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Sunday July 14th, 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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UNESCO DG to discuss archaeological endeavours in Anuradhapura, Sri Lanka: President

ECONOMYNEXT – Sri Lanka’s president has said that he will discuss initiatives for long-term archaeological endeavours in the Anuradhapura city with visiting UNESCO Director General Audrey Azoulay.

Azoulay will visit Sri Lanka from July 16-19 and take part at the celebration of the 75th Anniversary of Sri Lanka’s membership of UNESCO at the Nelum Pokuna Theatre in Colombo.

She will also travel to UNESCO World Heritage Sites around the island, the Ministry of Foreign Affairs said.

“I have invited the Director General of UNESCO to visit Sri Lanka and discuss initiatives for long-term archaeological endeavours in the Anuradhapura city. Several universities overseas have shown interest in supporting us for these activities, and we are moving forward with their collaboration,” Ranil Wickremesinghe said.

“Anuradhapura boasts a rich history spanning over a millennium, once renowned as a hub of trade and economics. Preserving and exploring this ancient city’s archaeological treasures remains a significant endeavour.”

“New archaeological efforts in the Anuradhapura district are now imperative,” Wickremesinghe said during a ceremony to inaugurate a 150-kilowatt solar power system installed by the LTL Group at the Sri Maha Bodhiya premises in Anuradhapura on Saturday (13).

Wickremesinghe pointed out that UNESCO has undertaken extensive archaeological projects in Angkor Thom in Cambodia, and Luang Prabang in Laos.

“However, we have not taken the necessary steps to implement these activities in Anuradhapura city. Therefore, I have advised both the Department of Archaeology and the Cultural Triangle to undertake these initiatives.”

These efforts are part of a comprehensive program aimed at establishing Anuradhapura as a globally renowned city, Wickremesinghe said.

While Sigiriya has gained international fame, Sri Lanka has not adequately highlighted Anuradhapura’s historical significance as a major trade and economic center in the past, the president pointed out.

“Cities like Tanjore (Thanjavur), Madurai, and Sanchipuram are often discussed, yet Anuradhapura, the fourth city, has been overlooked. Therefore, it is crucial to develop Anuradhapura city.”

As part of these initiatives, preparations are underway to establish new hotels in Anuradhapura, which will contribute significantly to its development, Wickremesinghe said. (Colombo/Jul13/2024)

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Government committed to improving living conditions in Jaffna: Sri Lanka PM

ECONOMYNEXT – Sri Lanka’s prime minister, who is in Jaffna “to monitor the progress” and “get a little feedback” has said the government is committed to improving living conditions of the people in the northern peninsula.

“This government is dedicated to improving the living conditions of the Jaffna Peninsula,” Dinesh Gunawardena told a Jaffna District Coordinating Committee meeting on Friday, according to a statement by his media division.

“In order to increase the living conditions, we have embarked on an increase in most of the expenditure needed by the departments, and also special allocations for rural and urban development in the local government area.”

Nationalist Gunawardena met with Tamil politicians at the Jaffna Divisional Secretariat Office and participated in the distribution of rice and egg incubators for low income families.

“A special privilege to be with you all, in order to monitor the progress made by all of you, as well as to get a little feedback where we stand today in relation to the reports given.”

Gunawardena joins a string of leading political figures who have visited the north ahead of upcoming polls.

The government was, he said, “committed to improve the services and living conditions, therefore, to provide the necessary infrastructure for developments, which means much to your area.”

The prime minister said he appreciated the efforts of farmers because “farmers are all private sector, I would say. Let us not forget, farmers are all in the private sector, either in the ownership or in the tenancy. They are private contributors to the national development of the economy.”

The poverty numbers are “fairly managed” in the country. Gunawardena said, pointing out that poverty was a key problems in any economy. “Any country, you would agree with me, the richest country, in the United States even, food stamps have been given. So all economies the world are going through difficult situations in relation to the poor.

