long time. For example onions and potatoes perish quickly.

Prices of foods moved up after open account imports were banned in May, he said.

“So there was a reduction in the availability of foods and then prices went up in the market. So we discussed with the Treasury and Central Bank we are giving permission against for 10 essential food items to be imported on open account basis.”

The central bank was pushing to close open account trade as the money it printed created excess outflows triggering a parallel exchange rate for people who were willing to pay higher than the officially directed price.

Sri Lanka’s rupee has collapsed from 4.70 to 360 levels since the soft-pegged central bank since it was set up in 1950 abolishing a currency board or hard peg which could not print money to manipulate the interest rate.

The soft-peg was set up on a false promise propagated by US Mercantilists in particular that there was ‘monetary policy independence’ while operating a reserve collecting peg with an exchange rate target either to run counter cyclical policy when the anchor currency tightened or to finance deficits.

Prime Minister Ranil Wickremesinghe, as Minister of Finance has issued gazette notice on June 25, allowing 10 foods to come in through open account basis.

Download gazette Gazette-2285-19-open-account

The Director General of Customs and Controller of Imports and Exports were directed to issue operating instructions.

These include, rice, milk powder, dried fish, potatoes, peas, lentils (Massor dhal), chillies, wheat and sugar.

Sri Lanka earns about a billion US dollars in exports, about 600 million dollars in remittances (about half coming in through unofficial gross settlement systems such as Hawala), and another few hundred million as services exports.

However Sri Lanka’s soft-peg has lost credibility and there is no floating exchange rate to allocate dollars to the highest bidder.

In a fixed pegged system a central bank provides any which are not provided by the market, and it has to lead to a rise in rates and contraction in credit. However in a soft-pegged system interventions are offset with new money.

Sri Lanka is also injecting new money to keep Treasury bill yields down. Over 40 billion rupees were printed on Friday, data showed. (Colombo/June26/2022)

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Sri Lanka Railways to seek PPPs to boost revenue streams

CURFEW RUSH: Commuters scrambling to get home after curfew was declared in Sri Lanka on March 20, 2020.

ECONOMYNEXT – Sri Lanka Railway department hopes to expand Public Private Partnerships and earn more non-passenger revenues to offset recurring operational costs, an official said.

“For the past 10 years, except the last few years, the Railway operational income only covers around 50 percent of the operational expense of the Department,” the General Manager of the Railway, D.S. Gunasinghe told EconomyNext.

“Our plan is to increase the non-passenger revenue of the Railway department.

“And we cannot expect and do not hope for money from the government.”

Sri Lanka Railways already has agreements with Prima, a food firm, and Insee Cement, which is bringing in additional income, Gunasinghe said.

“We had agreements for material transportation such as sand in the past, however it was canceled but we hope to start it again” he said.

The department will rent out its storage facilities and circuit bungalows for the tourism sector to create additional revenue streams.

Sri Lanka Railways recorded an operating loss of 10.3 billion rupees during 2021, compared to a loss of 10.1 billion rupees in 2020, the Central Bank 2021 annual report showed.

The total revenue of the SLR stood at 2.7 billion rupees, a 41.3 percent drop from a year ago.

(Colombo/ Feb 06/2023)

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Sri Lanka’s doctors distribute anti-tax hike leaflets to train commuters

ECONOMYNEXT – Doctors representing Sri Lanka’s Government Medical Officers Association (GMOA) distributed leaflets outside the Colombo Fort railway station against a progressive tax hike, threatening to address the government in a “language it speaks”.

GMOA Secretary Haritha Aluthge told reporters outside the busy Fort railway station Monday February 06 afternoon that all professional associations have collectively agreed to oppose the personal income tax hike.

“The government is taking a lethargic approach. They cannot keep doing this. They have a responsibility towards the citizens, the country and society,” said Aluthge.

The medical officer claimed that the government was acting arbitrarily (අත්තනෝමතික).

“If it cannot understand the language they’ve been speaking, if the government’s plan is to put all professionals out on the street, if it doesn’t present a solution, all professional unions have decided unanimously to address the government in a language it speaks, ,” he said.

Aluthge and other GMOA members were seen distributing leaflets to commuters leaving the railway station. Doctors in Sri Lanka in general are likely to earn higher salaries than the average train commuter, and a vast majority of Sri Lanka’s population, most of whom take public transport, don’t fall into the government’s new tax bracket. Many doctors, though certainly not all, collect substantial sums of money at the end of every month as doctor’s fees in private consultations.

About two miles away from the doctors, the Ceylon Blank Employees’ Union, too, engaged in a similar distribution leaflet campaign on Monday at the Maradana railway station. A spokesman promised “tough trade union” action if there was no solution offered by next week.

Sri Lanka’s cash-strapped government has imposed a Pay As You Earn (PAYE) tax on all Sri Lankans who earn an income above 100,000 rupees monthly, with the tax rate progressively increasing for higher earners, from 6 percent to 36 percent.

A person who paid a tax of 9,000 rupees on a 400,000 rupee monthly income will now have to pay 70,500 rupees as income tax, the latest data showed. This has triggered a growing wave of anti-government protests mostly organised by public sector trade unions and professional associations.

Even employees of Sri Lanka’s Central Bank recently joined a week-long “black protest” campaign organised by state sector unions against the sharp hike in personal income tax, even as Central Bank Governor Nandalal Weerasinghe said painful measures were needed for the country to recover from its worst currency crisis in decades.

The government, however, defends the tax hike arguing that it is starved for cash as Sri Lanka, still far from a complete recovery, is struggling to make even the most basic payments, to say nothing of the billions needed for public sector salaries.

Economists say Sri Lanka’s bloated public service is a burden for taxpayers in the best of times, and under the present circumstances, it is getting harder and harder to pay salaries and benefits.

Sri Lanka’s new tax regime has both its defenders and detractors. Critics who are opposed to progressive taxation say it serves as a disincentive to industry and capital which can otherwise be invested in growth and employment-generating business ventures. Instead, they call for a flat rate of taxation where everyone is taxed at the same rate, irrespective of income.

Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital, at least for a year or two.

Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and, they argue, though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair.  (Colombo/Feb06/2023)

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Sri Lanka bond Yields end steady

ECONOMYNEXT – Sri Lanka’s bond yields closed steady on Monday, dealers said while a guidance peg for interbank transactions remained unchanged.

A bond maturing on 01.07.2025 closed at 32.15/30 percent, steady from Friday’s 32.05/10 percent.

A bond maturing on 01.05.2027 closed at 28.90/29.10, steady from Friday’s 28.90/20.05 percent.

The Central Bank’s guidance peg for interbank US dollar transactions appreciated by one cent to 361.96 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 370.35 rupees on Monday, data showed. (Colombo/Feb 06/2023)

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