ECONOMYNEXT – Sri Lanka’s self-imposed import embargo which came in the wake of a bout of money printing that created forex shortages will disrupt business activity on top of a Coronavirus epidemic, public traded Hunter and Company said.
Hunter and Company said revenues were 803.8 million rupees for the March 2020 quarter and full year turnover was 3,175 million rupees in stock exchange filing. The firm was unable to submit full accounts in time due to Coronavirus lockdowns.
Hunters sales fell after curfews were imposed from late March.
“The resulting adverse impact on cashflows was exacerbated by delays experienced in settlement by trade debtors,” the firm said.
“The management is making every effort to mitigate its adverse impact on the company’s working capital and has also applied to its bankers for additional short term funding at a concessionary interest…”
Though Sri Lanka is ahead of containing the Coronavirus pandemic the central bank has printed unprecedented volume of money to target a call money rate, triggering forex shortages and credit downgrade.
Authorities have then created self-imposed economic embargo by controlling imports creating more trouble for the businesses and big and small instead of reforming the central bank and putting strict controls on its domestic operations of department.
“The company faces challenges in the short term due to certain supply chain disruptions and the restriction in the import of certain products on account of foreign exchange conservation measures taken by the government,” Hunters said.
“However it is envisaged that normal business activity will resume when normality in the country is restored and these restrictions are relaxed.”
In Sri Lanka due to a strong Mercantilist belief system and classical economic illiteracy, imports are blamed for monetary instability, rather than liquidity injections and domestic credit.
Monetary instability comes from a lack of a credible anchor for policy, analysts have pointed out.
Sri Lanka operates a highly discretionary ‘flexible’ exchange rate, resisting a credible external anchor for monetary policy.
Sri Lanka has also avoided operating credible domestic anchor with a highly discretionary ‘flexible’ inflation targeting regime, where inflation spikes over 7 percent after a currency collapse.
Rates are then cut as inflation eases off and domestic credit picks up, triggering another currency crisis. (Colombo/June07/2020)