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Monday June 3rd, 2024

Sri Lanka central bank forex interventions turn negative in November

ECONOMYNEXT – Interventions in Sri Lanka’s foreign exchange market by the central bank to maintain a soft-pegged exchange rate regime turns slightly negative in December after months of net purchases when private credit was negative, official data shows.

Central Bank net purchases of foreign exchange spiked to 162.5 million US dollars in July 2020 amid steep contraction in private credit.

Since then net purchases have fallen as private credit picked up.

Net purchases which were 93 million dollars in August, 2020 fell to 54 in September and 2.4 in November before turning to a net 22.5 million dollars of sales in December.

It is not unusual for pegged regimes to have small negative sales in some months amid credit spikes which makes liquidity tighten from dollar sales.

Sri Lanka however has over 200 billion rupees (about 20 percent of the monetary base) of excess liquidity.

Sri Lanka is operating a highly unstable pegged exchange rate regime aimed at collecting forex reserves without monetary policy to back it up or a transparent convertibility undertaking.

There is a notional weak side convertibility undertaking called a DMC rule (disorderly market conditions) which is found in highly unstable countries with monetary instability backed by International Monetary Fund programs.

The central bank also sold 174 million dollars in March 2020 after printing money through several means, and private credit spiked partly due to the fall in currency as importers scrambled to cover bills with a non-transparent DMC. The DMC was deployed close to 200 to the US dollar.

In December the central bank said it would like to see the rupee around 185 to the dollar and will take aggressive measures.

Sri Lanka’s foreign reserves which rose to 7.4 billion US dollars in August 2020 from 7.09 billion dollars in July had fallen to 5,549 million dollars by November.

The central bank had also executed swaps to temporarily borrow dollars, instead of buying them outright.

Swap premiums have turned negative amid record low rupee rates and weakened confidence after tax cuts and credit downgrades. Analysts say that Sri Lanka’s interest rates are now sharply out of line with balance of payments, though current transactions are not very strong amid weak private credit.

Sri Lanka’s stocks have been booming amid excess liquidity.

There are also import controls on items that bring high tax revenues to the government. (Colombo/Jan11/2021)

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Water levels rising in Sri Lanka Kalu, Nilwala river basins: Irrigation Department

Sri Lanka Navy assisting in rescue operations (Pic courtesy SL Navy)

ECONOMYNEXT – Sri Lanka’s Irrigation Department has issued warnings that water levels in the Kalu and Nilwala river basins are rising and major flooding is possible due to the continuous rain. People living in close proximity are advised to take precautions.

“There is a high possibility of slowly increasing prevailing flood lowline areas of Kiriella, Millaniya, Ingiriya, Horana, Dodangoda, Bulathsinhala, Palinda Nuwara and Madurawala D/S divisions of Ratnapura and Kalutara Districts, up to next 48 hours,” it said issuing a warning.

“In addition, flood situation prevailing at upstream lowline areas of Ratnapura district will further be prevailing with a slight decrease.

“The residents and vehicle drivers running through those area are requested to pay high attention in this regard.

“Disaster Management Authorities are requested to take adequate precautions in this regard.”

The island is in the midst of south western monsoon.

DMC reported that 11,864 people belonging to 3,727 families have been affected due to the weather in Rathnapura, Kegalle, Kilinochchi, Jaffna, Mullaitivu, Kalutara, Gampaha, Colombo, Galle, Matara, Hambantota, Puttalam, Kurunegala, Kandy, Nuwara Eliya, Anuradhapura, Polonnaruwa, Badulla, Moneragala, and Trincomalee districts.

Meanwhile, the Meteorology Department stated that showers are expected on most parts of the island today.(Colombo/June3/2024)

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UNP gen secy defends call for postponing Sri Lanka poll, claims opposition silent

The UNP party headquarters in Pitakotte/EconomyNext

ECONOMYNEXT — United National Party (UNP) General Secretary Palitha Range Bandara has defended his call for postponing Sri Lanka’s presidential election by two years, claiming that his proposal was not undemocratic nor unconstitutional.

Speaking to reporters at the UNP headquarters Monday June 03 morning, Bandara also claimed that neither opposition leader Sajith Premadasa nor National People’s Power (NPP) leader Anura Kumara Dissanayake have spoken against his proposal.

“I have made no statement that’s undemocratic. My statement was in line with provisions of the constitution,” the former UNP parliamentarian said.

He quoted Section 86 of Chapter XIII of the constitution which says: “The President may, subject to the provisions of Article 85, submit to the People by Referendum any matter which in the opinion of the President is of national importance.”

Sections 87.1, 87.2 also elaborates on the matter and describes the parliament’s role, said Bandara.

“I spoke of a referendum and parliament’s duty. Neither of this is antidemocratic or unconstitutional. As per the constitution, priority should be given to ensuring people’s right to life,” he said.

“Some parties may be against what I proposed. They may criticse me. But what I ask them is to come to one position as political parties and make a statement on whether they’re ready to continue the ongoing economic programme,” he added.

Bandara claimed that, though thee has been much criticism of his proposal for a postponement of the presidential election, President Wickremesinghe’s rivals Premadasa and Dissanayake have yet to remark on the matter.

“I suggested that [Premadasa] make this proposal in parliament and for [Dissanayake] to second it. But I don’t see that either Premadasa nor Dissanayake is opposed to it. To date, I have not seen nor heard either of them utter a word against this. I believe they have no objection to my proposal which was made for the betterment of the country,” he said. (Colombo/Jun03/2024)

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300 of 100,000 trees in Colombo considered high risk: state minister

ECONOMYNEXT – Trees in Sri Lanka’s capital Colombo are being monitored by the municipal council, Army and Civil Defense Force as the severe weather conditions continue, State Minister for Defense Premitha Bandara Tennakoon said.

“Within the Colombo Municipal Council city limits, there are 100,000 trees. Of these, around 300 are considered high risk,” Tennakoon told reporters at a media conference to raise awareness about the current disaster management situation.

Not all trees required to be cut down he said. “We can trim some of the branches and retain them.”

The problem was that buildings in the vicinity of the tree had cut branches on one side, causing it to become unbalanced, the minister said.

New laws would be brought in so provincial/municipal institutions could strengthen enforcement of building codes.

“We don’t have a single institution that can issue a warning about a tree. Not one to tell us what trees can or cannot be planted near a road.

“Trees should be suitable for the area. Some trees have roots that spread and damage roads, buildings. When the roots can’t go deep, they tend to topple over.

“Now Environment Day is coming up, and anyone can go plant a tree by the road. We have to take a decision about this. We have to enforce laws strongly in future.” (Colombo/June3/2024)

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