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Saturday June 15th, 2024

Sri Lanka seeks rice bailout from China after fertilizer ban

ECONOMYNEXT – Sri Lanka has sought a million tonnes of rice as a gift from China government ministers says which is expected to make good an expected crop loss from during the main Maha cultivation season from a chemical fertilizer ban.

Sri Lanka had sought the million tonnes of rice as a gift as a way mark a 30 year long barter agreement between the People’s Republic and Ceylon which ran from 1953 to 1982.

Trade Minister Bandula Gunewardena said the donation was sought during an virtual meeting with the Chinese ambassador to Colombo with the 30 years being market on December 18, 2022.

“The response was very positive from China,” Minister Gunewardene told state-run ITN television.

“What we asked was for a gift of one million metric ton of rice as paying respect for the 3 decade agreement that went on without changing under various governments.”

A million tonnes of rice is worth between 350 to 500 million dollars at current market price for Indica rice grades.

Sri Lanka’s main Maha cultivation season that end around March produces about 2.5 million metric tonnes of paddy (rough rice) and up to 3 million tonnes in good years.

About 1.9 million tonnes of milled rice is produced from a good season, which is enough for over 9 months of use at around 195,000 metric tonnes a month. Output can fall to around one 1.5 million tonnes in drought years.

A million tonne gift from China will make good a crop loss of up to 50 percent. Sri Lanka’s cabinet of ministers also relaxed import controls to allow 300,000 metric tonnes of rice from India.

Finance Minister Rajapaksa said in January the government will buy paddy at 75 rupees a kilo to make good a 30 percent crop loss as part of 220 billion rupee ‘relief package’.

Sri Lanka’s farmgate price for rice was around 50 to 60 rupees. But millers said it had risen to around 95 rupees at the beginning of the current harvest season which is just beginning. Farmers are also complaining of steep harvest losses.

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President Rajapaksa said this week that the government will also give 95 rupees for a kilo of rough rice.

Sri Lanka retail rice prices for milled rice now range around 130 to 150 rupees, depending on the grade.

“We need to understand that if we buy one kg per 50 rupees, then the price of it in the market will be 100 rupees,” Minister Gunewardene said.

“If we bought it for 75 rupees the market price will be 150 rupees. By saying we need to strengthen the farmers and get rice at 200 rupees per one kg the price of it in the market will be 400 rupees.

Sri Lanka had earlier banned the import of rice to keep domestic prices high and also give profits to rice millers. Attempts to bring price controls failed and created shortages.

In an improvement of policy the government has ended price controls.

“Rice mills owners said they will bring one kg price to 300 rupees,” Minister Gunewardene said.

“At that moment I told the president and the cabinet that we will not let one kg of Samba to go above 130 rupees, nadu we will try to give below 100 rupees or under 105 rupees.”

Sri Lanka’s consumer prices surged to 12.1 percent in the 12-month ending December 2021, after two years of money printing and exchange rate trouble. The central bank on Tuesday raised interest rates by 50 basis points. (Colombo/Jan21/2021)

Comments (2)

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  1. Kumar says:

    Sri Lankans better get used to Chinese sticky rice. Sticky white rice is a part of the Chinese cuisine. However, we buy good Sri Lankan rice in the US, with no arsenic. I suppose Sri Lankan mill owners get good money by exporting rice.

  2. aswin says:

    The chinese rice has already arrived. All produced from high quality plastics. Next will be a gift of medicine to solve the stomach problems created by eating plastic.

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Comments (2)

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Your email address will not be published. Required fields are marked *

  1. Kumar says:

    Sri Lankans better get used to Chinese sticky rice. Sticky white rice is a part of the Chinese cuisine. However, we buy good Sri Lankan rice in the US, with no arsenic. I suppose Sri Lankan mill owners get good money by exporting rice.

  2. aswin says:

    The chinese rice has already arrived. All produced from high quality plastics. Next will be a gift of medicine to solve the stomach problems created by eating plastic.

Sri Lanka beats key IMF program targets for March 2024 amid rupee stability

ECONOMYNEXT – Sri Lanka has exceeded key quantitative targets set in an International Monetary Fund program for March 2024, based on preliminary data the Washington based agency said in a report.

