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Saturday March 2nd, 2024

Sri Lanka to get on the missed bus with China-backed Port City: Minister

ECONOMYNEXT – Colombo Port City will allow Sri Lanka to get on the ‘missed bus’ since independence that economists had been commenting on for many decades, State Minister for Money and Capital Markets AjithNivardCabraal said.

“We don’t want to miss the bus this time,” Minister Cabraal told reporters on a May 28 briefing. “This will be a turning point in our history. We don’t want to miss the bus this time.

Some people in a rather unsympathetic way said that Sri Lanka has missed the bus. They say at the time of independence, Sri Lanka was only behind Japan.

“But I think we need to put that narrative behind us, we need to ensure that we turn a new chapter in Sri Lanka’s economic history. We don’t want to be stagnating once again.”

Sri Lanka set up a Latin America style money printing central bank, under the advice of a so-called Federal Reserve ‘money doctor’ in 1950 ending a Hong Kong and Singapore style currency board in 1950, triggering forex shortages andimport controls barely two years later.

The Fed Latin America unit, under its then chief Robert Triffin had been setting up money unstable soft-pegs styled after the Argentina central bank set up by Raul Prebisch in several countries that ran into import substitution, economic collapses and sovereign default later.

“This law had been drawn up under American tutelage and long the lines that have been the subject of experiment in certain Latin American countries for some eight years past,” a classical financial expert wrote prophetically in the 1950 July issued of the UK-based The Banker magazine.

“This step from an “automatic” currency system (such as that which Ceylon inherited with its old Colonial Currency Board) to an ultra-modern “managed” currency system is necessarily fraught with great dangers and there may be some who will regret that Ceylon has decided to run such risks at this time.”

Some economists and analysts have been calling for a currency board to be re-established to halt ‘stop-go’ policies, currency collapses and negative output shocks that accompany soft-pegging.

Sri Lanka suffered unusual output volatility from 2015 after a bout of ‘stop-go’ policies involving targeting a output gap with money printing and busting the currency from 151 to 182 to target a real effective exchange rate index, destroying real salaries and savings.

The rupee collapsed from 131 in 2015. In 2020, amid more money printing the rupee had collapsed to 200 to the US dollar.

“Sri Lanka suffered in the last 5-6 years in its macroeconomic numbers, our growth suffered, our rupee struggled and our interest went up,” Cabraal said.

“But we needed to have a turning point as quickly as possible that’s why we spent a lot of time in getting this law (Colombo Port City Economic Commission Act) into place.”

The collapsing rupee was driving both educated people and less skilled people to countries with better central banks and monetary stability where their salaries are protected.

The China-backed Colombo Port City will be protected from soft-pegging policy errors of the Monetary Board of the central bank though dollarization, which is a step further than a currency board.

“It would generate about 83000 jobs to people who will be paid in dollars or in foreign currency so that they don’t need to go to Dubai, they don’t need to go Singapore to work. They can work out from Sri Lanka itself.”

Dubai has a currency board like system, which does not have a true policy rate enforced with money printing but piggy-backs on US rate policy rates and has uses certificates of deposits to sterilize inflows and build forex reserves.

Singapore has a modified currency board with no policy rate, and uses Monetary Authority of Singapore securities (MAS paper) to mop up inflows and build up forex reserves.

Sri Lanka’s central bank buys government treasury bills to inject liquidity, trigger unsustainable outflows, and lose forex reserves.

In addition to monetary instability Sri Lanka was also hit by nationalism shortly after independence, exemplified by an immigration law that suddenly ended thousands years of immigration and naturalization dating back to the island’s ancient kings and beyond creating state-less citizens.

The Port City on the other hand will have liberal visa rules.

Ministers said the Port City will be a cosmopolitan area which is not confined to a single country though it was reclaimed by a Chinese company.

“Now this optimum benefit will not come only from one country,” he said. “This optimum benefit will come from an international flavour in this entire city. That will not be done by Sri Lanka doing business with one country only. We want to do business with all the countries.”

