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Thursday February 22nd, 2024

Sri Lanka to lift forced dollar conversion rule on services exports: CB Governor

ECONOMYNEXT – Sri Lanka plans to remove a forced conversion rule of services exports as part of plans to gradually relax controls imposed in recent months, Central Bank Governor Nandalal Weerasinghe said.

The central bank imposed a series of controls on forcing exporters of goods and services to convert dollars by force and also imposed outward exchange controls as money was printed to keep rates down over the past two years driving up credit and excess demand creating forex exchange shortages.

“In the case of services exports like IT and tourism, we will remove the mandatory conversion requirement,” Central Bank Governor Nandalal Weerasinghe said.

“Goods imports are made through customs. We have no way to track these services. We have been told that some person are not bringing these money in at all because of the forced conversion rule.”

“We want to progressively remove this also.”

The central bank was also planning to relax a rule that required tourists to pay hotels in dollars only.

Governor Weerasinghe immediately slashed a surrender requirement which made banks transfer 50 percent of export and remittances to the central bank for new money, to 25 percent.

Analysts and economists have pointed out that the steep depreciation of the rupee during an attempted float (suspension of convertibility) was due to the surrender requirement which made the regime a peg with ‘strong side convertibility’, a rule that should be use when the exchange rate was appreciating.

Central bank purchases of dollars pushes a peg down.

When a third world intermediate regime central bank prints money, the controls imposed rapidly worsen the crisis. Analysts had pointed at the time that the conversion rules were similar to those imposed by Zimbabwe which was printing excess RTG dollars.

It is not clear to what extend the existing controls fall foul of International Monetary Fund rules on capital flow measures and multiple currency practices.

“We want to progressively remove control step by step,” Governor Weerasinghe said. “For the time being these have been done to stabilize the foreign exchange rate market.”

Governor Weerasinghe said the exchange rate was not being controlled and expatriate workers and other were getting a fair rate now.

Under Governor Weerasinghe policy rates were raised to 14.50 percent from 7.50 in a bid to end the fundamental cause of the currency crisis which is money printed to keep interest rates artificially low.

Treasuries yields have also been allowed to go up, which will drive private savings to the budget deficit instead of to areas like construction and capital goods imports, creating forex shortages for items like medicines.

There have been no major food shortage due to the use of Undiyal payments through open account imports.

Newly appointed Treasury Secretary has also ordered a temporary halt in capital expenditure which will also reduce the deficit, the need for money printing and high rates and construction related imports. (Colombo/Apr30/2022)

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  1. Tuan says:

    This guy seems to understand things much deeper

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  1. Tuan says:

    This guy seems to understand things much deeper

Sri Lanka to consolidate all vocational training institutes into one college: president

ECONOMYNEXT — Sri Lanka plans to consolidate all vocational training institutes in the country into a single vocational college, offering contemporary subject-related courses, President Ranil Wickremesinghe said.

Speaking at an observation tour at the Ratmalana Lalith Athulathmudali Vocational Training Centre on Thursday February 22, Wickremesinghe highlighted the need to restructure vocational education to align with the demands of the modern world.

A statement from the president’s office said quoting the president that such restructuring is needed to ensure that Sri Lanka’s youth are equipped to excel in the competitive global job market.

According to the statement, Wickremesinghe had also outlined to students at the institute the government’s plans for a swift digital transformation and the prioritisation of advancements such as Artificial Intelligence (AI).

“He expressed optimism about Sri Lanka’s trajectory in embracing evolving technologies,” the statement said.

A University of Vocational Technology was established in 2008 under the University of Vocational Technology Act Number 31 of 2008. The institute has the same legal and academic status as any other national university in Sri Lanka.

According to former Vice-Chancellor of University of Vocational Technology Dr T A Piyasiri, Sri Lanka sees a 30 percent dropout rate in its tertiary education sector.