The March data are not performance criteria on which reviews are conducted but are indicative targets which shows the progress of the program and are a stepping stone for a September review based on June data.

An indicative target for the primary balance (roughly overall deficit minus interest costs), was assessed at 316 billion rupees more than four times the 70 billion rupee target set in the program.

Primary balance can be a big surplus if the interest bill is high and capital expenditure is cut and is a type of crisis management tool after a central bank triggers a currency crisis by cutting rates with inflationary liquidity tools.

However, Sri Lanka’s Treasury has also kept a lid on most current spending. A state salary hike is however due after the currency collapse made life difficult for everyone.

Meanwhile more taxes have been collected from the people to finance the island’s bloated state.

A 750 billion rupees central government tax revenue floor has been exceeded to reach 837 billion rupees.

Central bank credit to government (outstanding stock) has been reduced to 2,691 billion rupees in March compared to a target of 2,800 billion rupees. In December the CB credit was calculated 2,742 billion rupees.

Net international reserves of the central bank were brought up to a negative 1,268 million US dollars exceeding the target of a negative 2,035 by almost 700 million dollars.

In order to collect foreign reserves, which is a type of appropriation of domestic savings of the people by the central bank (taking in deposits) and exporting it to the US and other countries to finance their deficits or by other agency debt in reserve currencies.

In order to collect such ‘deposits’ the central bank has to prevent them from being invested domestically.

It is achieved with deflationary policy through sell-downs of down its Treasuries holding to domestic banks or others, at a market rate, collecting interest from the government or repayments of re-finance credits, subject to any nominal changes in reserve money at a given exchange rate.

In 2024 the central bank allowed the exchange rate to appreciate, which can also reduce prices of traded goods boost real and nominal savings and make it easier to collect foreign reserves.

When domestic credit is weak it is easier to collect reserves. Reduced domestic credit and collection of reserves, including by private banks which then cannot be invested domestically, can push the external current account into surplus.

The central bank also met a 5 percent 12-month inflation target, with an achievement of 4.3 percent.

Sri Lanka’s economy grew 5.3 percent despite reserve collections, amid the stability provided by the central bank.

There were no central bank purchases of Treasuries from the primary market.

However the central bank injected overnight and term money to banks (not on a net basis) showing how easy it is for a rate-obsessed monetary authority to get around the requirement and create external instability again as soon as private credit recovered.

The central bank also allowed excess liquidity from dollar purchase to remain unsterilized for an extended period under its ad hoc pegging arrangement, getting a short term falls in rates, but triggering pressure on the rupee as a result in May and June.

It is not possible to collect reserves with a free floating exchange rate. (Colombo/June15/2024)

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Sri Lanka GDP grows 5.3-pct in first quarter of 2024 amid monetary stability

ECONOMYNEXT – Sri Lanka’s gross domestic product grew 5.3 percent in the first quarter of 2024 data from the state statistics office showed as the central bank continued to refrain from generating monetary instability.

Instead of printing money to cut rates under ‘flexible inflation targeting’ and printing money to boost growth by taking into account ‘potential output’ as permitted by its new monetary law, the central bank ran deflationary policy and also allowed the rupee to appreciate.

“The Sri Lanka economy experienced a more favorable economic condition[s] in the first quarter 2024, when compared to the first quarter in the year 2023,” the Department of Census and Statistics said.

“The high inflation had prevailed in the first quarter of year 2023, gradually reduced to a lower level by the first quarter of 2024 and this low inflation incentivized the economy by providing inputs at [a] much lower price.

The agriculture sector grew 1.1 percent in the first quarter of 2024, after also growing 1.6 percent last year.

Industry grew 11.8 percent in the first quarter, against a 24.3 percent last year.

The economy grew amid falling prices, the statistics office said in sharp contrast to the Anglophone macroeconomic claim that inflation is needed to boost growth, on which Sri Lanka has 5-7 inflation target has apparently been set.

Related Sri Lanka central bank pushing for high inflation target to boost growth

“Among ‘Industrial activities’, coinciding with the decline in input prices, the ‘Construction industry’ grew by 14.2 percent, parallel to this, the ‘Mining and quarrying’ industry too expanded by 18.3 percent during this quarter,” the Statistics Department said.

