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Monday February 6th, 2023

Sri Lanka to take out China Exim, Nick Leeson loans from key SOEs

ECONOMYNEXT – Loans given by the Exim Bank of China to several state enterprises and government guaranteed loans taken by Ceylon Petroleum Corporation will be taken by the central government, President Ranil Wickremesinghe said.

Exim Bank of China funded a coal plant for state-run Ceylon Electricity Board which was determined by the Auditor General as perhaps the best investment made by Sri Lanka since hydro plants in the Mahaweli multi-purpose scheme.

Sri Lanka Airport also had a loan to develop Mattala Airport, considered a ‘white elephant’.

Sri Lanka Ports Authority was given a loan by Exim Bank of China for the Hambantota Port.

China paid 1.1 billion US dollars in cash for a stake in the port.

However Sri Lanka did not use to settle Chinese debt. Instead ‘more expensive’ loans from other parties were settled.

The Ceylon Petroleum Corporation has around 2.0 billion US dollars loans taken from state banks after the central bank printed money to suppress rates and target an output gap, triggering forex shortages.

Analysts in Sri Lanka have labelled them Nick Leeson loans.

Singapore’s Prime Lee Kuan Yew called such debt taken by soft-pegged countries, ‘cover-up loans’ a day before the setting up of a currency board was announced on August 26, 1966 in parliament by then Finance Minister Lim Kim San.

“Now, we are going to run a Currency system which means that the moment we earn less, we spend less,” Prime Minister Lee told a trade union on August 25 night. “And I say we do it or we die because this is a society with an open market, exposed.

“If you start fiddling around with currency and you start printing notes and then you have no money really to spend and you start borrowing to cover up, you will end up in penury and bitterness.

After engaging in stimulus (output gap targeting) by printing money to keep rates down, policymakers are then forced to put the breaks as the inevitable consequences follow.

““Right, stop; break; pull the money back.”,” Prime Minister Lee explained. “Bank rates go up; money cannot borrowed easily; shops cannot borrow money; private owners cannot borrow money to build houses, to buy cars; hire purchase is more difficult; expenditure contracts; demand goes down; imports go down.”


Shock revelation on how Sri Lanka’s CPC ended up with billions of dollar debt

The IMF taught Sri Lanka’s central bank to calculate and output gap.

Sri Lanka is now in the ““Right, stop; break; pull the money back,” mode, which the same ‘lost generation’ economists call ‘stabilization’.

Sri Lanka defaulted after borrowing billions of dollars from both China and sovereign bond holders as cover up loans under flexible inflation targeting/output gap targeting triggered forex shortages.

Under an IMF program, a new monetary law allowing flexible inflation targeting or discretionary policy to ‘fiddle around with the currency’ as happened in the past 7 years triggering three currency crises in rapid succession is to be legalized. (Colombo/Nov14/2022 – CORRECTION – Coal plant by CEB not CPC)

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Sri Lanka to address SME tax problems at first opportunity: State Minister

ECONOMYNEXT – Problems faced by Sri Lanka’s small and medium enterprises from recent tax changes will be addressed at the first opportunity, State Minister for Finance Ranjith Siyambalapitiya said.

Business chambers had raised questions about hikes in Value Added Tax, Corporate Income Tax and the Social Security Contribution Levy (SSCL) that’s been imposed.

It should be explored on how to amend the Inland Revenue Act, Siyamabalapitiya said, adding that the future months should be considered as a period where the country is being stabilized.

Both the VAT and SSCL are effectively paid by customers, but the SSCL is a cascading tax that makes running businesses difficult.

In Sri Lanka SMEs make up a large part of the economy, accounting for 80 per cent of all businesses according to according to the island’s National Human Resources and Employment Policy.

(Colombo/ Feb 05/2023)

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Sri Lanka revenues Rs158.7bn in Jan 2023 up 51-pct

ECONOMYNEXT – Sri Lanka’s government revenues were 158.7 billion rupees in January 2023 but expenditure and debt service remained high, Cabinet spokesman Minister Bandula Gunawardana said.

In January 2022 total revenues were Rs104.5 billion according to central bank data.

Sri Lanka’s tax revenues have risen sharply amid an inflationary blow off which had boosted nominal GDP while President Ranil Wickremesinghe has also raised taxes.

Departing from a previous strategy advocated by the IMF expanding the state and not cutting expenses, called revenue based fiscal consolidation, he is attempting to do classical fiscal consolidation with spending restraint.

President Ranil Wickremesinghe has presented a note to cabinet requesting state expenditure to be controlled, Gunawardana told reporters.

State Salaries cost 87.4 billion rupees.

Pensions and income supplements (Samurdhi program) were29.5 billion rupees.

Other expenses were 10.8 billion rupees.

Capital spending was   21 billion rupees.

Debt service was 377.6 billion rupees for January which has to be done with borrowings from Treasury bills, bonds and a central bank provisional advance of 100 billion rupees, Gunawardana said.

Interest costs were not separately given. (Colombo/Feb05/2023)

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Sri Lanka’s Ceylon Tea prices down for second week

ECONOMYNEXT – Sri Lanka’s Ceylon Tea prices fell for the second week at an auction on January 31, with teas from all elevations seeing a decline, data showed.

“In retrospect, the decline in prices would be a price correction owing to the overall product quality and less interest from some key importers due to the arrival of cargo at destinations ahead of schedule,” Forbes and Walker tea brokers said.

The weekly sale average fell from 1475.79 rupees to 1465.40 rupees from a week ago, according to data from Ceylon Tea Brokers.

The tea prices are down for two weeks in a row.

High Growns

The High Grown sale average was down by 20.90 rupees to 1380.23 rupees, Ceylon Tea Brokers said.

High grown BOP and BOPF was down about 100 rupees.

“Ex-Estate offerings which totalled 0.75 M/Kg saw a slight decline in quality over the previous week” Forbes and Walker said.

OP/OPA’s in general were steady to marginally down.

Low Growns

In Low Grown Teas, FBOP 1 was down by 100 rupees and FBOP was down by 50 rupees while PEK was up by 150 rupees.

The Low Growns sale average was down by 8.55 rupees to 1547.93 rupees.

A few select Best BOP1s along with Below Best varieties maintained.

OP1                     Select Best OP1’s were steady, whilst improved/clean Below Best varieties maintained.   Others and poorer sorts were easier.

PEKOE                 Well- made PEK/PEK1s in general were steady, whilst others and poorer sorts were down.

Leafy and Semi Leafy catalogues met with fair demand,” Forbes and Walker brokers said.

“However, the Small Leaf and Premium catalogues continued to decline.

“Shippers to Iran were very selective, whilst shippers to Türkiye and Russia were fairly active.”

This week  2.2 million Kilograms of Low Growns were sold.

Medium Growns

Medium Grown BOP and BOPF fell by around 100 rupees

The Medium Growns sale average was down by 33.40 rupees to 1199.4 rupees.

“Medium CTC teas in the higher price bracket witnessed a similar trend, whilst teas at the lower end were somewhat maintained subject to quality,” Forbes and Walker brokers said.

“Improved activity from the local trade and perhaps South Africa helped to stabilize prices to some extent.”

OP/OPA grades were steady while PEKOE/PEKOE1 were firm, while some gained 50-100 rupees at times.

Well-made FBOP/FBOPF1’s were down by 50-100 rupees per kg and more at times.

(Colombo/Feb 5/2023)

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