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Thursday February 29th, 2024

Sri Lanka rupee quoted at 225/226.50 to US dollar in kerb market amid money printing

BOOM: Sri Lanka’ central bank has printed so much money that the outstanding credit extended has exceeded the reserve money stock.

ECONOMYNEXT – Sri Lanka’s rupee is being quoted in the kerb market at 225.00/226.50 to the US dollar as unusual demand for currency notes emerged over the past two weeks amid forex trading curbs in the formal market, participants said as money printing continued.

Generally known as the ‘nana’ rate, which is offered by money changers in Colombo for Middle East returnees and others rose dramatically over the past month after a Covid-19 control was lifted and foreign exchange rationing began for imports.

The kerb rate had been gradually picking up but jumped as devaluation speculation rose among banks last week, market participants said.

Of late some new intermediaries representing some new interests had suddenly started buying up dollars, pushing the price up, persons familiar with the matter said.

The kerb market usually offers a better rate for hardworking Middle East returnees than banks by trading between the banks two-way price.

Banks have a spread of around 5 rupees between buying and selling rates.

Banks in the past tended to offer a rate of about 2 to 3 rupees below the interbank spot for Middle East returnees, while the kerb market offered a rate that is at the spot rate or marginally (about 50 cents) lower.

The spread used to be about 50 cents to a dollar compared to 5 rupees for banks, market participants say, though it has widened now.

Banks in the airport are offering only around 197.75 for currency notes and a 2 rupee supplement for returnees.

The kerb market is a major advantage for hard-working Middle East returnees who are paying sky-high prices for tickets to change notes, analysts say.

More knowledgeable Middle East returnees could negotiate for a higher rate at some banks.

Some of Sri Lanka’s importers had also been paying suppliers through the ‘Undiyal’ system amid forex rationing by formal banks.

Importers have to settle import bills by the due date somehow to keep the word to their suppliers.

Sri Lanka is printing large volumes of money to keep interest rates down artificially and also finance a deficit which is creating forex shortages.

When importers come to the forex market armed with newly printed money paid by customers (usually state workers or others who had taken loans from central bank re-finance) there is insufficient dollars to match them (redeem) in the forex market.

The central bank has banned forward cover for customers after printing money and also barred interbank outright trading above 200 to the US dollar.

Reports said Sri Lanka is also planning to hike fines for breaking price controls on rice and other goods imposed as the currency falls and inflation picks up.

Related

Sri Lanka’s inflation rises to 5.2-pct in June, food prices up 11.3-pct

Sri Lanka to fine traders US$500 for breaking edict maxima on rice amid money-printing: report

Analysts had suggested that the open market operations of the central bank be curbed to prevent monetary instability when money was printed earlier.

Sri Lanka set up a Latin America style central bank in 1950 leading to frequent currency collapses.

In 2018 when the central bank de-stabilized the monetary system by a combination of call-money-rate-targeting and flexible exchange rate analysts suggested dollarization or setting up currency board (hard peg) at 200 to the US dollar, devaluing the rupee a little.

The last administration gave full independence to the central bank, made no attempt to bring laws to control its domestic operations and was rejected by the people as the currency collapsed and output shocks emerged from so-called ‘stop-go’ policies.

Related

Sri Lanka is not Greece, it is a Latin America style soft-peg: Bellwether

“Sri Lanka can reform the peg into a hard one or float,” EN’ economic columnist Bellwether said in December 2018.

“But Sri Lanka can also dollarize and stop the central bank’s ability to de-stabilize the lives of the people of this country forever.

“By using 5.5 billion dollars, the reserve money can be dollarized at 185 to the US dollar (5 billion and 200 rupees) and use the rest of the reserves to repay urgent loans and set up a liquidity facility.

“That will end depreciation forever. Sri Lanka can have free trade, import cars, and not worry about gold smugglers making profits by hand carrying foreign currency from India.

“If more reserves are lost, it will not be possible to dollarize at these levels.”

The central bank’s gross reserves had now fallen to around 4 billion US dollars, which is not sufficient to cover the existing reserve money base of trillion rupees at 200 to the US dollar, net reserves are only around a third of reserve money even lower after deducting encumbered assets.

