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Tuesday June 18th, 2024

Sri Lanka sells 16.8bn in bonds, yields up, post-auction tap open

ECONOMYNEXT – Sri Lanka has sold 16.8 billion rupees in 2023 and 2030 bonds after offering 20 billion rupees allowing yields to go up, potentially drawing more funds to bonds, and a tap has been opened for post auction bids.

Sri Lanka is in the midst of an economic crisis and is heading for social unrest after the central bank suppressed interest rates price controls, printed the biggest volumes of money in the country’s history and created the worst balance of payments crisis.

6.8 billion rupees of 2023 bonds were sold at 8.12 percent after offering 10 billion rupees.

Before the auction 2023 bonds were trading at 7.75/8.0 percent.

10 billion rupees of 2030 bonds were sold at 10.23 percent.

Before auction 2030 bonds were quoted wide at 10.00/60 percent but there was hardly any trading.

On September 13, 2031 bonds were sold at 10.05 percent.

The bonds will be available on tap until 1600h on September 30 at the weighted average yield of each maturity up to 20 percent of the offered amount.

Sri Lanka’s bond markets became progressively crippled over the past several months as price controls and central bank purchases created an unrealistic yield curve out of line with the budget deficit and overall domestic credit.

Newly appointed Central Bank Governor Nivard Cabraal removed price controls on bonds taking the first steps to arrest an economic and foreign exchange crisis.

However on Monday the central bank issued a statement touting the supposed benefits of foreign exchange surrenders, a remedy also pursued by third world unstable central banks and the Reserve Bank of Zimbabwe earlier this year.

Sri Lanka started actively suppressing bond and bill yields with printed money in the last few years through multiple strategies.

A so-called ‘Stage III’ auction was set up where undersubscribed bonds were forced on dealers without any under-writing fee.

The framework was apparently developed by the US consultant whose own country does not pursue such controls but has a single price auction.

The central bank also jettisoned a ‘bills only’ policy and started buying up bonds into its balance sheet, monetizing past deficits, especially in 2018, undermining the actions of the then Finance Minister Mangala Samaraweera who brought down the deficit with unpopular tax hikes and market priced fuel.

Other strategies to suppress interest rates and trigger currency crises included a so-called buffer strategy where maturing government securities were repaid with bank overdrafts re-finances with central bank window money, effectively a sterilized reserve short.

The reason classical economists generally encourage bonds to be sold to ‘non-bank’ buyers is because commercial banks have access to central bank window money.

Central bank after World War II tried to boost ‘aggregate demand’ buy printing money mainly due to old theories resurrected at Cambridge (John Maynard Keynes) and Harvard (Alvin Hansen) Universities among others.

The world is in the grip of another commodity bubble with the Fed and several global central banks printing money.

“It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathized,” explained Nobelist Friederich von Hayek.

“He had attempted by a succession of new theories to justify the same, superficially persuasive, intuitive belief that had been held by many practical men before, but that will not withstand rigorous analysis of the price mechanism.”

“The volume of employment depends on the correspondence of demand and supply in each sector of the economy and therefore the wage structure and the distribution of demand between sectors.

“The consequence is that over a longer period, the Keynesian remedy does not cure unemployment but makes it worse.

“The claim of an eminent public figure and brilliant polemicist to provide a cheap and easy means of permanently preventing serious unemployment conquered public opinion, and, after his death, professional opinion too.”

Based on such thinking Sri Lanka pursued output gap targeting up to 2019 and ‘modern monetary theory’ from 2020.

The International Monetary Fund gave technical assistance to Sri Lanka to calculate an output gap, print money for ‘go’ stimulus, trigger external instability, miss their own forex reserve targets, create an output shock with the inevitable ‘stop’ drive national debt up. (Colombo/Sept28/2021)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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Sri Lanka telecommunications bill some clauses ruled unconstitutional by SC: Speaker

ECONOMYNEXT – Sri Lanka’s Supreme Court has found a number of clauses in a proposed amendment to the Telecom Telecommunications Amendment bill unconstitutional, speaker Mahinda Yapa Abeywardana said.

“Clause No 8, proposed section 9A 2 of the bill is inconsistent with Article 12 1 of the constitution, however this inconsistency shall cease if word ‘may’ will be replaced with word ‘shall’ as set out in the determination of the supreme court.”

“Clause No 9 is inconsistent with Article 12 1 of the constitution and only can be passed with special majority required under paragraph 2 of the Article 84. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.

Clause No 12, proposed section 17 10 of the bill is inconsistent with Article 12 1 of the constitution and can only be passed with special parliament majority required under Article 84 paragraph 2. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.”

Sections of clauses 13, 18, 20, 33 and 35 were also in violation of the constitution, and could only be passed by a special majority of parliament. (Colombo/Jun18/2024)

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Sri Lanka to exempt one house from imputed rent wealth tax: President

ECONOMYNEXT – Sri Lanka will exempt one house from a proposed wealth tax outlined in an International Monetary Fund program, President Ranil Wickremesinghe said.

About 90 percent of the people’s houses are likely to be exempt from the proposed tax, he said.

“[O]ne house will be exempt from this,” President Wickremesinghe told parliament Monday.

“It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house

“Don’t worry your house will be safe.”

The IMF program document however did not mention an exempt on one house, but did mention a threshold.

Taxing houses and thrift in general could have detrimental effects on people’s well-being housing stock and their willingness to remain in the country without migrating, critics say.

Related Sri Lanka to tax imaginary rents on houses under IMF deal

The mechanism of imputed rents was used because rates on houses was assigned to provincial councils and courts could strike it down.

Opposition legislator Harsha de Silva said the Samagi Jana Balwegaya welcomed President Wickremesinghe’s statement. (Colombo/June18/2024)

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