“We have to look after the poor especially in these remote villages of the Northern Province…”

Minister Douglas Devanada, MPs M A Sumanthiran, Angajan Ramanathan, C Vigneshwaran, Dharmalingam Siddharthan, and other officials participated in the meeting. (Colombo/Jul13/2024)

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Sri Lanka leader’s presidential campaign faces dilemma over coalition: sources

ECONOMYNEXT – Sri Lanka leader Ranil Wickremesinghe’s presidential election campaign is facing a dilemma over coalition due to rivalry parties with different political ideologies, sources said.

President Wickremesinghe is yet to announce his candidacy for the presidential poll which is expected to be declared by the island nation’s Election Commission after July 17.

However, his close allies and some ministers in the current coalition government have already started a campaign to promote him assuming that President Wickremesinghe will declare his candidacy.

Three sources who spoke to EconomyNext said legislators from the main opposition center-right Samagi Jana Balawegaya (SJB) are ready to join, but they do not want to be in coalition with the ruling Sri Lanka Podujna Peramuna (SLPP).

“SJB members who want to join Wickremesinghe are bit nervous because people wanted to oust SLPP in 2022 for their past sins including corruption and wrong economic policies,” on source who is in a member in the core campaign strategy group told EconomyNext.

Another source said majority of nationalist party SLPP are with the president, but a few key SLPP leaders do not want to back Wickremesinghe because of his market-led economic policies.

“SLPP does not want to be seen as backing Wickremesinghe’s privatization moves. So a few leaders are worried to join the campaign and have different idea of fielding their own campaign,” the second source who is indirectly involved with facilitating meeting between Wickremesinghe and legislators said.

The SJB is leaned towards somewhat liberal economic policies and has ensured to treat all ethnic people equally, while SLPP has backed a state-controlled economy and has given priority for ethnic majority Sinhala Buddhists.

UNDECIDED VOTERS

There is no formal and transparent survey to assess the popularity of possible presidential candidates.

However, an informal survey shows Opposition and SJB leader Sajith Premadasa is leading followed by Marxists Janatha Vimukthi Peramuna leader Anura Kumara Dissanayaka.

The same survey has shown a gradual gain for Wickremesinghe in the last three months.

“He is confident of winning, but he has to win most of the undecided voters for that,” a third source, who is in the campaign planning team, said.

“Still things are very fluid. Majority of the people still don’t understand the benefits of economic recovery and the country getting out of the debt default under the current president. We will have a clear picture by end of next month.”

Wickremesinghe was elected as the president in July 2022 by the parliament after his predecessor Gotabaya Rajapaksa fled the country in fear of his life amid mass protests and outside the presidential palace.

Wickremesinghe has implemented some tough economic reforms including raising taxes, imposing new taxes, freezing recruitments to state-owned companies, and privatizing loss making government-owned entities in line with commitments agreed with the IMF.

UNPOPULOUR REFORMS

Those reforms have made him unpopulour mainly among government employees and lower income groups.

He has raised the salaries of government employees from April this year while has introduced a new transfer payment called Aswesuma for lower income and vulnerable groups.

Sri Lanka faced an unprecedented economic crisis with a sovereign debt default in 2022. But it has recovered faster than expected under Wickremesinghe administration with difficult and unpopulour reforms.

People protested against the SLPP-led government in 2022 and ousted then leader Gotabaya Rajapaksa and all his relatives from the key ministerial positions for their alleged involvement in corruption and wrong economic policies.

The SLPP which had more than two-third majority in the parliament after 2020 general election, is worried about its perception and electoral performance after the economic crisis.

Analysts say Wickremesinghe has a greater chance to win if he join with SJB than SLPP because of the SLPP’s negative perception.

Sources, however, said they are in discussions with both SLPP and SJB legislators to agree on a common programme for Wickremesinghe’s presidency.

Presidential election is likely to be held either in October first week or second week, Election Commission officials say.

Wickremesinghe lost the parliamentary election in 2020, but entered the parliament in 2021 using the solo seat his party won through the national list.  (Colombo/July 13/2024)

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