CSE THIS WEEK

EU Parliamentarians meet Finance Minister

January, 3, 2019

Sri Lanka for removal of trade barriers

January, 8, 2019

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LAHORE: Sri Lanka has sought removal of non-tariff barriers (NTBs) and other issues to improve trade with Pakistan.

Addressing the Lahore Chamber of Commerce and Industry on Monday, High Commissioner of Sri Lanka to Pakistan Noordeen Mohamed Shaheid said that though the two countries signed Free Trade Agreement (FTA), certain issues including NTBs need to be resolved to improve trade between the two countries.

The envoy said Pakistan and Sri Lanka had signed the FTA in June 2005 under which the private sectors of both the countries were provided with greater opportunities to take trade and economic relations to next level. From 2005 onwards, there was significant increase in bilateral trade, he said. “But it is also a fact that the two countries could not succeed in fully exploiting the trade potential,” he added.

The Sri Lankan high commissioner said there was a vast scope for the expansion of bilateral between Pakistan and Sri Lank.

He urged that both countries should introduce new products for trade and make business-to-business contacts stronger. “Sri Lanka offers huge opportunities in various sectors of economy,” he added. He said though terrorism remained a big challenge for Sri Lanka, but today it a peaceful country. “We have defeated terrorism due to immense support of Pakistan,” he said.

Speaking on the occasion, LCCI President Almas Hyder said Sri Lanka was at the take-off stage and Pakistani business community should avail this great opportunity. “Both Pakistan and Sri Lanka are members of Saarc and enjoy friendly relations based on historical linkages.

Cooperation between two countries especially in defence sector has played major role in further strengthening the mutual ties,” he added.

Earlier, National Assembly Deputy Speaker Qasim Khan Suri also visited the LCCI and said the government was making all-out efforts to overcome the inherited economic crisis. “The business community has a key role in economy and economic challenges will be tackled with their cooperation,” he said.

http://bizenglish.adaderana.lk/sri-lanka-for-removal-of-trade-barriers/

Recent rupee depreciation aligned with capital outflows not current account
Jan 08, 2019

Sri Lanka’s Central Bank Governor says that the rupee depreciation is no longer aligned with fundamentals in terms of current account flows and it is now being driven by capital outflows from the government securities market.

Governor Indrajit Coomaraswamy recently revealed that foreigners who held about two billion US dollars worth of rupee denominate government securities have now brought it down to just nine hundred million dollars.

“That money has had to be fed through the market and that has created a lot of pressure in a thin market of somewhere between sixty to hundred million a day,” he said.

“If 10 or 20 million of government securities money flows out it clearly creates an imbalance between supply and demand in the market.”

Coomaraswamy says that they had to intervene in the foreign exchange market as they think the current depreciation of the currency is a disorderly depreciation.

“The currency has depreciated almost sixteen percent and the real effective exchange rate is well below hundred, so it is now undervalued,” he said.

“So there is no justification for the central bank to prevent what we think now is a disorderly depreciation of the currency, so we have to intervene.”

Governor Coomaraswamy said that they also had to take a remedial action last year to reduce current account outflows. Gold imports, vehicle imports, and oil imports are the main sources that affected current account outflows.

“So those three main sources of instability in the current account have been looked after but now what we need to do is change sentiment,” he said.

According to the Governor, people need change sentiment at three levels. Importers need confidence not to accelerate imports, exporters need to start converting export proceeds or at least convert in a more timely basis and thirdly the holders of gov securities needs to have greater confidence to hold their money.

“Now it’s a matter of confidence in terms of the way we are managing the economy both on the fiscal and monetary side. We are very confident that on all those fronts going forward with the support of the government we can do what is necessary.”

http://www.lankabusinessonline.com/recent-rupee-depreciation-aligned-with-capital-outflows-not-current-account/

New Sri Lanka logistics facility targets exporters

Jan 08, 2019 

Sri Lanka’s investment agency has approved a project to build a warehouse and container depot near the Biyagama export processing zone to help exporters bring raw materials and machinery and ship outbound finished products.

The project by Skylift Container Depot and Logistics (Private) Limited, with a total value of 1.83 million US dollars will be located at Walgama, Malwana and employ 49 people, the Board of Investment said.

“We have considerable experience in handling of logistics and container depots both in Sri Lanka and in Melbourne, Australia,” the BOI statement quoted Roshan Buthgama, Director and Managing Director of Skylift as saying.

