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Tuesday June 18th, 2024

Sri Lanka shortage agency likely to relax price controls on LPG, wheat flour, milk

ECONOMYNEXT – Sri Lanka’s Consumer Affairs Authority which creates shortages with price controls as the central bank prints money and triggers forex shortages, is likely to raise the controlled prices of several goods which have disappeared from shelves, report said.

A meeting of ministers with President Gotabaya Rajapaksa on Thursday night a decision was taken to remove the current price controls on LPG, wheat flour and cement and ask the price control agency to revise them.

The CAA had previously requested milk powder controlled price to be raised by 200 rupees a kilogram, a cooking gas cylinder by 550 rupee and a sack of cement by 50 rupees reports said.

However it is not clear whether these numbers are sufficient to cover the costs. The CAA usually decides on a price based on their own calculations and suppliers have previously not been able to buy the goods or find dollars.

Sri Lanka has severe foreign exchange shortages after interest rates were suppressed with printed money, creating foreign exchange shortages at a fixed price in the official market and depreciating the currency (dollar price rises like milk) in the unofficial market.

Money is printed also to pay state worker salaries who are on full salary, unlike private workers who are on pay cut amid a Coronavirus pandemic. State workers are therefore able to appropriate goods on the shelves before private citizens can.

“But as prices of goods begin to rise in response to the higher quantity of money, those who haven’t yet received the new money find the prices of the goods they buy have gone up, while their own selling prices or incomes have not risen,” explains Murray Rothbard, a US economist who played a part in taming the Fed and educating members of the public on the dangers of un-anchored monetary policy.

“In short, the early receivers of the new money in this market chain of events gain at the expense of those who receive the money toward the end of the chain, and still worse losers are the people (e.g., those on fixed incomes such as annuities, interest, or pensions) who never receive the new money at all. Monetary inflation, then, acts as a hidden “tax” by which the early receivers expropriate
(i.e., gain at the expense of) the late receivers.”

The US Fed is again running un-anchored policy printing large volumes of money to ‘create jobs’ firing what a Powell Bubble, pushing up food, oil, base metals prices.

Sri Lanka has a large public sector which is expanded every year with unemployed graudates, who cannot get a job in growth creating sectors and demand tax money to take home by engaging in fast in front of the main railway station in the capital Colombo.

Last year 53,000 graduates who have to be given 12.7 billion rupees as wages over 12 months which is about 63 million US dollars.

The money printed against Treasury bills operate like a invasion currency (military scrip) creating massive hardships for private citizens and for every one else as time goes on.

The Japanese issued occupation currency to buy food and other stuff in countries that they invaded in Asia creating food shortages and surges in rice prices. Occupation scrip known as Mickey Mouse Money in the Philippines and Banana Money in Malaya.

“Singapore’s first Finance Minister and Governor of the Monetary Authority was paid in depreciated Banana money during Japanese occupation,” says EN’s economics columnist Bellwether.

“In addition to his knowledge of classical economics having studied at LSE instead of Cambridge he had mentioned this to fellow leaders of Singapore. So he created created an currency board without a policy rate. instead of a money printing central bank as soon as Singapore separated from Malaysia.”

The British also honored previous money as soon as the Japanese were driven out.

New money created by the central bank and given to state workers or government contractors and their workers, go from the shop owner to the wholesaler, from the wholesaler to the Pettah import trader who then uses the rupees to buy foreign exchange and replace his depleted stock.

However because the new money had been created against Treasury bills bought by the central bank from failed bill auctions and not dollars bought into reserves, the central bank runs out of reserves on a net basis when convertibility is provided at the pegged rate.

Newly re-appointed central bank governor Nivard Cabraal has allowed interest rates to go up in a bid to reduce money printing and make the government borrow real savings using money already in the system.

However budget deficits are large after tax cuts, pushing up the clearing price for bonds.

Analysts and economists have called for central bank reform to curb its ability mis-used its independence and to print money to boost growth and create forex shortages and balance of payments crises in the process.

However there may be also be a possibility of prosecuting the Monetary Board for printing money to push growth considerations and violating its mandate under section 5 (a) of the Monetary Law Act without any changes to the existing Law.

Over several decades Sri Lanka’s parliament has undermined monetary stability by bringing ad hoc changes to the law including Section 88 subsections to undermine rule based monetary policy.

Fortunately the current administration did not enact a law brought by the last administration

The central bank has released 50 million US dollars to importers to clear several hundred containers stuck at port Governor Cabraal has said.

To enforce an overnight policy rate at 6.0 percent the central bank has to print money (about 12 billion rupees) after releasing the money (sterilize the intervention) preventing the credit system from adjusting to transfer of real wealth out and replacing with new paper money.

The overnight policy rate is also a price control, which is enforced with unlimited creation of paper money, leading to dollars shortages or ‘rationing of dollars’.

To stop the exchange rate from collapsing the central bank has to allow liquidity to decrease when dollars are sold, which is known as a unsterilized foreign exchange sale.

In other worlds to provide dollars for every rupee that hits the forex market (provide convertibility) at the promised exchange rate (convertibility undertaking) the monetary authority has to limit its note issue (reserve money).

If it wants to control reserve money at its discretion with a policy rate usually by pegging to an inflation index (inflation targeting) it has to suspend convertibility of the existing rupee money supply (float the rupee) and not give dollars for imports.

However it will also only work if bond auctions do not fail and Treasury does not overdraw state banks with central bank re-finance money. (Colombo/Oct08/2021)

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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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