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Saturday May 18th, 2024

Sri Lanka trying to re-finance billion dollar CPC ‘Nick Leeson’ loan from state banks: report

ECONOMYNEXT – Sri Lanka is trying to re-finance billion US dollars out of more than two billion US dollars of unhedged forex loans taken by Ceylon Petroleum Corporation from state banks, which are causing massive losses as the currency weakens, a media report said.

Sri Lanka’s The Sunday Times newspaper quoted Energy Ministry Secretary K D R Olga as saying that CPC owed 2.081 billion US dollars to state-run Bank of Ceylon and People’s Bank.

The Sunday Times report said the government had set up a committee made up of Deputy Treasury Secretary Saman Fernando, CPC Managing Director Buddiha Ruwan Madihahewa to evaluate unsolicited bids from private international lenders to give a loan to the CPC.

The report quoted Olga as saying that the cabinet approval had been granted to evaluate the unsolicited proposals since calling for expressions of interest may create adverse impact.

The People’s Bank and Bank of Ceylon are charging 5.5 percent interest on the loans.

The government hoped to get a loan at below 3 percent with 10 year repayment and less than 3 percent interest, she was quoted as sayig.

A sovereign guarantee of for a billion US dollars would be given for the loan, using guarantees already issued to Bank of Ceylon and People’s Bank loans which are to be settled, she said.

Sri Lanka’s Keynesian policy makers have made the CPC borrow dollars from state banks to pay import bills instead of buying dollars from the forex market whenever the central bank printed money and created forex shortages, analysts have said.

In 2019, the CPC borrowed around 900 million US dollars taking the total loans under Treasury guarantees to 1.8 billion US dollars despite market pricing oil, as money was printed to target a call money rate and close an ‘output gap’.

CPC borrowed dollars despite having cash balances at state-run banks from crowding out consumption from market pricing oil under a price formula, effectively sabotaging the benefit of a price formula, as the cash was loaned to other borrowers to generate demand.

Analysts have likened the unhedged dollar borrowings of a utility which sells in rupees to a ‘Nick Leeson’ strategy.

Analysts believe that CPC is made to borrow dollars despite having a price formula due to a Keynesian belief system around what is known as ‘transfer problem’ where the link between domestic credit and international payments are mis-understood.


Nick Leeson-style losses at Sri Lanka’s CPC raise big questions

Sri Lanka debt crisis trapped in spurious Keynesian ‘transfer problem’ and MMT

In a 1929 debate classical economists including Swedish Nobelist Bertil Ohlin and French economist Jacques Reuff who late saved the French France tried convince John Maynard Keynes that Weimar Republics inability repay foreign dues came from to money printing and not a ‘transfer problem’

In 2018, the CPC ran a 104 billion rupee loss as the rupee was busted from 153 to 182 to the US dollar, making the utility run a 80 billion rupees forex loss.

The CPC’s total debt as of now amounts to 635 billion or 3355 million US dollars, the Sunday Times said.

Peoples’ Bank was owed 1,075 million and Bank of Ceylo 1,006 million dollars.

Oil suppliers have to be paid 597 million US dollars through Letters of Credit issued by the People’s Bank and 677 million dollars though LCs issued by the Bank of Ceylon, or a total of 1,74 million dollars the report said.

Bank loans and suppliers credit totalled 3,355 million US dollars or 635 billion rupees.

Two state agencies and Independent Power Producers (IPPs) also owed the CPC 151 billion rupees. (Colombo/June20/2021)

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Sri Lanka suffers over $138mn foreign outflow from govt bonds in 2024 after rate cuts

ECONOMYNEXT – Foreign investors have dumped 41.6 billion-rupee ($138.6 million) worth of Sri Lanka government securities in the first 20 weeks of 2024, the central bank data showed, after reduction in the key policy interest rates.

The foreign holding in Sri Lanka’s treasury bills and treasury bonds fell to 75.9 billion rupees on the week ended on Friday (17), May 2024, from 117.4 billion rupees on the week ended on December 29.

The central bank rate has reduced the key policy rates by 50 basis points so far in 2024, extending the rates cut by 700 basis points since June last year.