“We are confident that many of the BOI enterprises at the Biyagama Export Processing Zone will be our future customers, as this will be very advantageous for all companies.

“The activities of the logistic center would include handling of both inbound containers which would include raw materials and machinery and outbound finished products.”

The firm will set up a facility that would be engaged in warehousing and logistic services with a container depot.  

https://economynext.com/New_Sri_Lanka_logistics_facility_targets_exporters-3-13081-6.html

ruwan326 wrote:RBI Agrees to USD 400 mn SWAP – Boost to Reserves

January, 9, 2019



The Reserve Bank of India (RBI) has agreed to provide USD 400 mn to the Central Bank of Sri Lanka (CBSL) under its SAARC SWAP facility.

CBSL has also requested a further bilateral SWAP arrangement of USD 1 billion between the RBI and CBSL which is under consideration.

The RBI’s very rapid and timely assistance will serve to boost investor confidence by supporting Sri Lanka to maintain an adequate level of external reserves while accommodating outflows related to imports, debt servicing and, if necessary, support for the currency to avoid disorderly adjustment.

The CBSL acknowledges the very active role played by the Government of India, the Sri Lankan High Commission, in Delhi, and the Indian High Commission, in Colombo, in facilitating these arrangements.

With the end of the delays related to the political developments in the country, the Government of Sri Lanka (GoSL) and the CBSL have also already revived action to: (1) issue international sovereign bonds; (ii) obtain term loans; and (iii) negotiate credit lines through the State banks on behalf of the GoSL. It is expected that these operations will be completed in 1Q 2019.

In addition, Hon Mangala Samaraweera, Minister of Finance and Mass Media will be visiting Washington (14 – 16 January 2019) to resume negotiations with the IMF on the Extended Fund Facility.

http://bizenglish.adaderana.lk/rbi-a...t-to-reserves/

https://economynext.com/Sri_Lanka_fi...3-13097-1.html 
Hope these two news will give a green day tomorrow 

UN wants Sri Lanka banks to contribute to agriculture credit line

Jan 11, 2019

The International Fund for Agricultural Development (IFAD) of the United Nations is looking for further funding from banks and cooperative societies to expand credit lines to poor Sri Lankan farmers.
"We are asking banks to contribute 30 percent of the funds in a line of credit," IFAD project consultant Rauno Zander, a rural finance expert, told a business forum in Colombo on January 10.
He said currently the project fund covers the entire credit line, which provides loans to farmers at a concessional 6.5 percent.

Under the Smallholder Agribusiness Partnership Programme (SAPP), IFAD has provided 11.5 million dollars as a direct line of credit, while a further 18.5 million dollars has been provided by the Sri Lankan government, loaned through a revolving fund at the central bank.
A central bank official said the interest rate would have to be higher if banks are to contribute 30 percent of funds to each loan, since they borrow from money markets at rates much higher than 6.5 percent, to which Zander agreed.

IFAD is also expecting banks to fully finance short-term working capital loans of farmers in the programme, leaving credit lines for other loans.

The programme, which is running from July 2017 until June 2023, provides long-term capital loans, short-term working capital loans, and youth loans.
"These working capital loans are safer, and these are the type of loans banks do anyway," Zander said.
"The repayment period is short, around 6 to 12 months, and so the risk profile is low," he said.

Zander also wants more flexibility in loan repayments for farmers, which the central bank said it would consider after talks with the nine banks in the programme.
Zander said cooperative societies such as Sanasa are more active in agricultural areas compared to banks, and they should be brought into the programme as lenders.
However, the central bank representative said such an option is not possible under the Monetary Law Act, since the central bank cannot deal with such societies.

Currently, only around 10 percent of the funds available under the fund have been loaned to farmers.
Zander said the need to follow regulations had slowed down the process at the start, but it is working smoothly now.

https://economynext.com/UN_wants_Sri_Lanka_banks_to_contribute_to_agriculture_credit_line-3-13116-17.html

Chinese loans not main source of debt trap, says think tank
2019-01-14

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• Funds borrowed through ISBs at higher rates outweigh loans from China
  
• ISB debt growth caused by shift from concessional debt to commercial debt 
  
• Price of debt  more crucial than quantity of debt- Verité Research
  

Sri Lanka getting caught in a debt trap and finding itself in a precarious position has less to do with its borrowings from China but more to do with its participation in international bond market activities, according to Colombo-based economic think tank Verité Research.


