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Thursday June 20th, 2024

Sri Lanka’s CAA ends black markets it started in dhall and tinned fish

ECONOMYNEXT – Sri Lanka’s Consumer Price Authority has ended the black markets and shortages it created by imposing price controls from March 18, making the goods disappear from shop shelves and causing hardships to people already battered by curfews.

“ACTING under the powers vested in it by Section 20(5) of the Consumer Affairs Authority Act, No. 09 of 2003, the Consumer Affairs Authority do hereby remove “Mysore Dhal” and “Canned Fish” from Order No. 61..” the CAA said.

Canned fish disappeared from shop shelves as the price controls were slapped in a textbook economics taught to first year students.

When price controls are set, the quantity demanded goes up and there is a shortage as the controlled price is below the market clearing price.

The supply cannot go up as the cost of production (pr import) may be below the controlled price. As a result the products disappears off the shelves and the trade at a market clearing price in the black

The CAA set the price for tinned fish at 100 rupees and dhall at 65 rupees, making both disappear from shop shelves. They were however available under ration from LakSathosa.

In the 1970s controlled era, many rationed goods under price control were available from Co-operative shops under ration. The rest went to the blackmarket. In the 1970s co-operative managers were rich.

Authorities then arrested the black marketeers that they themselves created with the price controls.

Price controls, black markets and rationing are result of economic illiteracy of the part of authorities, not only in Sri Lanka but in any planned economy.

Top economist W A Wijewardene writing in Sri Lanka’s Daily FT newspaper on April 27, explained how price controls led to rationing in the 1970s. Prices usually go up due to money printing which creates inflation and foreign exchange shortages.

“To prevent prices from going up, price controls were introduced,” he explained. “Since price controls gave rise to black markets, a compulsory rationing system was introduced to distribute the essential goods among the needy people.

But Sri Lanka has apparently learned nothing in the last 40 years.

On March 19 after price controls were slammed Information Minsier Bandula Gunewardene said there were complaints that tinned fish was not available at the controlled price even at the wholesale market in Pettah and he approved rationing.

“When the price was set, a person who usually buys 100 cases of tinned fish now comes today with a truck and asks 2,000 cases of tinned fish,” Minister Gunewardene said.

“This is because after buying the tinned fish at 55 rupees, they would hide it under the bed, and later sell it at 125 rupees and buy a small car.

“Then the CAA tells (the wholesaler) that you have to give all the tinned fish asked for, under the CAA law because it is illegal to have stocks and not sell them.”

“But at this time it is not illegal not to sell all they ask for.

“So I told them to give the same amount that they issued the buyer last month.”

In the Coroanvirus crisis, the CAA also arrested sellers who had tried to supply market at higher prices, television reports showed.

Classical economists have pointed out that no bureaucrat who mis-uses the coercive power of the state to control business in a planned economy are ever ashamed of their actions.

“It is further true that bureaucracy is imbued with an implacable hatred of private business and free enterprise,” wrote economist and philosopher Ludwig von Mises half a century ago.

“But the supporters of the system consider precisely this the most laudable feature of their attitude.

“Far from being ashamed of their anti-business policies, they are proud of them. They aim at full control of business by the government and see in every businessman who wants to evade this control a public enemy.”

If price controls persist for a long time, suppliers and producers would shift to other businesses and no new entreprenuers would enter the business, which may lead to a shrinking of a sector.

Minimum prices on the other hand may lead to over supply and rotting of stocks in government warehouses wasting land, people are resources that would have been better used at a market clearing price.

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Sri Lanka shares debt management experience at global forum

ECONOMYNEXT – Sri Lanka has shared its experiences at a forum on debt management to “provide lessons for others”, State Minister of Finance Shehan Semasinghe has said.

Semasinghe spoke on “The Role of Debt Management in Navigating Crises” at the 14th Debt Management Facility (DMF) Stakeholders’ Forum, in Livingstone, Zambia.

“I shared the experiences of Sri Lanka which can provide valuable lessons for others and explored the critical elements of capacity building and sound institutional practices in managing debt, particularly in the context of economic challenges,” Semasinghe said on X (twitter).

“Sri Lanka’s experience demonstrates that effective debt management is not just about managing numbers but also about building robust institutions and capacities.”

The journey underscores the importance of transparent, accountable governance and the need for international support and cooperation in times of crisis, he said.

“Sri Lanka prioritized addressing gaps in public debt management by drafting a consolidated Public Debt Management Act, ensuring clarity and legal robustness and establishing a centralized Public Debt Management Office with operational autonomy.

“The role of debt management in navigating crises is multifaceted and critical. Further, by investing in capacity building, adhering to sound institutional practices, and strategically managing debt restructuring and liability operations, countries can better withstand economic shocks and pave the way for sustainable recovery.”

Developing countries face severe debt distress as they are more vulnerable to external shocks, Semasinghe said, and “managing global debt requires coordinated international efforts on debt restructuring where necessary, timely fiscal policy adaptation and help sustainable economic growth.”

The state minister also pointed out the financial impact of climate change was an emerging challenge, as countries need investment to mitigate and adapt to climate impacts, “especially through non-debt creating inflows, which would require private capital mobilization.” (Colombo/Jun20/2024)

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Sri Lanka rupee closes stronger at 305.10/30 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger ahead of the long weekend at 305.10/30 to the US dollar on Thursday, up from 305.40/55 to the US dollar Wednesday, dealers said, while some bond yields edged up.

A bond maturing on 15.12.2026 closed at 10.45/80 percent, up from 10.35/75 percent.

A bond maturing on 01.07.2028 closed at 11.20/45 percent.

A bond maturing on 15.09.2029 closed at 12.00/15 percent, up from 11.95/12.35 percent.

A bond maturing on 01.12.2031 closed at 12.05/25 percent.

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Sri Lanka stocks close up, JKH trade pushes turnover

ECONOMYNEXT – The Colombo Stock Exchange closed up on Thursday, data on its site showed.

The broader All Share Index closed up 0.19 percent, or 23.11 points, at 12,249; while the more liquid S&P SL20 Index closed up 0.15 percent, or 5.33 points, at 3,610.

Turnover was 2 billion. Nearly half of this (Rs980mn) came from a crossing on John Keells Holdings Plc. The share closed down at 202.00.

“There were several crossings today which pushed turnover,” market participants said.

“Institutions and high net-worth activity drove the market, while the retail investors we feel are still about uncertain and adopting a wait-and-see approach.”

Melstacorp Plc was among the companies that saw active volumes (Rs194mn) in the day. The share closed up at 87.10.

Top contributors to the index included TeeJay Lanka Plc (up at 41.70), Sampath Bank Plc (up at 79.50), Hatton National Bank Plc (down at 201.00). Hayleys Plc (up at 105.00) and its subsidiary Hayleys Fabric Plc (up at 46.60) were also positive contributors. (Colombo/Jun20/2024)

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