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Saturday April 20th, 2024

Sri Lanka sugar importers caught in CPC-style unhedged forex losses

UNHEDGED EXPOSURE: Sugar importers unwilling to run CPC style forex losses.

ECONOMYNEXT – Sri Lanka’s sugar imports are caught in forex losses on stocks bought on credit, which have to be settled in several months time, amid a depreciating currency which is partly the reason for high retail prices, a minister said.

Sri Lanka placed import controls after printing large volumes of money to keep rates down under so-called ‘Modern Monetary Theory’ last year but permitted many imports under supplier’s credit.

Importers had also bought sugar for six month’s credit. Many importers in case have a habit of bringing goods on ‘usance’ bills with delayed payment and rush to pay when the credibility of the peg vanishes in a ‘flexible’ exchange rate.

“There are about 15 -20 sugar importers. We held many discussions with them,” State Minister for Consumer Protection, Lasantha Alagiyawanna told reporters.

“The price of the sugar you import now must be paid after 180 days.”

“These importers are saying they cannot reduce the price because in 180 days the rupee will further depreciate.”

Sr Lanka’s rupee has fallen from around 185 to the US dollar to 226 to the US dollar for imports this month.

By the time importers settle the loans, the products had already been sold at a price based on the exchange rate at the time of landing.

Sri Lanka’s Ceylon Petroleum Corporation has also run up 3.0 billion US dollars in debt from banks and supplier credit after the central bank printed money and triggered forex shortages.

The debts have been acquired over several episodes of money printing, including in 2018. In 2018 the CPC ran a 80 billion rupee forex loss from loans taken to settle import bills when they were asked to stay away from the spot market.

Minister Alagiyawanna said state-run Sathosa retail will sell brown sugar at 130 rupee a kilo.

The sugar is produced by a state-run sugar firm that was expropriated from private citizens in 2011.

Trade Minister Bandula Gunewardene has said a ‘ration pack’ will be provided by

In 2018 money was printed to target an output gap which is a milder version of modern monetary theory.

Sri Lanka’s inflation is picking up and prices of some foods such as rice and maize, and building materials are rocketing due to import controls imposed to give big profits or rents to import substitution firms with political clout.

As the rupee depreciates the Consumer Affairs Authority is imposing price controls creating shortages and black markets.

Instead of restoring monetary stability the authorities are now ramping up fines to charge the ‘usual suspects’, hoarders and black marketers. (Colombo/Sept01/2021)

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Sri Lanka discussing giving extra land, water for Chinese oil refinery

ECONOMYNEXT – Sri Lanka is in discussions with China’s Sinopec to give extra land and assure water supplies after the company decided to expand the capacity of a planned oil refinery in Hambantota, Energy Minister Kanchana Wijesekera said.

“There are concerns on how the water supply is going to be provided for the refinery,” Minister Wijesekera told reporters Friday.

The refinery will need more land and also revise conditions in a Board of Investment agreement, he said.

Read more
Sinopec to double capacity of new refinery in Sri Lanka’s Hambantota

Recommendations and decisions from Sri Lanka’s side had already been sent and Sinopec is expected to revert back in May.

“We are hoping to sign the agreement once everyone has agreed,” Wijesekara said.

The principle agreements are expected to be signed by June, he said.

The refinery could sell up to 10 percent of its output in the domestic market.

“There is no commitment by the government to purchase anything,” Minister Wijesekera said. (Colombo/Apr19/2024)

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Sri Lanka rupee closes weaker at 302.00/50 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 302.00/50 to the US dollar in the spot forex market on Friday, down from 301.50/302.00 a day earlier, dealers said.

There was increased demand for dollars after the central bank bought 715 million dollars from forex markets. In the previous two months it was buying on average about 200 million US dollars, leaving market participants and bank in a ‘oversold’ position.

There were some official dollars sales Friday dealers said.

READ Sri Lanka rupee quoted wide to US dollar as peg inconsistencies flare up

Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed at 11.30/40 percent down from 11.35/40 percent.

A bond maturing on 15.09.2027 closed at 11.95/12.05 percent up from 11.90/12.05 percent.

A bond maturing on 15.12.2028 closed stable at 12.15/25 percent.

A bond maturing on 15.09.2029 closed stable at 12.30/40 percent.

A bond maturing on 01.10.2032 closed stable at 12.40/50 percent. (Colombo/Apr19/2024)

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Sri Lanka stocks close down, banks trade down

ECONOMYNEXT – The Colombo Stock Exchange closed down on Friday, data on its site showed.

The broader All Share Index closed down 0.38 percent, or 44.80 points, at 11,753; while the S&P SL20 Index closed down 0.53 percent, or 18.46 points, at 3,456.

Turnover was at 1.4 billion. The diversified financials (Rs366mn) and banks (Rs266mn) sectors continued to see selling pressure.

“This was possibly due to uncertainty around the bond discussions,” market participants said.

With the exception of Sampath Bank Plc (up at 77.50) all other banks traded down in the day. Commercial Bank of Ceylon Plc was down at 104.50, Hatton National Bank Plc was down at 188.50, and DFCC Bank Plc was down at 77.00.

LOLC Finance Plc saw the most trades and closed up at 6.40. Another LOLC company, Browns Investments Plc, also saw high traded volumes and closed up at 5.60.

Softlogic Capital Plc was up at 7.00, and Softlogic Holdings Plc was up at 11.20. A trading suspension imposed on SHL.N0000 was lifted effective today as the company submitted the annual report for the year ended 31st March 2023.

However, shares of the Company will remain in the Watch List “due to Qualified Audit Opinion and Emphasis of matter on going concern in the Independent Auditor’s Report in the Audited Financial Statements for the year ended 31st March 2022.”

Dialog Axiata Plc, which announced its merger with Bharti Airtel Thursday, saw its share price close up at 11.90.

“There was some traction on index heavyweights,” market participants pointed out.

Top contributors to the APSI included Aitken Spence Plc (up at 134.50), Ceylon Tobacco Company Plc (up at 1,245.25, and Lion Brewery (Ceylon) Plc (up at 1,048.50).

There was a net foreign inflow of 5 million. (Colombo/Apr19/2024)

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