While Sri Lanka is being made the poster child of falling into the Chinese debt trap, where it is largely perceived that the nation’s sovereignty and geo-political space is compromised, the latest insights by Verité Research narrate a different story. 
Of Sri Lanka’s total external debt, Verité Research identifies that less than 15 percent is from China. Although the share of debt to that country cannot be considered low, it is certainly is not the main source of the debt trap, according to Verité Research Executive Director and Head of Research Nishan de Mel.


Acknowledging that Sri Lanka’s debt exposure to China has increased from 2 percent and has grown fast, de Mel pointed out that it is not the monopolizing source of debt. 
According to him, the dominating source of the debt trap is the debt to international financial and bond markets, where the rate of borrowing is almost three times higher.
Analysis by Verité Research showed that almost 50 percent of Sri Lanka’s debt liabilities are to international financial and bond markets, which have grown from almost zero percent since 2007—the year the country started issuing international sovereign bonds (ISBs). 


This source of debt picked up at a fast pace as Sri Lanka lost access to bilateral concessional debt in 2005 and 2006. De Mel said that the shift from concessional debt to commercial debt is what has essentially forced this growth. 
In addition to Sri Lanka borrowing at over 6 percent, the other aspect of ISBs is that it is short term and has to be refinanced every seven years on average. 
When compared with the debt from China post-2012, such loans were extended at a concessionary rate of 2 percent and are to be refinanced approximately in 19 years. 


“Looking at it from a Sri Lankan perspective, it is important to recognize that there are significant to simple financial advantages in borrowing from China at 2 percent and having 19 years to sort that out than borrowing from international financial markets at over 6 percent and having only 7 years to recycle that,” explained de Mel.
“That has a significant implication to Sri Lanka as the cost of the commercial debt is quite high compared to the cost of multilateral and bilateral debt.” 
He elaborated that with the ISBs having a weighted average of 6.29 percent, the rate is high and it is getting too expensive to borrow from such sources. Although it’s a decade since the end of the war, Sri Lanka’s risk premium too has not declined as much as it should, de Mel noted.


“Our thought process is that even though people talk about the quantity of debt, it is not necessarily the fundamental problem. It is the price of debt; placing our monetary position at risk is the price we are paying,” he said. 

http://www.dailymirror.lk/article/Chinese-loans-not-main-source-of-debt-trap-says-think-tank-161047.html

SPSE and CSE enter a memorandum of understanding to enhance collaboration

January, 16, 2019

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The South Pacific Stock Exchange (SPSE) and the Colombo Stock Exchange (CSE) are pleased to announce the signing of a Memorandum of Understanding (MoU) to establish a collaborative relationship between the two exchanges seeking mutual development opportunities in the Fijian and the Sri Lankan capital markets.

A MoU enables the two exchanges to work together and learn from each other’s experiences. Given that most stock exchanges are unique in their countries, such cross-border collaboration and exchange of information and knowledge can enhance market development. These benefits can be particularly important for activities that often fall exclusively to securities exchanges in any given country, such as investor awareness initiatives, advancing trading and settlement and integrating market data with website development.

The potential forms of cooperation between SPSE and CSE can help the two institutions to become the preferred securities exchanges in their respective regions. Because CSE is a larger, more developed exchange, it presents an ideal partnership opportunity for the SPSE to gain greater insight about technological advancements. The particular MoU includes provisions to encourage exchanging information about market development efforts, regional cooperation and expansion initiatives and the use of information technology systems to enhance ease of doing business in both jurisdictions. The MoU also can facilitate staff secondments to further explore ways to share knowledge and means to develop the respective exchanges further.

On the signing of the MoU with CSE, the SPSE CEO, Ms Krishika Narayan said that “this signing of the MoU is a milestone achievement for SPSE as this is going to establish a framework for collaboration between SPSE and CSE and express the common goals of the two institutions inaugurating a pathway towards the success of both institutions. SPSE is a progressive organisation and our intention is to optimise our operational capacity which we believe can be significantly enhanced through fostering professional relationships with institutions with similar intent.”

Commenting on the development, Mr. Rajeeva Bandaranaike, the CEO of CSE said “the MoU with SPSE further strengthens our collaborative effort with peer exchanges in the Asia-Pacific region and opens up new possibilities for CSE. We look forward to an engaging and mutually beneficial relationship with SPSE. We anticipate that the MoU will pave the way for CSE to build fruitful relationships with key stakeholders in the Fijian capital market.”

