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Wednesday June 7th, 2023

Sri Lanka service sector sees out migration

ECONOMYNEXT – Sri Lanka is seeing a fall in service sector employment, with migration adding to a general economic downturn and demand contraction following the worst currency crisis in the history of the island’s intermediate regime central bank.

“Employment continued to fall in November due to increasing resignations, migrations and retirements though few recruitments took place in several companies,” according to a Purchasing Manager’s Index compiled by Sri Lanka’s central bank for November.

November index was at 37.4 points which indicates a fall, though it was a smaller fall than indicated by October’s index of 33.9 points.

November was slightly better due to a pick-up in tourism, the central bank said.

“Further, in line with the increase in tourist arrivals, business activities in accommodation, food and beverages sub-sector also increased,” the statement said.

“However, business activities related to wholesale and retail trade sub-sector declined further during the month amid the continued cost of living challenges.”

Sri Lanka is seeing an increase in migration because of the lack of economic and political stability, and low salaries, other says.

“Migration in Sri Lanka is driven by low per capita income, unemployment and/or underemployment, high inflation, indebtedness, lack of access to resources, instability and lack of trust in the system,” an economist said.

Sri Lanka’s outward migrants had topped 300,000 by the third week of December Labour and Foreign Employment Minister Manusha Nanayakkara said on December 18 which is on track to being the highest on record.

Previous high of 300,000 came in 2014.

Sri Lanka is in the process of digitizing migration, in order to send skilled workers out of the country in a professional way, Labour and Foreign Employment Minister Manusha Nanayakkara said.

Sri Lanka’s construction sector is one of the hardest hit sectors in the current downturn.

Younger professionals in Sri Lanka’s construction sector are fleeing the country, an official said as the industry is in a deep downturn following the latest currency crisis triggered by the country’s intermediate regime central bank.

Real salaries have halved after macro-economists printed money for two years and busted the rupee from 200 to 360 to the US dollars and the inevitable stabilization policies that follow have pushed up interest rates slowing construction.

Other business leaders have also said they are seeing a migration.

“We are seeing a trend towards migrating. We have seen people go to Scotland, Ireland,” Krishan Balendra, Chairman of Sri Lanka’s John Keells Holdings told an economic policy forum on December 07.

“It has usually been the Middle East and Maldives. Australia seems like a red hot labor market at the moment.

“Something new we are seeing is that older people, even those in their 50s, which was a surprise, are looking at migrating.”

Businesses are trying to retain talent as real wages collapse by showing that there is path to progress. (Colombo/Dec30/2022)


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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed amid weak credit and better inflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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