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Friday August 19th, 2022

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 schedules 3-hour power cuts for Aug 20, 21: regulator

ECONOMYNEXT – Sri Lanka will impose power cuts of up to three hours on Saturday August 20 and Sunday August 21, Public Utilities Commission (PUCSL) Chairman Janaka Ratnayake said.

All areas (A, B, C, D, E, F, G, H, I, J, K, L, P, Q, R, S, T, U, V and W) will have power cuts of 1 hours and 40 minutes between 10.30 am and 06.00 pm and 1 hour 20 minutes from 06.00pm to 10.00 pm.

Click here for a detailed schedule.

The state-run Ceylon Electricity Board (CEB) said supply interruption time and restoration time will vary within 30 minutes as indicated above.

Sri Lanka’s daily scheduled power cuts that were reduced to one hour in July with power generation from hydro power plants contributing more than 50 percent to the main grid reducing thermal power plant use was extended to three hours last week due to a breakdown at the Norochcholai coal power plant.

According to officials, the breakdown happened in Unit 1 of Norochcholai which will take around two weeks to repair.

The Minister of Power & Energy said Unit 2 is undergoing scheduled maintenance work while Unit 3 will continue to operate. West Coast and other fuel power pPlants will be used to manage the supply, the ministry said. (Colombo/Aug02/2022)

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Sri Lanka guidance peg edges T-bond yield edge down

ECONOMYNEXT – Sri Lanka Central Bank’s guidance peg for interbank transactions edged down on Friday (19), while yields in Treasury bonds picked up slightly and in T-bill remain unquoted in dull trade, a day after the Central Bank announced the policy rates will remain stable, dealers said.

A bond maturing on 01. 06. 2025 closed at 27.95/28.05 percent on Friday, slightly up from 27.90/28.00 percent on Thursday.

No T-bills were quoted on Friday, dealers said.

Meanwhile Sri Lanka’s central bank announced a guidance peg for interbank transactions further weakened by three cents to 361.00 rupees against the US dollar on Friday from 360.97 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 368.00 and 370.00 for small transactions.  (Colombo/ Aug 19/2022)

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Sri Lanka records 10 new COVID-19 deaths in 48 hours as case numbers rise

ECONOMYNEXT –  Sri Lanka recorded 10 COVID-19 deaths in the 48 hours from August 17 to 19 taking the country’s pandemic death toll to 16,640, health ministry data showed.

Sri Lanka is experiencing a slight increase in COVID-19 cases with the relaxation of public health restrictions relating to face masks and public gatherings.

Health authorities said the situation will be monitored constantly and have asked the general public to continue to follow basic hygiene measures in order to control the spread of the virus again in the community.

In August alone 2,924 new cases were recorded in Sri Lanka, with 84 deaths attributed to the disease.

So far in 2022, from January onward, health authorities have identified 81,157 patients to date.

Epidemiology unit data showed that 874 patients are currently receiving treatment, out of which 716 are receiving home based care.

The spread of the virus has increased with the use of public transport rising after an easing of a fuel crisis.

Sri Lanka is also facing difficulties in securing essential medicine supplies for the health sector due to a forex shortage.

Health officials said if the number of COVID-19 patients rise to a level the health sector cannot manage,  with the added issues of fuel and medical shortages, the health system might collapse.

“It is the responsibility of us all. There is no use trying to forcibly control people. We all have the responsibility to reduce or stop the spread of the virus before it gets out of control. We have been living with it for the past two years,” Deputy Director General of Health Services Dr Hemantha Herath said. (Colombo/Aug19/2022)

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