ECONOMYNEXT- Sri Lanka’s Tokyo Cement said it was seeing a ” considerable increase in demand” as construction activity started to resume, with the exchange rate stabilizing and costs falling.
The rupee which fell to 360 to the US dollar after the central bank printed money to cut rates (target potential output) and slapped imposed a surrender rule busing a float, appreciated to 320-330 levels in 2023 after rates were hiked and the surrender rule was removed.
“The Rupee stabilized significantly in comparison to Q2 FY22/23 during which period the currency depreciated to around Rs. 369-370/- to the USD, whereas in Q2 FY23/24 the Rupee appreciated to a lowest of Rs. 312-325/- to the USD,” Tokyo Cement told shareholders.
“This downward yet stable movement of foreign exchange rates, conveyed a much-needed stability for businesses to import goods and set prices.
“Additionally, a decrease in global raw material costs and freight rates allowed a reduction in prices across a wide range of commodities, including cement, from the beginning of Q2 FY23/24.”
Global commodity prices are also falling after the Fed stopped printing money and started to reverse liquidity injections from the previous year.
Most so-called ‘third world’ central banks started to depreciated currencies steeply from the end of the 1970s giving reign to unhampered Cambridge-Harvard economics after the second amendment to the IMF’s articles left them without a credible monetary anchor.
Instead of tightening monetary policy when forex shortages from money printing early, or capital when outflows began, currencies were busted to keep mis-targeting rates, and steep corrections were made later, leading to steep downturns.
Construction and property which benefit from mis-targeted rates, is usually a big casualty of burst central bank credit bubbles.
Amid cashflow difficulties the government last year paid contractors in paper bonds.
“The Government’s decision to settle outstanding payments through treasury bonds to contractors eased payments to suppliers, allowing the resumption of projects previously halted due to cashflow issues,” Tokyo said.
“Furthermore, the Government announced the relaxation of the majority of import restrictions, that will allow accessibility to industrial, and construction related goods that were previously unavailable.”
Sri Lanka’s private credit usually recovers about 12-18 months after a successful float stabilizes the currency from the effects of the original rate cuts, and interest rates in the stabilization efforts stops going up, analysts say.
Tokyo said a CESS tax was imposed on imported raw material pushing up costs. Tokyo imports clinker and some other material for its grinding plants.
A Social Contribution Levy (a cascading tax) was imposed on cement on sales.
“The Group is currently observing some resumption of both private sector and institutional
construction projects,” Tokyo cement said.
“In the short to medium term, the stabilisation of the currency, lowering inflation, and downward- trending interest rates should allow for commercial and private sector development projects to resume in the coming year.
“However, domestic consumption is expected to recover only in the medium to long term, due to reduced purchasing power, a weakened currency, and increases in utilities and taxes.
“The Government sustaining IMF-prescribed economic and fiscal policies will potentially allow it to qualify for access to foreign funding of infrastructure in the form of grants and loans.”