The SPSE was established in 1979 and is the only licensed securities exchange under the Companies Act of Fiji and is regulated by the Reserve Bank of Fiji. SPSE is a business in transformation and operates in an evolving era where development of growth opportunities in order to enhance its competitiveness remains pivotal for further progress and as such it’s concentration revolves around scaling up the activities of the SPSE by means of increasing the number of listed securities, increasing the scope of products currently traded on its platform and improving its visibility at the international level in a move towards regional expansion.

CSE is the nucleus of Sri Lanka's capital market as the licensed operator of the stock market. CSE is regulated by the Securities and Exchange Commission of Sri Lanka and was incorporated as a company limited by guarantee in 1985. CSE acts as a conduit of both equity and debt capital and provides the necessary market infrastructure to buyers and sellers in order to transact. CSE also performs regulatory oversight to ensure the fairness and integrity of the Sri Lankan capital market. The post-trade services provided by CSE currently comprise of settlement and safekeeping and are provided through a fully owned subsidiary, Central Depository Systems (Private) Limited (CDS).

Through this collaboration effort both the Exchanges envisage further growth in their respective capital markets and look forward to fostering a propitious business relationship going forward.

​​​​​​​http://bizenglish.adaderana.lk/south-pacific-stock-exchange-spse-and-colombo-stock-exchange-cse-enter-a-memorandum-of-understanding-to-enhance-collaboration/

Sri Lankan stocks down, interest in Lankem Developments

Jan 18, 2019 

Sri Lanka’s benchmark stock market index closed lower Friday in moderate turnover with interest seen in Lankem Developments, brokers said. 

The All Share Price Index fell 1.05 points or 0.02 percent to end at 5,988.07 while the more liquid S&P SL20 index closed at 3,066.29, up 13.04 points or 0.43 percent. Turnover was 661 million rupees.

The ASPI was dragged lower mainly by Commercial Leasing & Finance, which fell 30 cents or almost 11 percent to close at 2.50 rupees  a share,  Melstacorp which fell one rupee or two percent to end at 47 rupees and Aitken Spence which ended at 44 rupees, down 1.50 or 3.3 percent.

Lankem Developments was the most actively traded share and the day’s highest gainer, closing at 4.40 rupees, up 50 cents or 13 percent.


https://economynext.com/Sri_Lankan_stocks_down,_interest_in_Lankem_Developments-3-13177-3.html

UK assures existing GSP+ tariffs will continue post-Brexit
19 January 2019​​​​​​​

• Britain to set up trade preference team to implement new system in three tiers to provide same rates as EU
  
• Says UK will remain a key economic partner in the world 
  
• Calls on local entrepreneurs to proactively engage with policymakers to take local economy forward 
  

British High Commissioner to Sri Lanka James Dauris on Thursday assured local exporters the UK would extend the same preferential tariff rates to countries which were currently beneficiaries of the Generalised System of Preferences (GSP) of the European Union to ensure there would be minimal impact to their exports post-Brexit.

Delivering the keynote address at the 24th Annual General Meeting of the National Chamber of Exporters, he highlighted some of the key issues related to international trade and Britain’s ambitions post-Brexit outlook as well as responsibilities of local exporters and business leaders in charting Sri Lanka’s future growth.

“There are a lot of queries related to Brexit. Day one after the exit from the European Union (EU) we will set up a trade preference team to introduce preferential market access to developing countries under the EU GSP scheme to minimise business disruption,” he assured the export fraternity of Sri Lanka. He said this intended system of the UK would be implemented in three tiers and rates would be set at the same rates as the EU, while also noting that they would remain open, encouraging and friendly towards investors and businesses from around the world including Sri Lanka even after leaving the EU. 

He affirmed that the UK, after Brexit, would have in place a system of tariffs which would extend the same preferential tariff rates to countries which were currently beneficiaries of the Generalised System of Preferences (GSP) including Sri Lanka.

The High Commissioner said the UK was confident of continuing its growth post-Brexit, which has also been acknowledged by the EU. “The UK is an outward-looking, engaging and key partner in economic development in the world,” he added.

Referring to the world’s fast-changing economic landscape and challenges related to international trade, the High Commissioner pointed out that countries needed to be more cautious in the face of these profound new developments. 

