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Monday February 6th, 2023

Sri Lanka tracking exports inflow, forex conversions around 25-pt: CB

ECONOMYNEXT – Sri Lanka is getting around 1.45 billion from hard goods exports and 251 million from services, a month, central bank officials said as authorities started to police forex earnings during the latest currency crisis.

“Export conversion we are monitoring the situation and there is a monitoring mechanism in place since July with the customs and financial floors,” Governor Nandalal Weerasinghe said.

“On the information we have received not the full amount is being converted not the full amount is being converted in to rupees.

“It is less than what we expected.”

From the 1450 million dollars of export earnings in October, less than 25 percent, Governor Weerasinghe said.

Out of the total 1,450 million dollars 1,199 was for goods and 221 was for services, Deputy Governor Yvette Fernando said. On the goods side conversion was 326 million dollars of 23 percent.

1199 million dollars were hard goods and only 326 million dollars was converted,

“Exporters are saying their value addition has increased so they should be able to convert more than 25 percent,” Weerasinghe said.

He said the apparels sector say they have a value addition of 55 percent and tea and rubber about 95 percent.

“There is a public perception that exporters are not converting but without having data we can’t make that assumption,” Weerasinghe said.

“That’s what we have requested the exporters to please share data with us so they could save their reputation as well. Our foreign exchange department is authority who are collecting information.”

Countries with central banks that do not print money and do not have soft-pegs or flexible exchange rates do not care about whether exporters convert or not. However exporters have to declare income and pay taxes as required.

Operating exchange control departments are also a cost to the tax payer.

The UK, which operated a global currency for more several centuries and a former empire, operated exchange controls for 40 years after macro-economists started using flexible policy to manipulate rates and for stimulus after the 1930s, which ended in 1979s.

“..[T}here will from tomorrow be full freedom to buy, retain and use foreign currency for travel, gifts and loans to non-residents, buying property overseas and investment in all foreign currency securities,” The Chancellor of the Exchequer Geoffrey Howe told parliament in October 23, 1979.

“Portfolio investment will be wholly freed, and the requirement to deposit foreign currency securities with an authorised depositary is abolished. Foreign currency accounts can be held here or abroad.

“Passport marking for travel funds can now be abolished The necessary Treasury orders are being laid this afternoon.

“The removal of controls will lead to public expenditure savings of about £.14½ million a year, which represents the current cost of about 750 staff at present employed on exchange control work at the Bank of England and about 25 at the Treasury.

“Exchange controls have been with us in one form or another for just over 40 years.

“The essential condition for maintaining confidence in our currency is a Government determined to maintain the right monetary and fiscal policies. This we shall do.

“The staff at present employed on exchange control are in most cases staff of high skills and qualifications, for whom I have no doubt other opportunities will be forthcoming in areas of the economy where their services will be much needed and well used.”

Increasing regulations on exporters which are not found in countries without flexible monetary policy may further discourage foreign investment to Sri Lanka according observers.

Exporters generally try to hold back after Sri Lanka’s central bank prints money to suppress rates through a below market policy rate and trigger forex shortages while importers try to cover early.

If a float succeeds after a rate hike the opposite happens.

Governor Weerasinghe has hiked rates and already it is expensive to borrow in rupees and hold dollars but some are willing to do so due to fears of further depreciation rather than for actual profits, according to some market participants.

A clean float which leads to an appreciation of the currency however tends to reverse the flows and reduce interest rates. At the moment however there is surrender rule forcing the currency down. (Colombo/Nov24/2022)

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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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