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Saturday April 20th, 2024

Sri Lanka yields fall, Ghana T-bill rates rise, inflation high after broader DDR

ECONOMYNEXT – Sri Lanka’s bond and bill yields fell as authorities announced a domestic debt restructure that largely maintained investor confidence, while Ghana T-bill yields spiked again after a broader domestic re-structuring.

“Interest rates have steadily been rising in the past few weeks, even though Ghana has received the first tranche of the $3 billion IMF loan since May,” Ghanaweb, an online portal reported.

“The increasing interest rates are a source of worry as the government will have to pay more in maturities.”

For the 91-day bills, interest rates have increased from 23.95 percent to 24.39 percent, the 182-day bill increased from 25.79 percent, to 26.02 percent, the report said.

Bills were spared from DDR, like in Sri Lanka, but bond markets were dealt a crippling blow.

“The first few domestic bond issuances following the restructuring, which would likely not
happen until 2024, will be carefully managed to prioritize successful execution, perhaps using
placements rather than auctions and starting with small volumes,” according to Ghana;’s IMF program report issued in May.

“Once domestic market access is more firmly established, primary issuance will switch to competitive auctions.

“Non-resident investors in domestic bond markets will not be offered special incentives.”

Without a functioning debt market, a government cannot fund a deficit or roll-over maturing debt, leading to money printing, forex shortages, depreciation and inflation.

Bonds – at whatever yield – are paper, which are not exchangeable for real goods or foreign exchange unlike a currency note.

According Ghana’s central bank, inflation is 42.2 percent and its policy rate is 29.5 percent.

On Tuesday, a sri Lanka bond maturing on 15.09.2027 was quoted at 14.50/70 percent steady from 14.50/80 percent from the previous close.

A bond maturing on 15.05.2026 was quoted at 14.75/15.25 percent steady from 14.50/15.00 on Tuesday. Bond were down about 10 to 12 percent from before a DDR was announced.

Sri Lanka is set to resume bond auctions this week. Based on current secondary yields, the government will make large savings in rolled over bonds helping reduce the overall deficit and the debt to GDP ratio over time, as long as monetary stability is maintained.

However there have been warnings that if the exchange rate instability returns amid rate cuts, the picture may turn.

Like most defaulting countries Sri Lanka and Ghana deny monetary stability to the poor as well as businesesses dual-anchor conflicting monetary regimes where an inflation rate (a domestic anchor) is targeted with a fixed policy rate, despite having a reserve collecting central bank (a de facto peg).

Ghana’s monetary standard is worse than Sri Lanka with an 8-10 percent inflation target compared to a 4-6 percent for the island.

Ghana’s currency has see-sawed over several months, crippling energy utilities, though some stability has been seen in recent weeks.

Sri Lanka has brought inflation down by ending money printing with the holp of domestic bond market, and also repaid foreign debt on a net basis with no foreign inflows.

The central bank has also allowed the exchange rate to appreciate amid deflationary policy and negative private credit. (Colombo/July11/2023)

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Sri Lanka discussing giving extra land, water for Chinese oil refinery

ECONOMYNEXT – Sri Lanka is in discussions with China’s Sinopec to give extra land and assure water supplies after the company decided to expand the capacity of a planned oil refinery in Hambantota, Energy Minister Kanchana Wijesekera said.

“There are concerns on how the water supply is going to be provided for the refinery,” Minister Wijesekera told reporters Friday.

The refinery will need more land and also revise conditions in a Board of Investment agreement, he said.

Read more
Sinopec to double capacity of new refinery in Sri Lanka’s Hambantota

Recommendations and decisions from Sri Lanka’s side had already been sent and Sinopec is expected to revert back in May.

“We are hoping to sign the agreement once everyone has agreed,” Wijesekara said.

The principle agreements are expected to be signed by June, he said.

The refinery could sell up to 10 percent of its output in the domestic market.

“There is no commitment by the government to purchase anything,” Minister Wijesekera said. (Colombo/Apr19/2024)

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Sri Lanka rupee closes weaker at 302.00/50 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 302.00/50 to the US dollar in the spot forex market on Friday, down from 301.50/302.00 a day earlier, dealers said.

There was increased demand for dollars after the central bank bought 715 million dollars from forex markets. In the previous two months it was buying on average about 200 million US dollars, leaving market participants and bank in a ‘oversold’ position.

There were some official dollars sales Friday dealers said.

READ Sri Lanka rupee quoted wide to US dollar as peg inconsistencies flare up

Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed at 11.30/40 percent down from 11.35/40 percent.

A bond maturing on 15.09.2027 closed at 11.95/12.05 percent up from 11.90/12.05 percent.

A bond maturing on 15.12.2028 closed stable at 12.15/25 percent.

A bond maturing on 15.09.2029 closed stable at 12.30/40 percent.

A bond maturing on 01.10.2032 closed stable at 12.40/50 percent. (Colombo/Apr19/2024)

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Sri Lanka stocks close down, banks trade down

ECONOMYNEXT – The Colombo Stock Exchange closed down on Friday, data on its site showed.

The broader All Share Index closed down 0.38 percent, or 44.80 points, at 11,753; while the S&P SL20 Index closed down 0.53 percent, or 18.46 points, at 3,456.

Turnover was at 1.4 billion. The diversified financials (Rs366mn) and banks (Rs266mn) sectors continued to see selling pressure.

“This was possibly due to uncertainty around the bond discussions,” market participants said.

With the exception of Sampath Bank Plc (up at 77.50) all other banks traded down in the day. Commercial Bank of Ceylon Plc was down at 104.50, Hatton National Bank Plc was down at 188.50, and DFCC Bank Plc was down at 77.00.

LOLC Finance Plc saw the most trades and closed up at 6.40. Another LOLC company, Browns Investments Plc, also saw high traded volumes and closed up at 5.60.

Softlogic Capital Plc was up at 7.00, and Softlogic Holdings Plc was up at 11.20. A trading suspension imposed on SHL.N0000 was lifted effective today as the company submitted the annual report for the year ended 31st March 2023.

However, shares of the Company will remain in the Watch List “due to Qualified Audit Opinion and Emphasis of matter on going concern in the Independent Auditor’s Report in the Audited Financial Statements for the year ended 31st March 2022.”

Dialog Axiata Plc, which announced its merger with Bharti Airtel Thursday, saw its share price close up at 11.90.

“There was some traction on index heavyweights,” market participants pointed out.

Top contributors to the APSI included Aitken Spence Plc (up at 134.50), Ceylon Tobacco Company Plc (up at 1,245.25, and Lion Brewery (Ceylon) Plc (up at 1,048.50).

There was a net foreign inflow of 5 million. (Colombo/Apr19/2024)

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