“There are significant changes taking place in the world economy. China’s growth in the past few years has been remarkable and according to research studies, it shows that it will take over the world’s biggest economy, which is the US, by 2030. Experts also predict that by 2050 China and India put together will be equal to all the G7 economies. Power always follows money, so you must not underestimate the profound impact of all these activities,” he warned.

The High Commissioner also called on local entrepreneurs, exporters and business leaders to actively voice their concerns to direct the country’s growth trajectory in the right direction through collective engagement.

“While the Government will set out the regulations and fiscal management at macro level, as entrepreneurs and business leaders you all have an active and a responsible role to play to navigate Sri Lanka to be one of the prosperous economies. Focus on innovation and higher customer services, collectively call on the Government to simplify process of doing business, liberalise labour laws and have outward-looking polices. The voice of business leaders matters,” he insisted.

http://www.ft.lk/front-page/UK-assures-existing-GSP--tariffs-will-continue-post-Brexit/44-671149

Sri Lanka's EPF loses most from Laugfs, Dockyard, Carsons; gains from banks

Jan 21, 2019 

Sri Lanka's Employees Provident Fund, managed by the central bank has lost 9.2 billion rupees on its stock portfolio up to June 2018 despite investments in banks gaining it about 9 billion rupees led by Sampath Bank, a report from the agency said.

The stocks have been bought at different times, but among the most controversial were those made at the height of a stock market bubble which ended around 2011.

The Employees' Provident Fund (EPF) Department on January 16 said the 2 trillion rupee fund made up of private sector employee retirement savings has lost 8.4 billion rupees in the value of stocks held for investment, since it first purchased each stock, up to June 2018.
This was a fall of 10.9 percent to 68.88 billion rupees.

Stocks held for trading lost 24.9 percent of their value, or 742.7 million rupees, with the biggest hit coming from Aitken Spence and its hotel subsidiary.
The EF had lost about 2.0 billion rupees on Colombo Dockyard shares which It had bought for 2,791 million rupees and was in its books at 765 million rupees, losing about three fourths of the value.

Market value of Laugfs Gas Plc voting and non-voting stocks fell 56.9 percent or 1.9 billion rupees. Voting stock the EFP bought for 2.68 billion rupees was worth 1.15 billion rupees, by June 2018.
A 1.7 billion rupee fall in value came through Carsons Cumberbatch Plc, which is currently attempting to delist most of its companies from the stock exchange, with the initial investment value down 64.5 percent compared to the market value in June 2018.

The EPF had bought Carsons Cumberbatch, which owned several Malaysian oil palm firm, for 2.59 billion rupees, but it was now worth 919 million rupees.
Another 1.7 billion hit came from Carsons oil palm unit Bukit Darah Plc. Bukit stock had been bought for 2.3 billion rupees and was now worth 577 million rupees.
Over a billion rupees each were also slashed from market values of Browns & Co Plc, the troubled The Finance Company Plc and the John Keells hotel subsidiary Asian Hotels & Properties Plc.
In total 43 stocks lost value for EPF shareholders after being bought, out of 66 stocks held in the investment portfolio.
Five of the six bank stocks, adding 9 billion rupees to market value of the investment equity portfolio.
Sampath Bank, Hatton National Bank and Commercial Bank, three of the country's systemically important banks, contributed 88.8 percent to the gain.
Sampath stock bought for 4.8 billion rupees were worth 8.4 billion rupees.

DFCC was the sole bank to lose market value after being purchased by the EPF, devaluing by 842.1 million rupees or 24.8 percent.
The central bank has been criticized for buying bank shares through the EPF, as the central bank then becomes both a controlling shareholder and the regulator, but had bought the most gains.
The EPF had invested 10.8 billion rupees in companies not listed publicly, most of which had generated had not paid dividends up to end-2017, the central bank said in a disclosure under the right to information law in 2018.

Sri Lanka's stock market is now at lower price to earnings multiples, unlike the 2011 bubble, leading to some making a cases for it to enter the market.
Current governor Indrajit Coomaraswamy had said that corporate Sri Lanka was going at 'fire sale' prices.

Coomaraswamy had said he was setting up a more transparent framework for stock market investments.
He had said stock investments make up around 2.5 percent of EPF assets,  and the central bank plans to increase this to around 5 percent. 

