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Thursday December 1st, 2022

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 China-backed port to welcome second cruise ship

ECONOMYNEXT – Sri Lanka’s China-backed Hambantota Port said it was getting ready to welcome MV Azamara Quest, a cruise ship, as another passenger vessel departed.

Mein Schiff 5, operated by TUI had departed Hambantota International Port for Pulau Penang Island, Malaysia on November.

“As well as being her maiden call at the port, Mein Schiff 5 is the first passenger cruise ship to call at the port since the pandemic began,” said Johnson Liu, CEO of Hambantota International Port Group (HIPG) said in a statement.

“It was undoubtedly a great boost for the tourist economy in the south when the vessel called at the Hambantota International Port.”

Mein Schiff 5’s passengers had also visited the Bundala National Park, Hambantota Botanical Gardens, Galle and Kataragama.

Passengers had explored Hambantota by tuk-tuk, while others had enjoyed the beaches in the Shangri La Hotel, the port said.

MV Azamara Quest will arrive in Hambanota on on December 05. (Colombo/Dec01/2022)

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Sri Lanka’s shares gain in mid market trade

EXONOMYNEXT- Sri Lanka’s shares gained in mid market trade on Thursday (1), pushed up by strong positive sentiments on interest rates easing in line with inflation and speculation on government to hold talks with multilateral creditors ADB and World Bank for a possible loan facility.

Market has continued to gain for the past four sessions.

“Shares were moving on positive strong sentiments flowing in from yesterday (30), we are seeing a rally in the hotels, while the retail favorites such as LIOC and Expolanka,” analysts said.

Positive investor sentiments have been established, from positive comments from the Governor of the Central Bank over market rates eventually seeing an ease despite the fears of a domestic debt restructuring as inflation falls, increased liquidity in dollar markets, and the inter-bank liquidity improves.

Analysts further stated that, Treasury related stocks are also activated due to downward movements in yield.

All Share Price Index (ASPI) gained by 1.4 percent or 123.41 points to 8,774.64, while the most liquid share gained by 1.31% or 35.68 points to 2,765.

The market generated a turnover of 1.6 billion rupees at 1130 hours. (Colombo/Dec1/2022)

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Sri Lanka electricity losses from overpriced fuel, no tariff hike considered: regulator

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board’s high operating costs are partly due to excessive prices paid for fuel and no tariff hike is being considered, Chairman of the Public Utilities Commission of Sri Lanka, Janaka Ratnayake said.

The CEB itself does not buy fuel but depends on state-run Ceylon Petroleum Corporation and Lanka Coal, another state firm to buy fuel. Both firms are periodically caught in procurement scandals.

“They are paying about 385 plus rupees per litre for furnace oil,” Ratnayaka told EconomyNext.

“That is too much. From the global market we can buy it to much lower price. It can be imported below 200 rupees,”

“I ask the government to take the necessary steps to create a system to import furnace oil, like they did for fuel, to be imported at the lower price levels. If that happens, we can go without going for a price hike.”

Sri Lanka’s CEB generally gets furnace oil and residual oil from the domestic refinery and usually do not import furnace oil.

The refinery however is not regularly operating due to inability to get crude amidst the worst currency crisis in the history of the island’s intermediate regime central bank.

Ratnayake had earlier brought to light import costs of the CPC.

Pushing for operations efficiency of the CEB is a role of the regulator. Regulating costs based on global benchmark prices to push for procurement efficiencies is a standard practice. However the PUCSL is not the official regulator of the petroleum sector.

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Sri Lanka power tariff revisions sought in Jan and July: Minister

Power and Energy Minister Kanchana Wijesekera told parliament that cabinet approval was sought to twice yearly tariff hikes in January and July of each year.

No Electricity tariff hikes are being considered yet, Ratnayake said.

Wijesekera blamed the regulator as well as successive administrations for not regularly revising power prices and pushing the sector into crisis.

In Sri Lanka activists had also blocked cheap coal power. (Colombo/Dec01/2022)

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