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Thursday June 8th, 2023

Sri Lanka trade unions call off “strange” anti-tax protest after PMD claims failure

ECONOMYNEXT – More than 40 state-sector trade unions in Sri Lanka called off a protest that disrupted the health and education sector largely after the Presidential Media Division (PMD) claimed that many sectors worked partially despite calls to bring the country to standstill.

The state-sector trade unions have called for a full-day protest on Wednesday (15) against the tax hike.

The government has raised personal income taxes to up to 36 percent to reach its revenue targets which is used to a bloated and inefficient state sector amid a call from the International Monetary Fund to reduce losses in the state-owned enterprises.

The island nation was compelled to pay 86 cents from each rupee it received from tax payers last year to sustain over 1.6 million public servants in government and semi-government institutions. According to official data, one government employee is there to serve every 14 citizens in a country with a 22 million population.

Most teachers did not go for work while state hospitals also saw absence of doctors and other health workers.

The latest tax hike brings doctors, health workers. employees at state-run Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), and port employees into the tax net for the first time.

“We hope to continue the protest against the tax hikes, because we have given them a timeline, and we are sticking to it. However, overall, the strike by the alliance has decided to suspend temporarily until next week because the President assured us to give a meeting to discuss,” Chamil Wijesinghe, the spokesman for Government Medical Officers’ Association (GMOA) told EconomyNext.

“The trade union action today was extremely successful. Apart from Cancer, Emergency, Kidney, Tri Forces and Mental Health Hospitals, all the other government hospitals in the nine provinces collapsed due to today’s actions.”

Channa Dissanayaka, the Ceylon Bank Employees Union president, said they will withdraw from the protest until next week after they receive a letter from President Ranil Wickremesinghe on the dates for the meeting.

“This was a strike that was preventable. If they at least gave the assurance for the meeting with the President two days before, then this would not happen.”

“All Schools Collapsed”

Joseph Stalin, the General Secretary of Sri Lanka Teachers’ Union said the strike was extremely successful in the education sector.

“100 percent of teachers supported and the education in all schools collapsed today. If the government does not answer our requests, then we hope to go for serious actions in the future.”

However, employees from many state sector institutions except in the education and health sector said they worked as usual though some had gone on leave.

“We are not on strike but we had less work at our office because of the strike at port,” an official at Sri Lanka Customs told EconomyNext.

The President’s Media Unit (PMD) said most of the state sectors worked despite the protests.

The PMD quoting top officials in each government institution said 20 trains had operated by 0800 hours in the morning, CPC had processed over 300 loads of 6,600 liter of petrol and diesel to maintain normal operations, CEB Shroff and Cashier Union operated as normal, most state banks operated as usual while state-run bus transport service also operated partially despite the trade union protests.

State Finance Minister Shehan Semasinghe said the recent tax hike was to have more emphasis on direct taxes and give relief on indirect taxes.

“What people are asking without knowledge is to increase the percentage of indirect tax. It affects the entire nation. And the most rich person as well as the most poor person will have to pay equal,” Semasinghe told EconomyNext.

Some government officials called the protest “strange” due to the demands of the state-sector trade unions – to reduce the progressive taxes.

“This is a strange protest. Teachers who have nothing to do with the tax hike are protesting on behalf of doctors who earn multiple times of a teachers’ salary and yet don’t pay taxes,” a Finance Ministry official told EconomyNext asking not to be named.

“There is a contradiction in this protest. If they want to reduce taxes, then they should also let the government know how their salaries should be paid. Nobody is thinking about how a government is paying their salary.”

“The protesters don’t know that they are being used by their own colleagues who want to reduce their own tax which is the source for the wage of lower grade officers.” (Colombo/March15/2023)

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  1. Mary Anne Perera says:

    This is true. It was a scam. It was not a protest for the benefit of the middle class and poor but for the richest of the rich who want to get richer.

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  1. Mary Anne Perera says:

    This is true. It was a scam. It was not a protest for the benefit of the middle class and poor but for the richest of the rich who want to get richer.

Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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