“We are non-aligned, we are friends of all, we are open for business with everyone,” Justice Minister Ali Sabry said.

He said investors who bought land in the first round will get a benefit because prices will go up as the city progressively gets built.

After independence Sri Lanka’s public service was also broken systematically through direct presidential appoints of ministry secretaries and others senior officials.

Reporters asked whether the same problem that befell permanent secretaries (still found in Singapore) would also befall the Port City and whether the problem could be solved by appointing ex-officio members.

Education Minister G L Pieris said suggested ex-officious members already had too much work on their hands, and it was too much to expect them to act as member of the Colombo Port City Commission as well. (Colombo/May29/2021)

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Sri Lanka eyes SOE law by May 2024 for better governance

ECONOMYNEXT – Sri Lanka is planning to pass a Public Commercial Business (PCB) Act improve governance of state-owned enterprise by May 2024 as part of an anti-corruption efforts following an International Monetary Fund assessment.

Sri Lanka’s state enterprises have been used by politicians to give ‘jobs of the boys’, appropriate vehicles for personal use, fill board of directors and key positions with henchmen and relatives, according to critics.

Meanwhile macro-economists working for the state also used them to give off-budget subsides or made energy utilities in particular borrow through supplier’s credits and state banks after forex shortages are triggered through inflationary rate cuts.

The government has taken billons of dollars of loans given to Ceylon Petroleum Corporation from state banks.

There have also been high profile procurement scandals connected to SOEs.

An SOE Reform Policy was approved by Sri Lanka’s cabinet of ministers in May 2023.

The Public Commercial Business (PCB) Act has now been drafted.

A holding company to own the SOEs will be incorporated and an Advisory Committee and Board of Directors will be appointed after the PCB law is approved, the statement said. (Colombo/Mar01/2024)

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Sri Lanka rupee closes at 308.80/90 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 308.80/90 to the US dollar Friday, from 309.50/70 on Thursday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.65/75 percent up from 10.50/70 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent from 11.90/12.10 percent.

A bond maturing on 01.07.2028 closed at 12.15/35 percent down from 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent up from 12.30/45 percent.

A bond maturing on 15.05.2030 closed at 12.30/45 percent down from 12.35/50 percent.

A bond maturing on 01.07.2032 closed at 12.50/13.00 percent from 12.55/13.00 percent. (Colombo/Mar1/2024)

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Sri Lanka stocks close up 0.37-pct, Expo to de-list

ECONOMYNEXT – The Colombo Stock Exchange closed up 0.37 percent on Friday, and SG Holdings, the parent company of Expolanka Holdings Plc, said it was taking the company private.

Expolanka is the largest listed company on the Colombo Stock Exchange.

“Expolanka Holdings PLC has, at the Board Meeting held on 1st March 2024, considered a request from its principal shareholder and resolved to initiate the de-listing of the Company’s shares from the Official List of the Colombo Stock Exchange subject to obtaining necessary shareholder approval and regulatory approvals,” the company said in a stock exchange filing.

As per arrangements with SG Holdings Global Pte Ltd, the Company’s majority shareholder, it will purchase its shares from shareholders who may wish to divest their shareholding in the Company at a purchase price of Rs 185.00 per share. The share closed up at 150.50.

The broader All Share Index closed up 0.37 percent, or 39.47 points, at 10,691; while the S&P SL20 Index closed down 0.64 percent, or 19.59 points, at 3,037.

Turnover stayed above the 1 billion mark for the sixth consecutive day, registering 1.4 billion.

Crossings in Melstarcorp Plc (135mn) up at 89.50, Hatton National Bank Plc (64mn) up at 158.00, Hemas Holdings Plc (53mn) up at 75.00 and Central Finance Company Plc (26mn) up at 103.50, added significantly to the day’s turnover.

“The upward trend is continuing, with more retail buying also coming in, the number of trades was more than 10,000 today,” a market participant said. “Investors are looking for undervalued stocks and buying in quantities.” (Colombo/Mar1/2024).

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