An Echelon Media Company
Monday December 4th, 2023

Sri Lanka’s tea, tourism, energy, threatened by Ukraine-Russia conflict – analysts

MONETARY PHENOMENON: Sri Lanka has the lowest retail fuel prices in South Asia and the highest inflation due to monetary expansion. Both broad money and reserve money have expanded over 40-pct in the two years to December 2021

ECONOMYNEXT – Russia’s invasion on Ukraine could hit Sri Lanka’s tea exports, a reviving tourism industry and trigger more external trouble and inflation, if rising oil prices are not raised and energy utility losses are financed with bank credit leading to more monetary expansion, analysts said.

Sri Lanka’s cabinet last week decided not to raise fuel prices, which will result in higher credit demand and pressure on interest rates if losses are financed by bank loans.

If money is printed to keep rates down (reserve money is inflated), further pressure will emerge on the rupee, forex reserve losses may worsen, bringing the country closer to default and inflation could go up further, analysts say.

Monetary expansion from energy utility losses

In countries that market prices oil, total aggregate demand is balanced (non-oil consumption is reduced as money is diverted from other spending areas into fuel) re-balancing total demand. Inflation is a monetary phenomenon.

Sri Lanka’s inflation rose 14.2 percent in the year to January 2021, the fastest in Asia though the country has the lowest oil prices in South Asia.

Any refusal to raise oil prices by authorities, which leads to credit pressure, has to be countered by a rate hike to compensate for shock on the credit system to keep inflation down. Losses at the Ceylon Electricity Board would also rise, leading to more demand for credit.

Due to the existence of a policy rate enforced with liquidity injections, general interest rates do not automatically go up in countries with central banks.

Sri Lanka’s central bank has asked banks to follow single borrower limits in lending to Ceylon Petroleum Corporation.

Central bank Governor Nivard Cabraal has pushed for a price increase so that Ceylon Petroleum Corporation could find rupees from customers to buy oil, which will reduce non-oil consumption, imports and eliminate the need to borrow borrow from the banking system putting brakes on monetary expansion.

Sri Lanka’s broad money and reserve grew 40 percent in the two years to December 2021 and food prices also went up 40 percent.

Russia had bombed Ukraine and troops have crossed the border in what the Kyiv has described as an invasion and the move has rattled the global crude prices to eight-year high of 100 US dollars.

“We are already struggling to allocate US dollars to clear the shipments we bought at around 90 dollars. With the crude prices are expected to hit 115 US dollars soon, how Sri Lanka is going to buy oil is a huge challenge,” Dimantha Mathew, the Head of Research at First Capital told EconomyNext.

“Tourism and tea also could hit if this blows up into a full war.”

Russia is the world’s second-largest oil producer, mainly selling its crude to European refineries, and is the largest provider of natural gas to Europe, providing about 35 percent of its supply and a war could disrupt global energy supplies, analysts say.

Sri Lanka is struggling to import fuel because it is facing a severe dollar shortage from money printing. Energy Minister Udaya Gammanpila has said the risk of fuel shortages will remain at least until April.

The island nation is facing nearly five-hour power cut on a daily basis now because of fuel shortages.

“The economic impact will be in the form of high Energy cost, with Gas and Oil prices expected to increase,” Capital Trust said in a research note to investors.

“As a result of the conflict, supply chain disruptions in the European trades routes are expected. Therefore upward pressure on freight rates can be expected.”

However, Capital Trust said there is a positive impact as well in the event of a severe fighting as investors will look into bet on risky assets at the Colombo Stock Exchange.

“(It is) positive for the CSE as it increases higher negative returns on fixed deposits,” the Capital Research said.

“Cost of Production expected to increase. Only market players with 70%+ market share or cartels can maintain profit margins through passing on price increases. Freight prices expected to increase which will positively impact EXPO.”

Tea at risk

Russia is one of the biggest importers of Sri Lankan tea, which accounts for nearly 140 million US dollars of our the total 1.3 billion US dollar exports.

Any sanction by the US on Russia could hit Sri Lanka’s tea export revenues.

Analysts said such sanction could adversely affect hundreds of producers in Sri Lanka tea industry, which is already facing a wage increase protest.

“Both Russia and Ukraine are important markets for Sri Lanka. Losing them will be detrimental for the industry,” said a commodity analyst asking not to be named.

“If China is going help Russia through ports controlled by it, then we can still continue to export, but the cost will be higher. The ruble depreciation could also reduce tea imports from Sri Lanka.”

Russia and Ukraine also have become the key market for Sri Lanka’s reviving tourism industry.


Foreign visitors from the both countries have been helping Sri Lanka’s post-Covid-19 tourism recovery this year, the official government data have showed.

“An analysis of Russian arrivals in the consecutive years reveals that it has almost exceeded the pre-pandemic levels as experienced in January 2019,” the state-run Sri Lanka Tourism Development Authority said in its January monthly report.

Russians accounted for 18,044 or 15.8 percent of the total 113,670 holiday makers who visited Sri Lanka this year up to February 11, while Ukrainians accounted for 9,883 or 8.7 percent of the total visitors in the same period.