The rupee appreciated 9.1 percent in the first four months, but the gain failed to attract foreign investors amid a dragged debt restructuring negotiation with external private creditors.

Currency dealers said lackluster demand for dollars due to dampened imports with heavy controls, boom in both tourism revenue and remittances have helped to increase the dollar liquidity in the market, leading to the appreciation of the local currency.

The dealers said foreign investors can earn capital gain if they had bought government securities before the appreciation and now the offshore investors might be selling their bonds.

“They are also discouraged by policy rate cut because that will reduce their returns from the rupee bond investments,” a currency dealer said.

The yield in 12-month T-bills has fallen 336 basis points in the first four months of this year, the central bank data showed.

The central bank also reduced the Statutory Reserve Ratio (SRR) of commercial banks by 200 basis points in August last year to boost liquidity in the market with an aim to reduce market interest rates.

Under tough International Monetary Fund (IMF) conditions for its $3 billion loan program, the central bank raised key monetary policy rates in 2022 and last year to bring down inflation which hit over 70 percent in 2022. The inflation has fallen to the lower single digit now.

The rupee has appreciated to around 300 against the US dollar this week from around 330 level early in November. The local currency was at 365 rupees against the US dollar in early 2022. Depreciation causes capital loss for foreign investors. (Colombo/May 18/2024)

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Sri Lanka’s ‘Sancharaka Udawa’ tourist fair seeks to involve universities

ECONOMYNEXT – Sri Lanka’s ‘Sancharaka Udawa’ tourism fair kicked off this week to promote interaction between industry stakeholders and relevant Government bodies, including the Tourist Police, and also universities.

“Several universities, including Colombo, Uva Wellasa, Kelaniya, Sabaragamuwa and Rajarata were given free stalls to facilitate student interaction with industry professionals,” Chairman of the Sancharaka Udawa Organising Committee, Charith De De Alwis said in a statement.

The event takes place today (18) at the BMICH and houses stalls for hoteliers, tour and transport services, with a goal of attracting 10,000 visitors.

Organized by the Sri Lanka Association of Inbound Tour Operators (SLAITO) and the Sri Lanka Tourism Promotion Bureau (SLTPB), the 11th edition of Sancharaka Udawa offers a platform for both B2B and B2C sectors.

“Sancharaka Udawa houses over 170 exhibitors and a footfall of more than 10,000 visitors,” De Alwis said.

This year’s edition will include participants from outbound tourism sectors to facilitate capacity building. The event provides networking opportunities for industry newcomers and veterans.

“The networking platform offers opportunity for small and medium-sized service providers integrating them into the broader tourism landscape. The anticipated outcome is a substantial increase in bookings particularly for regional small-scale tourism service providers.” (Colombo/May18/2024)

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Sri Lanka’s CEB sells LTL shares to West Coast IPP for Rs26bn

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board has sold shares of an affiliate to West Coast Power Company Limited, an independent power producer giving profits of 25.9 billion rupees in the March 2024 quarter, interim accounts showed.

The sale has been carried out as a transfer.

“Twenty-eight percent (28-pct) of share ownership of CEB within LTL Holding’s equity capital has been transferred to West Coast Power Company Ltd for a total consideration of Rs 26 billion as part of a partial settlement of outstanding dues…” the March interim accounts said.

“This transaction resulted in a net gain of Rs25.9 billion rupees which has been recognized and reflected in the ‘Gain from Share Disposal’ in the individual financial statement in CEB.”

LTL Holdings is a former transformer making unit of the CEB set up with ABB where the foreign holding was sold to its management.

The firm has since set up several IPPs.

West Coast Power operates a 300MW combined cycle IPP in Kerawalapitiya promoted by LTL group liked firms in which both the Treasury and Employees Provident Fund also have shares.

Its operational and maintenance contract is with Lakdhanavi, another private IPP. The firm has been paying dividends.

The capital gain from the transfer of shares helped the CEB post profits to 84 billion rupees for the March 2024 quarter.

CEB reported gross profits of 62.7 billion rupees from energy sales and 30.6 billion rupees in other income and gains in the March 2024 quarter. Other income was only 3.1 billion rupees in last year. (Colombo/May18/2024)

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