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Saturday May 25th, 2024

Sri Lanka’s last administration also printed money: Minister Cabraal

ECONOMYNEXT – Sri Lanka’s last administration had also printed money almost from the time they started in 2015, though now charges are being leveled at the current administration, State Minister for Finance Nivard Cabraal said.

“Now some members are saying money was printed. At times money has to be printed. Developed countries are printing money,” Minister Cabraal, a former Governor of the Central Bank said in his inaugural address to the parliament.

“There was no money printing in 2014. But very soon from February 2015 they printed money.”
The central bank’s Treasury bill stock had risen from around 50 billion had risen to over 200 billion rupees in that episode, Cabraal said.

“The central bank was made to purchase excessive amounts of Treasury bills,” he said.

The rupee fell from 131 to the US dollar fell to 150 in the money printing episode, data shows.

The central bank however had started injecting liquidity by terminating term reverse repo deals a little earlier, data shows.

While the central bank printed money in 2015 as the budget deficit as well as private credit was rising, in 2018 money was printed despite the budget deficit being brought down, leading to another currency collapse, due ‘central bank independence’ being given a pro-cyclical monetary authority, critics have said.

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The currency was not allowed to recover, unlike in 2009/2010 after as private credit slowed in both 2017 and also in 2019, while foreign reserves were collected, due to real effective exchange rate targeting (an external monetary anchor), despite claims being made that inflation was being targeted (a domestic anchor), critics have said.

In 2018, the rupee fell to 182 to the US dollar amid another bout of money printing, made to enforce pro-cyclical rate cuts just as the economy was recovering from the 2015/2016 period of monetary instability.

Meanwhile Cabraal said Sri Lanka’s government debt ratio had ballooned due to currency collapses.

The central government debt which was 8,599 billion rupees had ballooned to 13,031 billion by 2019, he said.

At least 1,772 billion was due to currency depreciation.

Cabraal said the rupee had depreciated 12.4 percent a year in the period from 1977 to 1986, and 7.1 percent a year a from 1987 to 96. After that depreciation was about 6 percent.

But from 2006 to 2014 depreciation was only 2.8 percent. But after 2015 average depreciation had jumped to 6.7 percent again.

He said growth had meanwhile fallen, from a high of 6.4 percent to 3.7 percent. The debt to GDP ratio which was brought down from 91 percent in 2005 to 72 percent had again risen to 86 percent amid low growth and currency depreciation.

Analysts however say the some of the debt had been taken off balance sheet and placed with state enterprises during the period, which had since started to mature.

Cabraal said growth had fallen to 2.3 percent in 2019.

“This was the second lowest growth rate since the economy was opened in 1977,” Cabraal said.

The lowest growth rate came after the 1999/2000 balance of payments crisis when the rupee fell from 72 to 90 to the US dollar.

Sri Lanka’s rupee fell close to 200 to the US dollar amid money printing in 2020, but has since been allowed to appreciate back to around 184 amid negative private credit.

Growth usually slows after each currency crisis as domestic consumption collapses due to an impoverished population and slow or negative credit.

The greater monetary instability since 2015 amid REER targeting had also led to capital flight.

Cabraal said at the time there were 3.4 billion US dollars worth foreign investments in Treasury bills despite lower interest rates.

He said a series of measures would be taken to draw capital and overcome the current challenges.

The current administration had controlled the spread of Coronavirus effectively he said. (Colombo/Aug28/2020)

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Sri Lanka power outages from falling trees worsened by unfilled vacancies: CEB union

HEAVY WINDS: Heavy rains and gusting winds have brought down trees on many location in Sri Lanka.

ECONOMYNEXT – Sri Lanka’s power grid has been hit by 300,000 outages as heavy winds brought down trees, restoring supply has been delayed by unfilled vacancies of breakdown staff, a union statement said.

Despite electricity being declared an essential service, vacancies have not been filled, the CEB Engineers Union said.

“In this already challenging situation, the Acting General Manager of CEB issued a circular on May 21, 2024, abolishing several essential service positions, including the Maintenance Electrical Engineer in the Area Engineer Offices, Construction Units, and Distribution Maintenance Units,” the Union said.

“This decision, made without any scientific basis, significantly reduces our capacity to provide adequate services to the public during this emergency.

“On behalf of all the staff of CEB, we express our deep regret for the inconvenience caused to our valued customers.”

High winds had rains have brought down trees across power lines and transformers, the statement said.

In the past few day over 300,000 power outages have been reported nationwide, with some areas experiencing over 30,000 outages within an hour.

“Our limited technical staff at the Ceylon Electricity Board (CEB) are making extraordinary efforts to restore power as quickly as possible,” the union said.

“We deeply regret that due to the high volume of calls, there are times when we are unable to respond to all customer inquiries.

“We kindly ask consumers to support our restoration teams and to report any fallen live electrical wires or devices to the Electricity Board immediately without attempting to handle them.

The union said there were not enough workers to restore power quickly when such a large volume of breakdowns happens.

“We want to clarify that the additional groups mentioned by the minister have not yet been received by the CEB,” the union said.

“Despite the government’s designation of electricity as an essential service, neither the government, the minister in charge, nor the CEB board of directors have taken adequate steps to fill the relevant vacancies or retain current employees.

“We believe they should be held directly responsible for the delays in addressing the power outages due to the shortage of staff.”

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Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings

(Colombo/May25/2024)

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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.

Related

Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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