One reason dropouts were high among those who joined state-owned tertiary education institutes after leaving school, was that they were free, he said speaking at an event in December 2023.

“The reasons for the dropouts; The first is that students have found employment – 21.5 percent of students have dropped out for employment. The second reason is economic hardships, and the third is incorrect choice by students,” said Piyasiri.

According to World Bank Country Manager for Sri Lanka and Maldives Chiyo Kanda, around 20 percent of Sri Lankan school graduates go on to further education while one-third of them enroll at training colleges.

Half of Sri Lanka’s students do not receive a post-secondary education, or tertiary education, including college, university, and vocational courses.

Related:

Sri Lanka tertiary education dropouts at 30pct: Vocational training professional

(Colombo/Feb22/2024)

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ADB country chief hopes Sri Lanka could sustain policy reforms despite elections

ECONOMYNEXT – The Asian Development Bank (ADB) expects Sri Lanka not to reverse its International Monetary Fund-led policy reforms despite elections soon, the ADB Country Director for Sri Lanka Takafumi Kadono said.

The island nation has witnessed repeated reversals of policy reforms in the past due to greedy politicians who misled  the people to vote for them by sowing the seeds of subsidy mentality with unsustainable debts at expensive borrowing costs, economists say.

That led the country into an unprecedented economic crisis in 2022 with a sovereign debt default. Sri Lanka is still struggling to come out of the crisis.

The IMF has strictly placed some reforms including in state sector enterprises, fiscal and monetary sectors.

Sri Lanka has implemented the painful IMF reforms so far including higher personal income taxes, but economists have raised concerns over the sustainability of the current reforms due to possible changes in the policies in the event of a new president or government comes to power after democratic elections.

“If that kind of reversal happens, we also cannot justify our support,” ADB Country Director for Sri Lanka Takafumi Kadono told EconomyNext on late on Wednesday.

“We do expect these policy reforms to be sustained. So that is our expectation. That is the premise which we are providing our budget support. If they reverse, the whole premise will be collapsed. That kind of policy reversal cannot happen.”

The island nation had sought IMF bailout package for 17 times including the ongoing support. However, the authorities have failed to complete most of the past IMF loan disbursements due to politically motivated contradiction with the global lender’s tight fiscal policies.

Sri Lanka has shown some signs of recovery in the third quarter of 2023 with the economic growth turned to positive from contraction for the first time in seven quarters.

However, opposition political parties have promised to revisit the IMF deal if they come to power.

Higher taxes, soaring cost of living, and lack of salary hike have made President Ranil Wickremesinghe’s government unpopulour among the public, analysts say.

Wickremesinghe has said the country will hold both presidential and parliamentary election by 2025.

Some government politicians have told EconomyNext that the higher taxes would be eased from April and the authorities will try their best to meet the IMF conditions for the third disbursement in June this year.

The presidential polls should be held by October this year, but opposition parties have said President Wickremesinghe is in the process to delay the poll.

However, Wickremesinghe’s office last week said Presidential Election will be held “within the mandated period”, without giving an exact time.

It also said the General Election will be held next year, “according to the current timeline”. (Colombo/Feb 22/2024)

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Sri Lanka rupee closes at 310.95/311.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.95/311.05 to the US dollar Thursday, from 311.30/50 on Wednesday, dealers said.

Bond yields were down.

A bond maturing on 01.02.2026 closed at 10.60/80 percent from 10.65/85 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent from 12.05/15 percent.

A bond maturing on 15.03.2028 closed at 12.10/25 percent from 12.20/35 percent.

A bond maturing on 15.07.2029 closed at 12.20/95 percent from 12.45/95 percent.

A bond maturing on 15.05.2030 closed at 12.40/95 percent from 12.35/95 percent.

A bond maturing on 15.05.2031 closed stable at 12.45/13.00 percent.

A bond maturing on 01.07.2032 closed at 12.50/13.30 percent from 12.50/13.20 percent. (Colombo/Feb22/2024)

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