Sri Lanka however has decided to dollarize Colombo Port City, protecting the area from depreciation by the Monetary Board of the central bank. (Colombo/July01/2021)

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Sri Lanka’s RAMIS online tax collection system “not operatable”: IT Minister

ECONOMYNEXT – Sri Lanka’s online tax collection system RAMIS is “not operatable”, and the Ministry of Information Technology is ready to do for an independent audit to find the shortcomings, State IT Minister Kanaka Herath said.

The Revenue Administration Management Information System (RAMIS) was introduced to the Inland Revenue Department (IRD) when the island nation signed for its 16th International Monetary Fund (IMF) programme in 2016.

However, trade unions at the IRD protested the move, claiming that the system was malfunctioning despite billions being spent for it amid allegations that the new system was reducing the direct contacts between taxpayers and the IRD to reduce corruption.

The RAMIS had to be stopped after taxpayers faced massive penalties because of blunders made by heads of the IT division, computer operators and system errors at the IRD, government officials have said.

“The whole of Sri Lanka admits RAMIS is a failure. The annual fee is very high for that. This should be told in public,” Herath told reporters at a media briefing in Colombo on Thursday (29)

“In future, we want all the ministries to get the guidelines from our ministry when they go for ERP (Enterprise resource planning).”

President Ranil Wickremesinghe’s government said the RAMIS system will be operational from December last year.

However, the failure has delayed some tax collection which could have been paid via online.

“It is not under our ministry. It is under the finance ministry. We have no involvement with it, but still, it is not operatable,” Herath said.

“So, there are so many issues going on and I have no idea what the technical part of it. We can carry out an independent audit to find out the shortcomings of the software.”

Finance Ministry officials say IRD employees and trade unions had been resisting the RAMIS because it prevents direct interactions with taxpayers and possible bribes for defaulting or under paying taxes.

The crisis-hit island nation is struggling to boost its revenue in line with the target it has committed to the IMF in return for a 3 billion-dollar extended fund facility. (Colombo/Feb 29/2024) 

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Sri Lanka aims to boost SME with Sancharaka Udawa tourism expo

ECONOMYNEXT – Sri Lanka is hosting Sancharaka Udawa, a tourism industry exhibition which will bring together businesses ranging from hotels to travel agents and airlines, and will allow the small and medium sector build links with the rest of the industry, officials said.

There will be over 250 exhibitors, with the annual event held for the 11th time expected to draw around 10,000 visitors, the organizers said.

“SMEs play a big role, from homestays to under three-star categories,” Sri Lanka Tourism Promotion Bureau Chairman, Chalaka Gajabahu told reporters.

“It is very important that we develop those markets as well.”

The Sancharaka Udawa fair comes as the Indian Ocean island is experiencing a tourism revival.

Sri Lanka had welcomed 191,000 tourists up to February 25, compared to 107,639 in February 2023.

“We have been hitting back-to-back double centuries,” Gajabahu said. “January was over 200,000.”

The exhibition to be held on May 17-18, is organized by the Sri Lanka Association of Inbound Tour Operators.

It aims to establish a networking platform for small and medium sized service providers within the industry including the smallest sector.

“Homestays have been increasingly popular in areas such as Ella, Down South, Knuckles and Kandy,” SLAITO President, Nishad Wijethunga, said.

In the northern Jaffna peninsula, both domestic and international tourism was helping hotels.

A representative of the Northern Province Tourism Sector said that the Northern Province has 170 hotels, all of which have 60-70 percent occupancy.

Further, domestic airlines from Colombo to Palali and the inter-city train have been popular with local and international visitors, especially Indian tourists. (Colombo/Feb29/2024)

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Sri Lanka rupee closes at 309.50/70 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 309.50/70 to the US dollar Thursday, from 310.00/15 on Wednesday, dealers said.

Bond yields were slightly higher.

A bond maturing on 01.02.2026 closed at 10.50/70 percent down from 10.60/80 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.10 percent from 11.90/12.00 percent.

A bond maturing on 01.07.2028 closed at 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.30/45 percent up from 12.20/50 percent.

A bond maturing on 15.05.2030 closed at 12.35/50 percent up from 12.25/40 percent.

A bond maturing on 01.07.2032 closed at 12.55/13.00 percent up from 12.50/90 percent. (Colombo/Feb29/2024)

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