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Sunday March 26th, 2023

Sri Lanka unions agitating against IMF-backed reforms to meet president’s secretary

ECONOMYNEXT – Sri Lanka’s trade unions and professional associations agitating against an IMF-backed tax hike are to hold talks with the secretary to the president ahead of a discussion with President Ranil Wickremesinghe.

Media spokesman of the Federation of University Teachers Association (FUTA) Charudaththa Illangasinghe told reporters Friday March 17 morning that the meeting with President’s Secretary Saman Ekanayake was to be held that noon.

The discussion had been scheduled for March 21 but had been brought forward, which Illangasinghe said was a step in the right direction.

However, talks so far have been futile, he noted, adding that FUTA and other unions would like to end the talks on a positive note with a fair outcome that is acceptable to them.

Illangasinghe further said that if their March salary was taxed, all trade unions and professional unions – some of whom had by Thursday morning called off a strike – would continue their trade union action.
FUTA’s strike is still ongoing, and Illangasinghe said it will continue until a favourable decision has been made.

In the days leading up to Friday’s meeting, trade unions in Sri Lanka threatened to cripple the economy if the government did not reverse International Monetary Fund (IMF)-backed reforms, with one main opposition SJB-affiliated union leader promising a total shutdown of power & energy, medical, banking and other vital sectors starting midnight March 14.

The threat did not come to pass in its full form, with government spokesmen painting it a failure. A majority of the unions including the Government Medical Officers Association (GMOA) had called off the strike by Wednesday morning.

Related:

Sri Lanka unions threaten to cripple economy against IMF-backed reforms

However, severe trade union action by medical doctors had by then already brought the state health sector to a near-standstill. Doctors were on strike in several provinces against the income tax hike, greatly inconveniencing patients, before the strike was eventually called off.

High-income earning public servants in higher education, medical, banking, ports and other sectors have for weeks been threatening to up the ante in ongoing trade union action against Sri Lanka’s IMF-backed reforms, including a progressive income tax hike that sees the cash-strapped government collect from anyone earning over 100,000 rupees a month.

Minister of Ports, Shipping and Aviation Nimal Siripala de Silva told parliament on Thursday that 17 ships en route to the Colombo Port had turned back as a result of a recent anti-tax protest organised by port unions. He also claimed that one protesting port worker earns over 170,000 rupees a month.

Sri Lanka’s new tax regime has both its defenders and detractors. Critics who are opposed to progressive taxation said it serves as a disincentive to industry and capital which can be invested in business. They argue that a flat rate of taxation is implemented where everyone is taxed at the same rate.

Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital.

Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair. (Colombo/Mar17/2023)

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Sri Lanka seeks to settle India ACU debt, credit lines over 5-years

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

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Sri Lanka coconut auction prices up 1.16-pct

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

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Sri Lanka in talks for billion dollar equivalent Indian rupee swap

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)

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