Sr Lanka’s services sector grew 2.6 percent, against a decline of 4.6 percent recorded last year.

The International Monetary Fund has also urged the central bank to give priority to stability.

Sri Lanka dropped the stability mandate in the earlier monetary law which was violated after the end of a civil war to push the country into serial currency crises especially after the International Monetary Fund gave technical assistance to calculate potential output.

Related Sri Lanka has a corrupted inflation targeting, output gap targeting not in line with monetary law: Wijewardena

Sri Lanka survived a 30-year civil war by giving priority to a stability mandate despite shortcomings in its operational framework but defaulted in peacetime amid activist monetary policy which denied monetary stability to the people. (Colombo/June12/2024)

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Sri Lanka’s NPP notes five-point crisis for economic growth sans details

Former JVP MP Sunil Handunneththi

ECONOMYNEXT — The leftist National People’s Power (NPP) has identified five crises that need resolving for Sri Lanka’s economy to progress, much of which emphasise a production economy targeting export growth though sparse on the detail on resource allocation.

NPP spokesman and former parliamentarian Sunil Handunneththi speaking at an event in Mulaitivu on Thursday June 13 said Sri Lanka is grappling with firstly, a collapse of the production economy, second, a budget deficit, third, a balance of payment crisis which has, fourthly, created a debt crisis, and finally, a resultant gap between haves and have-nots.

“We must first understand the crisis. We reocgnise five main crises that have the same impact irrespective of differences between the north and south.

“The first is the collapse of the production economy. We can see this historically. Agriculture that used to be some 30 percent of gross domestic product (GDP) has now fallen to 8 percent. Essential food is imported. We cannot produce the rice needed for the small population here. Things that can be made here are also imported.

“Second is the income crisis. For the people, their expenses are twice their income. The budget deficit is two or three-fold every day. Banks cannot give loans to businesses and industries because the government takes funds to address the budget deficit. The government takes most of the people’s savings for this,” he said.

The balance of payment crisis Sri Lanka is facing the third crisis, according to Handunneththi, which has triggered a debt crisis, in turn leading to a crisis of income disparity among the people.

“Third is the balance of payments crisis. Imports are two or three fold export income. The government has to take 11 to 12 billion US dollars in loans from foreign countries. When GDP is 80 billion US dollars, debt has gone over 100.”

“All this creates a massive gap between haves and have-nots. Without finding solutions to these crisis, there is no point distributing goods,” he said.

Handunnethi’s remarks appear to be departure from the NPP’s anti-corruption rhetoric which had centred its economic development policy agenda primarily on fighting corruption.

‘Fighting corruption’ and ‘recovering stolen assets’ have been popular slogans since the Aragalaya protests in Sri Lanka and the NPP has made it its central theme in its bid for power. The leftist outfit had also adopted a position that’s cautiously critical of the International Monetary Fund (IMF) and the reforms the international lender has prescribed for Sri Lanka in exchange for a 2.9 billion-dollar bailout.

However, NPP leadership had recently acknowledged the need to continue the IMF programme since the agreement has already been signed.

The Marxist-Leninist Janatha Vimukthi Peramuna, which controls the NPP, though it was never in government barring a brief stint in an Sri Lanka Freedom Party (SLFP)-led coalition in the early 2000s, has been instrumental in driving popular support against privatisation.

Three key policy pillars articulated by the JVP from 2001-2004 and embraced by mainstream politician Mahinda Rajapaksa’s administration in 2005 onward have been highlighted by experts.

From 2005, Sri Lanka halted privatisation, started recruiting tens of thousands of unemployed graduates into the public service every year with lifetime pensions, expanding an already bloated public sector and denying any benefit of a peace dividend to the country.

Sri Lanka also abandoned a price formula for fuel that had helped keep the rupee stable and inflation low from 2001 to 2003 even as global commodity prices went up from the ‘mother of all liquidity bubbles’ fired by the Federal Reserve from 2001.

From 2001 to 2003, state workers fell from 1.164 million to 1.043 million. By 2020, the public sector cadre has grown to 1.58 million with another batch of 53,000 unemployed graduates being paid tax money. (Colombo/Jun14/2024)

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