The EPF dealers had earlier made controversial 'pump and dump' deals with some market participants in the run up to 2011, earning it the sobriquet 'buyer of last resort.'
Some critics suspect that the relationships made at the time made the so-called 'bondscam' possible.

https://economynext.com/Sri_Lanka_s_EPF_loses_most_from_Laugfs,_Dockyard,_Carsons;_gains_from_banks-3-13184-3.html

More should be done to win confidence of exporters - Ramal J.
Monday, January 21

With the implementation of the National Export Strategy (NES), much work is left to be done in terms of winning confidence of the export community said Ramal Jasinghe, immediate Past President of National Chamber of Exporters (NCE) of Sri Lanka.

“NCE is now engaged as a participant to the implementation process of the NES, with seats on the Advisory and Working Committees.” Jasinghe told at the 17th Annual General Meeting of NCE, held at Galadari Hotel, Colombo.

He said that Chamber was continually in the forefront raising concerns of exporters related to the negotiations of the proposed Free Trade Agreements (FTAs) with larger countries who enjoy greater economies of scale, to mitigate difficulties to enter their territories due to non-tariff barriers, non-recognition of quarantine and laboratory test reports of Sri Lankan institutions, country of origin requirements, and items included in the negative lists which impact Sri Lankan manufacturers.

“However the Chamber recognizes the need to reach a wider global customer base through FTAs or a similar mechanism, to achieve inclusion to the global market place, on fair trading terms. “he said.



He also noted that the Chamber has presented to the Ministry of Finance a comprehensive set of budget of proposals following consultations with member exporters, and the conduct of a pre-budget workshop to identify issues. We trust that these proposals will be taken in to consideration following the resolution of the prevalent political issues, which the Chamber will follow up on behalf of our members”

With the real possibility of the GSP concession eventually being withdrawn to the growing Middle Income Status of the Country, emphasis on the export of Services would attract more focus of the Chamber.

“Having made positive through the initiatives of our ICT cluster, we recognize as a sustainable way forward the need to add on more service providers earning foreign exchange to augment the service sector portfolio of the Chamber, such as education , Tourism and Professional services, to develop a robust export economy.” he said.

He also stressed Sri Lanka’s competitor countries in the region such as Pakistan, Bangladesh, Vietnam, Cambodia, have overtaken Sri Lanka in apparel exports sector this year by a wide margin due to their gains during the period where Sri Lanka lost GSP+ benefits, with total exports from Bangladesh which is categorized as a least developed country reaching US$ 40 billion.

http://dailynews.lk/2019/01/21/business/174882/more-should-be-done-win-confidence-exporters-ramal-j

Sri Lanka rupee 'undervalued' with REER at 96 amid soft-peg collapse

Jan 22, 2019 

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Sri Lanka's real effective exchange rate (REER) index has dropped below 100 amid a collapse of a soft-peg with the US dollar, forcing the central bank to spend 1.2 billion US dollars to prop up the currency while printing money.

A REER index calculated by the central bank dropped from 102.24 in September to 98.10 in October and 96.29 in November, as credibility of Sri Lanka's dollar peg was lost making exporters hold dollars and borrow printed money and foreign holders of rupee bonds to flee.

The rupee fell from 161 to the US dollar in August to 179 to the US dollar by end November. Meanwhile other currencies such as the Indian rupee appreciated. The rupee has fallen from 151 from the beginning of 2018.

A real effective exchange rate index is calculated by measuring the changes against a basket (usually trade weighted) and adjusted for inflation.

Sri Lanka is targeting the exchange rate to maintain a REER peg of around 100.

Central Bank Governor Indrajit Coomaraswamy said earlier in January that the rupee had depreciated almost 20 percent in 2018 and it was a 'disorderly depreciation,' of the currency.

"The real effective exchange rate is well below 100, so it is undervalued," Coomaraswamy said.

"So now we have to intervene. The depreciation of the currency is no longer aligned with fundamentals in terms of current account flows. It is being driven by capital outflows from the government securities market."

Analysts had warned that a soft-pegged central bank which prints large volumes of money to offset interventions in forex markets through open market operations to target interest rates (sterilizing outflows), allowing banks to give loans (or buy securities) without raising deposits, cannot hope to target an exchange rate with any degree of success.

Analysts have said that targeting the REER index requires currency board like tools (hard peg), such as a floating policy rate to limit or eliminate outflow sterilization with new money and a variable target reduces the credibility further.

Cont... https://economynext.com/Sri_Lanka_rupee__undervalued__with_REER_at_96_amid_soft_peg_collapse-3-13203-1.html

U.S. Navy doing cargo transfer at Sri Lanka’s main airport

Jan 23, 2019 

The United States Navy is doing a cargo transfer operation at Sri Lanka’s main international airport under a plan to use the island’s location to make it a military logistics hub, the U.S embassy in Colombo said.

