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Sunday March 26th, 2023

Sri Lanka to maintain -3 pct growth in 2023 but recovery likely next year: official

ECONOMYNEXT – Sri Lanka’s growth will be contained at negative 3 percent in 2023 after a 12.4 percent shrinkage in the fourth quarter of 2022 and is expected to turn positive from next year, State Minister of Finance Ranjith Siyambalapitiya said.

Siyambalapitiya told reporters on Saturday March 18 that Sri Lanka can expect a “positive economy” in 2024.

According to official data, Sri Lanka’s economy shrank by a record 7.8 percent in 2022 following the worst currency crisis in the country’s post-Independence history. GDP contracted contracted by as much as 12.4 percent in the fourth quarter of the year.

“This is a very serious situation [attributable to] the massive shortage of goods in the country and near-100-percent food inflation, a dollar shortage and a massive political crisis that ran parallel to that,” said the state minister.

Moody’s has forecast that Sri Lanka’s growth will shrink by 3 percent in 2023. Siyambalapitya said the country can expect to maintain this growth rate this year.

President Ranil Wickremesinghe said in January that the economy may shrink 3.5 percent in 2023 and as much 4.0 percent if global conditions weaken. He, too, forecast recovery by 2024.


Sri Lanka economy may shrink 3.5-pct in 2023: President

With board approval from the International Monetary Fund (IMF) for a 2.9 billion dollar bailout on the cards, Sri Lanka’s prospects are now looking better than they did a few months ago. Inflation has moderated to around 50 percent in February, though a majority of the public continue to feel the pinch.

IMF-backed tax hikes and other informs including cost-reflective utility and fuel tariffs have also helped the situation, though not without drawing protests from various quarters.

Sri Lanka’s economy has a tendency to recover about 18 months after a currency crisis, as inflation flattens out and interest rates easing giving a breathing space for people to consume and invest as budget deficits come down.

The economy contracted 7.1 percent up to the third quarter after the currency collapsed from 200 to 360 to the US dollar after two years of money printing to suppress rates and a steep tax cut for ‘stimulus’. (Colombo/Mar18/2023)

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Sri Lanka seeks to settle India ACU debt, credit lines over 5-years

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

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Sri Lanka coconut auction prices up 1.16-pct

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

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Sri Lanka in talks for billion dollar equivalent Indian rupee swap

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)

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