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Friday February 23rd, 2024

Sri Lanka’s CPC in shocking Rs628bn loss on soft-pegging loans

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation has lost 628 billion rupees in the first four months of 2022, driven by un-hedged dollar loans it was forced to take whenever the central bank printed money to create forex shortages.

It now had a negative net worth of over a trillion rupees.

The CPC had borrowed over 3 billion dollars from two state banks after importing oil on credit without buying dollars in the market whenever the central bank printed money to manipulate rates and created forex shortages and currency crises in the course of operating a flexible inflation targeting regime.

The CPC had made an operating loss Rs64.95 billion rupees, up from Rs15.7 billion a year earlier, as oil prices went up but the entire balance came from forex loss.

“The exchange rate loss during the first four months of 2022 was Rs. 549,955 million compared to Rs. 26,738 million recorded in the same period of 2021,” a Finance Ministry report said.

“This has led to the CPC ending up with an overall loss of Rs. 628,381 million at the end of April 2022.”

The CPC had been forced to import oil on dated letters of credit when the central bank blocked market interest rate with printed money, creating forex shortages. The loans had accumulated in the 2016, 2018 and 2020 soft-peg crises.

The LCs were then repaid with dollars from the two state banks, officials had revealed earlier.

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Analysts have labeled the blunder a Nick Leeson style blunder coming from operating a soft-pegged exchange rate and output gap targeting.

“The total liability payable to the two state banks as at 30.04.2022 has reached Rs. 1,223,635 million,” the finance ministry report said.

“The CPC’s accumulated losses and negative net worth amounted to Rs. 1,047,391 million and Rs. 985,886 million, respectively as at end April 2022.:

A Treasury guarantee of Rs 596.77 billion had been issued to the People’s Bank to cover its loan.

A Treasury guarantee of Rs 593.99 billion had been issued to the Bank of Ceylon to cover its dollar loan to the CPC.

CPC was made to borrow dollars after money was printed in 2015/2016 to boost inflation in 2018 and 2020 target an output gap creating forex shortages and making it difficult for the CPC to exchagne rupees for dollar as the credibility of the peg was broken.

Like the CPC the central government also borrowed dollars through sovereign bonds to repay dollar loans as the ability to exchange rupees for dollars was lost.

Instead of sterilizing inflows to repay maturing bonds more bonds were borrowed through an active liability management (ALM) law, leading a steep rise in foreign central government debt.

Analysts and economists have called for the monetary law to be tightened to take away the independence of the central to print money at will to manipulate interests rates, de-stabilize the currency and create forex shortages.

Sri Lanka is now facing severe forex shortages and steep depreciation after failed attempt to switch to a floating regime. (Colombo/July04/2022)

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Sri Lankans may need to wait for Monetary Board meeting minutes despite new Act

ECONOMYNEXT – Sri Lankans may have to wait more time to read the meeting minutes of the Central Bank’s Monetary Board, a top official said, despite a new act that has made the central bank to be more transparent and accountable for its decisions.

Many central banks including the United States’ Federal Reserve, India’s Reserve Bank, and Bank of Mexico release the minutes of their monetary policy meeting to ensure transparency.

The new Central Bank Act passed by the Parliament in line with the guidance by the International Monetary Fund (IMF) includes measures for Sri Lanka’s central bank to be more transparent and accountable.

These measures include releasing the Monetary Policy Report every six months and the first such report was released on February 15.

However, the central bank has not taken a decision to release the minutes of the Monetary Board meetings on the monetary policy.

“Going forward, one day this could happen,” Chandranath Amarasekara, Assistant Governor at the Central Bank told reporters on Wednesday (21) at a media briefing.

“Right now, we have just started working on the new Central Bank Act. We are not there yet. There is no such decision on releasing minutes yet.”

The central bank in the past printed billions of rupees to keep the market interest rates artificially low and provide cheap funding for successive governments to propel a debt-driven economy.

It’s decision, however, led Sri Lanka into an unprecedented economic crisis in 2022 with sovereign debt default.

It also propped up the rupee currency artificially in the past to maintain a stable exchange rate at the expense of billions of US dollars. The move also contributed for the economic crisis and later the central bank was forced to allow over 60 percent depreciation in the rupee in March 2022.

However, none of the top central bank officials was held responsible for wrong decisions to hold interest rates artificially low with money printing and propping up the rupee. (Colombo/Feb 23/2024)

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Amid mass migration, Sri Lanka to recruit volunteers as English teachers

ECONOMYNEXT- Sri Lanka is planning to appoint foreign and expatriate volunteers to teach English for Sri Lanka students, the Ministry of Higher Education said, amid thousand of teachers migrating to other countries after the island nation’s unprecedented economic crisis.

Over five thousand teachers have left the country with the Education Ministry permission using the government’s circular of temporarily leaving state jobs while tens of thousands of teachers have left the country without informing the relevant authorities, Education Ministry officials say.

That had led to an acute teacher shortage in the country.

Suren Raghavan, the State Minister for Higher Education said the shortage has aggravated because most of the graduates who have an English degree become writers and join the private sector due to higher salary.

“They do not join government schools. This is a problem all over the country which is why we need to have an online system,” Raghavan told EconomyNext.

Separately he said on Thursday at a press conference that he had spoken to Canadian and Australian High Commissions to get the assistance of where their English teachers who have experience in teaching English as a second language in South Asia.

He also said that there is a number of teachers in the Unite Kingdom have shown interest in teaching English and they have experience in teaching in other Asian countries such as Burma and India while the teaching would be done free of charge.

The new move also comes at a time when the country’s English literacy rate is on the decline, according to the Minister.

President Ranil Wickramasinghe announced the English-for-all initiative three months ago with plans to improve English literacy at school and university level. (Colombo/Feb 23/2024)

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Sri Lanka tea production up 1.4-pct in Jan 2024, exports up 6.8-pct

ECONOMYNEXT – Sri Lanka’s tea production was up 1.4 percent to 18.73 million kilograms in January 2024, with high growns falling and low and mid growns rising, industry data shows.

High grown tea in January 2024 was 3.56 million kilograms, down from 3.36 million, medium growns were 2.6, up from 2.5 million kilograms and low growns were 12.56 million, up from 12.32 million kilograms last year.

Exports, including re-exports were up 6.88 percent to 18.76 million kilograms, industry data published by Ceylon Tea Brokers show.

Export earnings were reported at 102 million US dollars, up from 99.5 million dollars last year. The average FOB price was 5.45 US dollars a kilo down from 5.67 dollars last year.

Tea in bulk was 8.5 million kilograms valued at 12.79 billion rupees, tea in packets was 7.8 million kilograms valued at 13.1 billion rupees and tea in bags was 1.8 million kilos, valued at 5.06 billion rupees.

The top buyer was Iraq with 2.5 million kilos, up from 2.1 million last year followed by the UAE with 1.99 kilos, up from 1.86 million last year.

Russia bought 1.98 million kilos, down from 2.0 last year, Turkey bought 1.72 million kilos, from 2.3 million last year, while Iran bought 1.32 million, up from 614 million last year. (Colombo/Feb23/2024)

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