“An analysis of Russian arrivals in the consecutive years reveals that it has almost exceeded the pre
pandemic levels as experienced in January 2019,” the state-run Sri Lanka Tourism Development Authority said in its January monthly report.

“This could be likely due to increased interest by Russian tour operators in alternative destinations to Thailand and Goa with strict public health measures in place and the launching of direct flights to

The country saw an increase of Ukrainian and Russian travelers after a tourism revival projected targeting those countries was launched in late 2020 by former Sri Lankan Ambassador to Russia Udayanga Weeratunga. (Colombo/Feb24/2022)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka stocks close up as some investor interest returns

ECONOMYNEXT – The Colombo Stock Exchange closed up on Monday, CSE data showed.

The All Share Price Index was up 0.22 percent, or 23.33 points, at 10,743.59.

The S&P SL20 index was up 0.68 percent, or 20.60 points, at 3,067.73.

Turnover was at 708 million. The banks sector contributed 189 million, while the food, beverage and tobacco sector contributed 176 million of this.

Sri Lanka’s stock market has seen some investor interest return after last week’s news that the country had managed an agreement on a debt restructuring deal with an official creditor committee, and foreign funds for some development projects resumed.

Top positive contributors to the ASPI in the day were Sampath Bank Plc (up at 71.50), LOLC Holdings Plc (up at 379.00), and Commercial Bank of Ceylon Plc, (up at 90.90).

There was a net foreign outflow of 52 million.

Citrus Leisure Plc, which announced that its banquet hall and revolving restaurant at the Lotus Tower would launch on or around Dec 9, saw its share price rise to 6.20 rupees. (Colombo/Dec4/2023).

Continue Reading

Sri Lanka rupee closes broadly steady at 328.10/30 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 328.10/30 to the US dollar on Monday, from 328.00/10 on Friday, dealers said.

Bond yields were stable.

A bond maturing on 01.06.2025 closed at 13.70/14.00 percent from 13.70/95 percent.

A bond maturing on 01.08.2026 closed at 13.90/14.10 percent from 13.90/14.05 percent.

A bond maturing on 15.01.2027 closed at 14.00/14.10 percent from 14.05/10 percent.

A bond maturing on 01.07.2028 closed at 14.20/35 percent from 14.15/25 percent.

A bond maturing on 15.05.2030 closed at 14.25/45 percent, from 14.20/45 percent.

A bond maturing on 01.07.2032 closed at 14.05/40 percent, from 14.00/45 percent. (Colombo/Dec4/2023)

Continue Reading

Gov minister highlights abortion rights, sex-ed for children, and Sri Lanka men killing their women

ECONOMYNEXT – Sri Lanka’s legislators have politicized the topics of rape and violence without addressing the elephant in the room, Jeevan Thondaman, Minister of Water Supply and Estate Infrastructure Development said in parliament on Monday (4).

“All the members here are talking about rape. What happens after that? We must talk about abortion rights. That is not something anyone wants to touch on, and that is why we are in this place right now,” Thondaman said.

“Despite alarming statistics on rape and violence, women are often blamed and punished for it. The criminalisation of abortion is a major example of this.”

Sri Lanka has some of the most restrictive abortion laws in the world. According to a 2016 estimate by the Health Ministry, he said, approximately 658 abortions take place a day, and close to 250,000 a year.

“That’s 250,000 women whose lives you are endangering.”

He added that what was needed at this point in time was comprehensive sexual education (CSE) for children and young people.

“Only through CSE in schools will children and young people develop, accurate, age appropriate knowledge attitude and skills; positive values such as respect for human rights, gender equality, diversity and attitude and skills that contribute to a safe, healthy and positive relationship.”

Thondaman pointed out that CSE plays a pivotal role in preparing young people for a world where HIV, AIDS, sexually transmitted infections, unintended pregnancies, and sexual and gender based violence still pose a risk to their well-being.

“CSE basically empowers children take control and make informed decisions freely and responsibly.”

Thondaman also highlighted the findings of a 2021 study (Fatalities_20211109_UNFPA) by the UNFPA and the University of Kelaniya that showed that a majority of women killed in Sri Lanka were murdered by those close to them.

“62 percent of homicides of Sri Lankan women are committed by either an intimate partner, ex-partner or family member. 84 percent are killed in their own homes by someone they know.”

Police and the judiciary have failed Sri Lanka’s women, the minister pointed out.

“Only 5 percent of these cases, between 2013-2017, were ever concluded. Men claim they were provoked, or are of unsound mind or have mental illness: These have been successful defenses. And the Police often express sympathy to this narrative as opposed to the victim’s.”

“We have a history of protecting oppressors.”

It takes 7-10 years for a child rape case to conclude, he pointed out.

Establishment of child courts are needed, he said, as well as several legislative amendments. “The government is working on a new law to reform the domestic violence act, reform of marriage and divorce laws to ensure there is an easier path to divorce: no one should be forced to remain in a marriage that is either abusive or not healthy.” (Colombo/Dec4/2023)

Continue Reading