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Sunday February 25th, 2024

Sri Lanka trade surplus in June as economy smashed to resurrect soft-peg

ECONOMYNEXT – Sri Lanka recorded a trade surplus in June official data show with private credit smashed to resurrect a soft-peg and a fuel credit line from India running out, but forex shortages persist amid money printing, forced dollar sales and forex sales.

Imports fell 26 percent to 1,226 million dollars in June while exports rose 23.9 percent to 1,249 million dollars, giving a trade surplus of 21 million US dollars with hardly any inflows to the government.

Expat workers remitted 274 million US dollars though official channels. In June there was an lockdown style scenario as the country ran out fuel due to forex shortages.

Non-oil imports collapsed 35.6 percent to 1,026 million US dollars.

Investments goods fell 46 percent to 234 million US dollars in a steep correction.

Consumer goods imports fell 53 percent to 176.5 million US dollars.

Intermediate goods imports were flat at 815.7 million dollars, marginally down 2.8 percent.

Fuel imports were flat at 200 million US dollars, with a credit line from India running out.

In the six months to June imports were flat at 10,028 million US dollars, and exports were up 14.3 percent.

The trade deficit was down to 3,514 million US dollars from 4,316 million US dollars.

The central bank has raised rates to smash private credit and the economy in a bid to restore its soft–peg broken by suppressed interest rates earlier.

In May and June private credit slowed sharply.

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Sri Lanka private credit negative in June 2022, Rs189bn printed

Sri Lanka is however still experiencing severe forex shortages at overall BOP despite the trade surplus with the central bank continuing contradictory money and exchange rate policies involving intervening with borrowed ACU dollars from India, sterilizing them and also imposing a surrender rule on an already-broken peg.

Banks are also settling foreign loans which are not being renewed.

Analysts had warned that it is extremely costly to try and restore a pegged exchange rate system with interest rates alone without floating. An attempt to float the currency was botched with a surrender rule and too low interest rates in March.

Bangladesh and India which also have soft-pegs are also facing forex pressure after cutting rates just as the economy and private recovered after Covid. Pakistan the second worst central bank in South Asia after Sri Lanka has two large central banks that re-financed Covid funds.

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Sri Lanka could get US$500mn from ADB in 2024

ECONOMYNEXT – Sri Lanka could receive 500 million US dollars in support from the Asian Development Bank in 2024 based on the progress of policy reforms, Country Director of the Manila-based lender, Takafumi Kadono said.

The ADB expect to go to its Board around March or April with a 100 million US dollar power sector loan subject to the cabinet of ministers of approving a revised electricity reform bill.

A 100 million dollar loan to support SMEs could also be approved in the early part of the year. Sri Lanka is setting up a credit guarantee agency to support credit for small firms.

A 200 million dollar credit for financial sector was also slated for the year. The ADB gave the first tranche of the financial sector policy loan late last year.

A $100mn for the water sector could also be approved later in the year.

Sri Lanka could get around 200 to 300 million US dollars a year at the lowest rate, or concessional ordinary capital resources (COL) rate of 2 percent.

The balance of would come at the ordinary capital resource rate linked to SOFR.

The ADB has also started work on a ‘Country Partnership Strategy’ for Sri Lanka covering the 2024-2028 period, Kadodo said. (Colombo/Feb25/2024)

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Sri Lanka’s multi-aligned foreign policy based on friendship: Min

ECONOMYNEXT – Sri Lanka’s multi-aligned foreign policy is based on friendship to all and enmity to none, its Minister of Foreign Affairs has said.

“Non-alignment means not becoming a bystander. Non-alignment means you are not forced or coerced into a camp to take sovereign decisions… you make your own choices. Whether it is commercial, security, regional or otherwise,” M U M Ali Sabry said on X (twitter).

“I have repeatedly stressed that sovereignty is the right to have your own opinion on what’s right and wrong, and to stand by your principles. Our multi-aligned foreign policy is based on friendship to all and enmity to none,” Sabry was quoting from his speech at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) Foreign Policy Forum, on the theme ‘Reassessing Non-Alignment in a Polarised World’.

Sri Lanka is one of the founding members of the Non-Aligned Movement.

The strategically located island has been increasingly walking a fine line between opposing global factions as it seeks to come out of a financial crisis. (Colombo/Feb24/2024)

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Sri Lanka’s Commercial Bank Dec net down on tax provisions

ECONOMYNEXT – Sri Lanka’s Commercial Bank of Ceylon reported profits of 6.9 billion rupees from the December 2023 quarter down 21 percent, despite an improvement in net interest income and lower provisions, amid a change in tax provisions.

Pre-tax profits were 8.89 billion rupees up from 2.4 billion rupees. There was a 6.4 billion tax reversal last year compared to a 1.7 billion rupee tax charge this year.

Commercial Bank reported earnings of 5.26 rupees for the quarter. For the year to December 2023 earnings were 16.07 rupees per share on total profits of 21.1 billion rupees, down 11.3 percent.

Net fee and commission income was down 1.2 percent to 6.1 billion rupees.

Net interest income went up 16.8 percent to 25.5 billion rupees, with interest income rising marginally by 1.3 percent to 73.0 billion rupees and interest expense falling 5.45 percent to 47.5 billion rupees.

Loans and advances to customers grew 4.06 percent to 1.17 billion rupees in the year to December. Debt and other financial instruments fell 10.5 percent to 649 billion rupees.

Financial assets measured and fair value through other comprehensive income was at 287 billion rupees, up from 117 billion rupees.

Impairment charges were 13.1 billion rupees, down from 19.6 billion rupees last year.

Gross assets were up 6.45 percent to 2.36 billion rupees. Net assets were up 5.51 percent to 214 billion rupees. (Colombo/Feb24/2024)

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