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Friday March 31st, 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 rupee closes at 328/329 against the US dollar, bond yields down

ECONOMYNEXT – Sri Lanka’s treasury bond yields were down and the rupee closed at 328/329 against the US dollar in the spot market on Friday, dealers said.

A 01.07.2025 bond closed at 29.80/30.20 percent on Friday, down from 31.25/30 percent on Thursday.

A 15.09.2027 bond closed at 27.45/55 percent, steady from 28.80/85 percent on Thursday.

Sri Lanka rupee closed at 328/329 rupees against the US dollar, from 327/330 rupees from a day earlier. (Colombo/ March31/2023)

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Sri Lanka tax hike: no response from president, professionals to discuss next steps

GMOA Secretary Haritha Alutghe

ECONOMYNEXT – Sri Lanka’s trade unions and professional associations who have been agitating against an International Monetary Fund (IMF) backed progressive tax hike will meet to discuss further union action after a letter to the president went unanswered.

Government Medical Officers’ Association (GMOA) secretary Dr Haritha Aluthge told reporters on Friday March 31 that the unions will meet as the self-styled Professionals’ Trade Union Alliance (PTUA) collective which have so far been organising strikes and demonstrations demanding a revision of the taxes.

The PTUA has been awaiting a promised meeting with President Ranil Wickremesinghe for some days now. Aluthge previously said on Monday that if the meeting did not materialise, the unions would be compelled to go on strike.

The issue has become stagnant due to government inaction, said Aluthge at Friday’s press conference.

“The PTUA informed the president in writing yesterday for the last time to please understand the gravity of this situation and to immediately give us a meeting and present the government’s interim solution, through which the government can take measures to ease the sense of tension among professionals,” he said.

The purpose of the meeting is to discuss an “interim solution” to the professionals’ grievances over the progressive income tax hike until a reported revision that’s due in six months when the country’s recently approved 17th IMF programme comes up for review.

“Sadly, there has still been no response,” the GMOA official said.

All unions and professional associations will meet Friday evening together with a number of other unions to discuss further action, he added.

The privately-owned English-language weekly newspaper The Sunday Times reported on March 26 that the IMF had indicated the possibility of revising some of the taxes imposed as part of the IMF’s staff-level agreement with Sri Lanka when the programme comes up for review in six months.

According to the newspaper, IMF officials had conveyed this to representatives of trade unions during a virtual roundtable held last Friday March 24. The virtual meeting was held on the initiative of the IMF and was attended by trade unions and professional associations representing the PTUA including the GMOA. (Colombo/Mar31/2023)

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Sri Lankan transport associations cut haulage and transportation fees after fuel price cut

ECONOMYNEXT –  Sri Lanka Association of Container Transporters and fuel bowser owners has decided to reduce the haulage charges and transportation fee, after the government cut the auto diesel prices by 80 rupees, association officials said.

“Due to the recent reduction in Auto Diesel price from March30, 2023, the committee has decided to reduce haulage charges by 7 percent,” association said.

Sri Lanka Private Petroleum Tanker owners has also decided to reduce the transportation fee of fuel by 8 -10 percent from April onwards.

“We will be meeting with the association members and will be deciding on exactly how much we will be reducing,” the General Secretary of the association Nimal Amarasekera told EconomyNext.

“We hope to reduce it by 8-10 percent and will be applied.”

Meanwhile United Lanka Fuel Transport Bowser Owners Association said, the price reduction will be done, and the specific amount will be calculated using the cost per kilometer for a transporting bowser.

“We have different types of bowsers such as 13,200 litre and 19,800 litre likewise,” Association President K.W. Charles told EconomyNext.

“So the cost per kilometer per bowser is different and after we calculate only we can give a specific percentage.

“It will come to effect from this month and the payments for the next month will be based on the new prices.”

Charles said, this is only based on the price reduction of fuel, however several costs as maintenance and spare part costs should also be considered when deciding the transportation cost, which is also being discussed with the Ceylon Petroleum Corporation.

Sri Lanka slashed fuel prices with effect from Wednesday (29) midnight, Power and Energy Minister Kanchana Wijesekera said, after a protest by trade unions of state-run fuel retailer Ceylon Petroleum Corporation (CPC) resulting in queues at filling stations due to supply disruption.

The price of Petrol 92 Octane will be slashed by 15 percent or 60 rupees to 340, Petrol 95 Octane 95 will be reduced by 26.5 percent or 135 rupees to 375, Auto Diesel by 19.8 percent or 80 rupees to 325, and kerosene by 3.3 percent or 10 rupees to 295. (Colombo/ March31/2023)

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