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Sunday August 14th, 2022

Sri Lanka’s re-appointed CB chief will tackle external challenges: P B Jayasundera

ECONOMYNEXT – Sri Lanka’s reappointed central bank governor will be giving leadership to address prevailing challenges including foreign exchange rates and lower reserves, President’s Secretary P B Jayasundera said.

Former State Minister for Money and Capital Markets Ajith Nivard Cabraal assumed duty as the 16th central bank governor on Wednesday.

He held the same post from 2006-2015 and led the central bank in transforming Sri Lanka’s economy from a lower income to middle income economy in the post-war growth.

Jayasundera, former finance secretary during Cabraal’s previous tenure as the governor and the country’s top most public official, said the central bank needed an experienced leadership.

“I think it is good in a way because while the previous governor (W.D. Lakshman) was giving a leadership for a policy ideology,” Jayasundera told Economy Next.

“It also needs much more experienced person to manage the prevailing challenges. Mr. Nivard Cabraal is almost 10-year experienced governor.”

Under the previous tenure Cabraal focused on foreign exchange stability and gave some confidence to the market through maintaining the exchange rate consistently around 110-113 same rate for longer period, as an East Asia style external anchor for domestic stability.

However in 2011, a rate cut in April and subsequent liquidity injections to prevent interest rate rise amid strong private credit and credit financed losses at state energy enterprises amid a drought led to a collapse of the exchange rate to 131 in 2012 as policy corrections were made.

In the credit downturn that followed he built net reserve to 148 percent of money supply by September 2014, when liquidity releases started again as the private credit recovered.

It was Cabraal who started to borrow from international capital markets through a debut 500 million dollar sovereign bond sale in 2007. When Cabraal left the agency in 2015, about 5 billion US dollars in sovereign bonds had been sold.

When he came back there were 15 billion dollars of bonds.

Jayasundera said the country’s current challenges of lower foreign exchange inflows and reserves need to be addressed.

“These challenges have to be addressed,” Jayasundera said.

“I think he will get treasury, central bank coordination more effectively and give leadership in the central bank to address these challenges.”

A central bank is a note issuing bank which can build reserves and keep the exchange rate stable if domestic currency (and interest free IOU or banknote) is issued only against foreign reserves (an unsterilized purchase of foreign exchange), allowing short term rates to fluctuate.

It can built reserves larger than the note issue if securities held by the agency are sold to the banking system to mop up bank notes created against foreign exchange (a sterilized foreign exchange purchase).

If a central bank gives loans to the domestic economy, either by purchasing Treasury bills from the Treasury or banks with new domestic currency, or give re-finance to commercial banks, it will lose the foreign reserves when the notes are redeemed to maintain an exchange rate as the recipients of the bank notes spend them on imports.

If convertibility is suspended (the exchange rate is not defended) the exchange rate will fall.

The central bank suspended convertibility for trade transactions as it ran out of reserves to redeem the newly printed money making the rupee fall to close to 230 to the US dollar by early September 2014. (Colombo/Sept 15/2021)

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Sri Lanka jet fuel shortages costing SriLankan Airlines US$7mmn a month

ECONOMYNEXT – A shortage of jet fuel in the country due to forex shortages is costing the state-run SriLankan Airlines an extra 7 million US dollars a month, though the airline is operating most of its schedule, an official said.

“Now we are running 90 percent of our flights even though there is no fuel in the country which is costing us about 7 million US dollars per month in extra and lost revenue,” Richard Nuttall, the Chief Commercial Officer of SriLanka Airlines told Economy Next at the sidelines of a media brief.

“To carry the extra fuel, we can’t carry all the freight we like to into the country.”

SriLankan Airlines was stopping at third countries like India to load up on fuel for long haul destinations.

Carrying fuel for the return journey, a tactic known as tinkering, forces an airline to cut down freight

The hit from fuel came after the airline SriLankan reported a profit of 1.7 million US dollars in the March 2022 quarter for the first time since 2006, after cutting costs such as staff costs and overheads; renegotiating supplier contracts and increasing cargo revenue.

Nuttall said few months ago they were not sure of even operating 30-40 percent of the flights due to lack of sufficient jet fuel in the country.

The state-run Ceylon Petroleum Corporation could not import enough jet fuel due to forex shortages coming from a broken soft-peg. Sri Lanka is currently undergoing the worst currency crises in the history of the island’s intermediate regime central bank.

The Ministry of Energy has said it had appointed a third party to import jet fuel.

“Its not sustainable but we have maintained operations,” Nuttall said. “We understand we will be getting jet fuel very soon.”

The currency collapse had reduced the spending power of holiday makers in Sri Lanka while tourists were also put off by fuel shortages and popular protests.

“While the tourist numbers are not that great there’s demand from Sri Lanka diaspora, Indians,” Nuttall said.

He says being a small airline has allowed them to be nimble and shift capacity.

“If we are getting more demand from one destination, we will put more flights there.”

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Sri Lanka coconut auction prices continue to climb

ECONOMYNEXT- Sri Lanka’s average coconut prices grew 3.7 percent to 64,618.23 rupees for 1,000 nuts at the last auction held on Friday August 12, official data showed.

The highest price was 62,900 rupees for 1,000 nuts, while the lowest was 57,000 rupees at the auction conducted by Sri Lanka’s Coconut Development Authority.

Buyers offered 1,019,395 nuts at the auction and sold 576,906.

Exports of coconut-based products have risen by 12 percent in January to June to 434.48 million dollars from a year earlier, data show. (Colombo/Aug13/2022)

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Chinese tracking vessel cleared to dock at Sri Lanka’s Hambantota Port

Hambantota Port

ECONOMYNEXT – Sri Lanka’s Ministry of Foreign Affairs has given the green light to Chinese tracking vessel Yuang Wang 5 to dock at the Chinese-built Hambantota Port from August 16 to 22.

Sri Lankan authorities had first given clearance to the Chinese vessel on July 12, to make a port call at the Hambantota Port from August 11 to 17​ for replenishment purposes.

However, following a diplomatic standoff after concern about the tracking vessel’s anticipated arrival were reportedly raised by the US and India, Sri Lanka’s foreign ministry requested China to defer the port call until “further consultations”.

A report by Sri Lanka’s privately owned Times Online news website said Saturday August 13 morning that the foreign ministry has authorised the docking of the ship.


Sri Lanka permits entry to controversial Chinese tracking vessel Yuang Wang 5

The ministry’s official statement released Saturday evening confirmed that the ship has been given clearance to dock at the Hambantota Port for the new dates August 16 to 22.

“The Ministry wishes to reiterate Sri Lanka’s policy of cooperation and friendship with all countries. Security and cooperation in the neighbourhood is of utmost priority. It is Sri Lanka’s intention to safeguard the legitimate interests of all countries, in keeping with its international obligations. The Ministry is deeply appreciative of the support, solidarity and understanding of all countries, especially in the current juncture when the country is in the process of addressing severe economic challenges and engaging in multiple domestic processes to ensure the welfare of the Sri Lankan people,” the ministry said, without naming the stakeholder countries. (Colombo/Aug13/2022)

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