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Tuesday November 29th, 2022

Sri Lanka ruling party kindles resignation drama over fuel price hike

ECONOMYNEXT – Sri Lanka’s ruling party in a dramatic move called for the resignation of Energy Minister Udaya Gammanpila a day after fuel prices were raised ending an election promise to fix oil prices, in bid to bolster the cash-strapped state energy firm.

Minister Gammanpila said the on Friday (11) the price hike was decided by a cabinet subcommittee as the state-run Ceylon Petroleum Corporation (CPC) had 330 billion rupees of accumulated losses and over 3 billion US dollars in foreign exchange which was in short supply.

But General Secretary of the ruling Sri Lanka Podujana Party, Sagara Kariyawasam, issued a statement charging Gammanpila of conspiring to bring the government’s leaders to disrepute by increasing fuel prices and calling for his resignation.

“Our utmost displeasure and concern with regard to the fuel price hike which has caused an added burden on public at this difficult time of the COVID-19 pandemic,” the party said in tweet.


“We demand that the minister in charge should take full responsibility and step down,” the party said.

Kariyawasam in a statement said it was the view of the party that additional burdens must not be placed on the public who was already suffering from a coronavirus pandemic.

It is however unusual for a ruling party to call for the resignation of a petroleum minister over a price hike.

There had been simmering tensions between Kariyawasam and Gammanpila.

Gammanipla has gone on record referring to a benign “internal struggle” to course correct the alliance and reverse some of its more problematic decisions.

In April 04, 2021, the minister said there was a conspiracy afoot to undermine President Gotabaya Rajapaksa’s administration and destroy the alliance from within.

“We know there are certain provisions in the 20th amendment to the constitution that go against the mandate. The 20th amendment wouldn’t have come out in the form that it did if the goal was to serve the mandate,” he said.

In his June 12 statement, Kariyawasam alluded to attempts to deliberately sabotage the government to make the party leadership unpopular in the eyes of the public.

Kariyawasam had previously levelled similar allegations at Industries Minister Wimal Weerawansa.

There have been tensions between Weerawansa and sections of the SLPP since early February when he refused to retract a remark he had made to a Sinhala-langue weekly on February 7 that President Rajapaksa must lead the SLPP.

His comment drew the ire of Kariyawasam who demanded an apology and a retraction from his colleague.

Previously, on February 2,the SLPP secretary criticised Weerawansa for going public with his party’s opposition to the now-scrapped East Container Terminal deal. His actions, Kariyawasam said, were detrimental to the unity within the ruling coalition.

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a twitter.com message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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