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Thursday June 20th, 2024

Sri Lanka’s new administration to re-negotiate IMF deal

ECONOMYNEXT – Sri Lanka’s new administration will re-negotiate an ongoing agreement with the International Monetary Fund, a top official said.

“We would not abrogate it,” Nivard Cabraal, senior economic advisor to the Prime Minister who is also the finance minister said.

“We would only re-negotiate the terms of the agreement to suit the new policy framework.”

The three year agreement is in the final stages.

Sri Lanka’s central bank gets into frequent balance of payments crises and the rupee collapses as it prints money to artificially push down interest rates, while maintaining a peg to collect forex reserves.

Sri Lanka entered into a three year agreement with the International Monetary Fund after the central bank printed money in 2015 and 2016 trying to keep interest rates down, and sterilized interventions over 100 percent to maintain excess liquidity.

Separately the central bank also targeted a real effective exchange rate and an output gap, a variation of so-called ‘full employment’ policies that triggered balance of payments trouble at the Fed and Bank of England in the 1960s and 1970s and stagflation in the real economy.

In 2018, within the agreement, the central bank against printed money to keep rates and triggered two runs on the currency, as there were no ceilings set on domestic assets of the central bank under the agreement, or a bar on sterilization of interventions to restrain the monetary authority, analysts have said.

After printing large volumes of money through open market operations, the central bank then forced the Treasury to place trade controls, new exchange controls and import letters of credit were also slapped, to cover the monetary policy errors.

The current last stage was renewed after some of the trade and exchange restrictions were removed. They were variously deemed prohibited capital flow measures or multiple currency practices.

Amid stagflation in the broader economy from the last currency collapse with growth at 1.6 percent and inflation over 4 percent, Sri Lanka’s new administration has announced tax cuts to boost economic activity. (Colombo/Nov30/2019)

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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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