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Sunday June 23rd, 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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India supports Sri Lanka Coast Guard to boost maritime security

ECONOMYNEXT – India has given 1.2 million US dollars’ worth spare parts to Sri Lanka’s Coast Guard to be used in a vessel also gifted to the Indian Ocean Island on an earlier occasion, the Indian High Commission in Colombo said.

“Handing over of the large consignment of spares symbolizes India’s commitment to support capability building towards addressing the shared challenges of Maritime Security in the region,” the Indian High Commission said

The spare parts were brought to Sri Lanka on the Indian Coast Guard Ship Sachet, an offshore patrol vessel that was on a two-day visit to the island.

The spares were formally handed over to the Sri Lanka Coast Guard Ship Suraksha which was gifted to Sri Lanka in October 2017 by India.

India has gifted spare parts for the ship in June 2021 and April 2022 and also provided assistance in refilling of Halon cylinders in January 2024. (Colombo/June23/2024)

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Sri Lanka Water Board makes profits, tax-payers inject Rs28bn

ECONOMYNEXT – Sri Lanka’s state-run National Water Supply and Drainage Board has made a profit of 5.2 billion rupees in the year to December 2023, after a tariff increase despite not getting money for 25 percent of its water it pumps out.

Total revenues went up to 61.8 billion rupees in 2023 from 35.4 billion rupees, a Finance Ministry report said.

Water revenue surged to 58.5 billion rupees from 33.1 billion rupees, cost of sales also went up to 32.8 billion rupees from 23.14 billion rupees, helping boost gross profits from 12.3 billion rupees to 29.0 billion rupees.

Finance costs surged to 14.9 billion rupees from 3.9 billion rupees,

NSWD reported net profits of 5.2 billion rupees for the year, against a loss of 2.7 billion rupees a year earlier.

The Treasury had given 28 billion rupees from tax payer money to settle loans.

Non-revenue water was 25.2 percent. The agency was supposed to reduce non-revenue water. (Colombo/June23/2024)

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Sri Lanka will expedite Indian projects: President

ECONOMYNEXT – Sri Lanka will expedite Indian-backed projects in the island, President Ranil Wickremesinghe told Indian business people after a visit by Indian External Affairs Minister S Jaishankar this week.

“I discussed with Prime Minister Modi the need to accelerate the joint program that we have decided, agreed on. So the major ones are identified, and Foreign Minister Jaishankar came down today [20] to have a discussion. Now this will show the new path we are taking,” president Ranil Wickremesinghe said.

“It won’t be individual projects. We’ve discussed a fair number of them. First is the grid interconnection between Sri Lanka and India, so that sustainable energy can be transmitted to India.

“We have the Sampur solar power project, which is a Government to Government (G2G) project, and a three island project, which is where we hope the ground breaking can take place in July,” he told Indian business people at the 31st All India Partner’s Meet 2024 (AIPM 2024), held at ICT Ratnadipa in Colombo.

The AIPM 2024 which was organised by KPGM Sri Lanka and India provided a platform for both countries to reaffirm their commitment to collaborative projects that promise to redefine bilateral relations and propel socio-economic growth.

“It’s a great pleasure and a privilege to have you in Sri Lanka, in Colombo, holding this meeting. It shows on one hand the close friendship that our two countries have, and on the other hand, the confidence that you have in Sri Lanka.

“Having now survived two difficult years, I must acknowledge that this was possible because India gave us a loan of $3.5 billion. All that will be repaid.”

Cooperation between the two nations needed to be enhanced, particularly in the energy sector, aiming to foster new development for the Northern region, Wickremesinghe said.

“We are looking at developing Palk Straight for wind energy and solar energy, both countries to get together and have a large farm for solar energy, for renewable energy. It also means that we will have a new economy for the northern province, which was worst affected by the war.”

Several Indian-backed projects in Sri Lanka have stalled due to protests from some parties, with some going to courts.

India is helping expand the Kankesanturai port, and is discussing development of the Palali and Colombo airports.

The National Livestock Development Board of Sri Lanka, in collaboration with India’s Amul Dairy Company, is involved in a project to enhance liquid milk production in the country.

The two nations are also considering establishing land connectivity.

Discussions have also taken place regarding expediting the Trincomalee Development Project, which encompasses industrial investment zones and tourist areas.

“Plans are underway to construct a multi-product oil pipeline from Nagapatnam to Trincomalee, pending the final observation report. Trincomalee is poised to become a hub for oil refining, with the development of ports and investment zones, transforming Trincomalee Port into a significant hub on the Bay of Bengal.

“Today, the entire East Coast is being opened up for tourism, with additional land earmarked for hotels in Galle and southern areas. Moreover, there are plans to establish more investment zones across the country, alongside expanding our professional training programs. In these endeavours, we are collaborating closely with India.” (Colombo/Jun22/2024)

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