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Thursday June 8th, 2023

Sri Lanka’s NPP slams IMF, claims board approval was hurried fearing NPP’s popularity

Former JVP MP Sunil Handunneththi

ECONOMYNEXT – Sri Lanka’s leading leftist alliance the National People’s Power (NPP), whose popularity is on the rise according to some opinion polls, is taking an increasingly vociferous anti-International Monetary Fund (IMF) stance as the crisis-hit nation goes into its 17th IMF programme.

NPP frontliner and former MP Sunil Handunneththi, who is widely seen as the party’s spokesman on economic matters, slammed the IMF in a recent public speech in which he claimed the international lender was quick to approve a 2.9 billion US dollar extended fund facility (EFF) to Sri Lanka fearing the rise of the NPP.

“The IMF was in such a hurry as a result of the NPP’s strengthening. They saw that an alternative people’s force was coming forward,” said Handunnetthi.

The former MP criticised the government of Sri Lanka for not treating the EFF as a loan. The government has responded to these criticisms from the NPP and other parties, pointing out that the EFF is not “just another loan” but the first step in a programme that will see Sri Lanka make the reforms it needs to recover and achieve sustainable growth.

Handunneththi claimed that the IMF has only somewhat loosened the noose that was gripping Sri Lanka by the neck so that it could breathe a little and acquire the dollars it needs to import the products of the IMF’s more powerful member states such as the United States.

“If the IMF is properly understood, you would not want to light fire crackers on the streets but light one in your mouth so your brain explodes. It is that dangerous,” he said.

“Not going to the IMF is the best solution. Coming to a place where going to the IMF is not needed is the best solution,” he said.

Handunnethi said no country that has sought IMF assistance and accepted its conditions have succeeded.”

What country with balance of payment crises, high inflation, inability to repay debt that the IMF has helped and made it?

“This is the worst and most villainous recommendations the IMF has recently made to a country,” he added.

Handunneththi is a senior member of the Janatha Vimukthi Peramuna (JVP), the formerly Marxist-Leninist party that is the primary constituent of the NPP. Though the NPP has attempted to distance itself somewhat from its socialist roots in its bid to woo Sri Lanka’s middle class, upwardly mobile voters, its leading faces have recently opted to reveal its true position on the IMF.

JVP general secretary Tilvin Silva recently rubbished the IMF deal claiming that the international lender is only interested in bailing out corrupt governments.

The IMF programme, Sri Lanka’s 17th to date, will just not work, said Silva.

“No country in the world has made it after going with the IMF. It’s not going to work. The IMF does not exist for the people but to save thieving governments,” he added, a week before Handunneththi expressed similar sentiments.


Sri Lanka’s JVP rubbishes IMF deal, claims IMF only wants to bail out corrupt regimes


The IMF said on March 20 that it has approved a 48 month program for Sri Lanka worth 3 billion US dollars (2.286 billion special drawing rights) or 395 percent of the Indian Ocean island’s quota.

Following the announcement, President Ranil Wickremesinghe said the government will lift ongoing import restrictions in stages starting with essential goods.

In approving the loan, the IMF has acknowledged Sri Lanka’s capacity to restructure its outstanding debt, said Wickremesinghe.

“Sri Lanka will no longer be considered a bankrupt country. So normal dealings can commence,” he said.

Sri Lanka’s currency collapsed from 200 to 360 to the US dollar, as the central bank printed unprecedented volumes of money to target what was claimed to be a ‘persistent output gap’, crippling Treasuries auctions and botched an attempted float with a surrender rule.

“The economy is facing significant challenges stemming from pre-existing vulnerabilities and policy missteps in the lead up to the crisis, further aggravated by a series of external shocks,” an IMF statement said.

“The EFF-supported program aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, safeguard financial sector stability, and strengthen governance and growth potential.”

The JVP is a formerly Marxist-Leninist party that led two unsuccessful insurrections in the early 1970s and late 1980s, both of which were brutally suppressed by the government in power at the time.

The party has since embraced mainstream democratic politics and still leans far left, though it has repeatedly backed or called for populist policies that are not strictly in line with its ideology.

The NPP, a centre-left alliance led by the JVP and is currently represented in parliament by its leader Anura Kumara Dissanayake and two other MPs, have opposed IMF-backed progressive taxation. (Colombo/Mar27/2023)

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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