Under the initiative, several U.S. naval aircraft are scheduled to land and depart from the Bandaranaike International Airport outside Colombo, a commercial airport, bringing in a variety of non-lethal supplies, a statement said.  

The supplies will be transferred between planes and then flown to the U.S.S. John C. Stennis aircraft carrier at sea from January 21 to 29.  
Supplies may include personal mail for sailors, paper goods, spare parts and tools, and other items, the embassy said.  
No cargo, military equipment, or personnel associated with this initiative will remain in Sri Lanka after the completion of the cargo transfer. 


“This is part of a larger temporary cargo transfer initiative that promotes Sri Lanka's efforts to become a regional hub for logistics and commerce,” the statement said.  
The January transfers will contribute about 25 million Sri Lankan rupees to the country’s economy.  
“Sri Lanka's leaders have outlined their vision for the country’s regional engagement that reflects its location at the nexus of the Indo-Pacific and seizes the opportunities that this unique position presents,” said U.S. Ambassador Alaina B. Teplitz.  

“We are happy to support this vision through a range of mutually beneficial initiatives, such as contracting Sri Lankan services and goods to support U.S. military and commercial vessels that often transit the Indo-Pacific’s busy sea lanes.”

This is the third iteration of the temporary cargo transfer initiative.  
It follows two successful transfers that took place in August 2018 at Bandaranaike International Airport and Trincomalee and in December 2018 at Bandaranaike International Airport.
The statement said U.S.-Sri Lanka security cooperation encompasses a variety of joint exercises and training that has developed the skills and interoperability of both countries.  

https://economynext.com/U.S._Navy_doing_cargo_transfer_at_Sri_Lanka%E2%80%99s_main_airport-3-13221-10.html

Sri Lanka rupee wider, bond market quiet in early trading

Jan 28, 2019 

Sri Lanka's rupee was quoted at 181.50/70 to the US dollar in the spot market in mid-morning trade Monday, while bond markets were flat, dealers said.

The rupee closed at 182.60/65 levels to the US dollar Friday, dealers said.
Bond were quoted mostly around the levels seen at closing time Friday, with active trading yet to start, dealers said.

A bond maturing on 15.12.2021 was quoted at 10.85/95 around Friday's level.
A bond maturing on 15.12.2023, was quoted at 11.35/45 percent.

A 7-year bond maturing 01.08.2016 was quoted at 11.52/62 percent.
A bond maturing on 01.06.2026 was quoted at 11.55/65 percent.
A bond maturing on 01.09.2028 was quoted at 11.58/68 percent.

At the Colombo Stock Exchange, the All Share Price Index was down 0.05 percent or 3.06 points to 5975.24 in the first half hour of trading compared to Friday's close.
The more liquid stocks in the S&P SL20 Index were up 0.44 percent or 13.32 points to 3059.55.

Market turnover was 23.5 million rupees.
Lanka IOC stock was down 1 rupee to 22.00 rupees, while HVA Foods was down 10 cents to 4.40 rupees, and  Cargills Ceylon was down 3.70 rupees to 200 rupees.
Stocks of plantation companies were also down after getting hit by higher minimum wages.

https://economynext.com/Sri_Lanka_rupee_wider,_bond_market_quiet_in_early_trading-3-13263-3.html

Limits, depreciation trigger first import dip in 17 months
29 January 2019


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• Expenditure on imports in November down 9.1% to $ 1.76 b
  
• Personal vehicle imports drop 34.8% 
  
• Exports in November up 4.1% to $ 980 m
  
• Twin development helps significantly narrow trade deficit
  
• First 11 months imports top Rs. 20 b; Exports near $ 11 b mark
  

 

Restrictions and depreciation have triggered imports to report first ever decline in 17 months in November and help significantly narrow the trade deficit with exports improving by a modest 4.1%.

The Central Bank said yesterday expenditure on merchandise imports declined by 9.1% (year-on-year) for the first time since June 2017 to $ 1.76 billion in November 2018. 

“The decline in consumer and investment goods contributed to the decline reflecting mainly the impact of restrictions on personal vehicles and non-essential consumer goods imports, while the relatively larger depreciation of the rupee may also have contributed to curtailing imports,” the Bank added.

Earnings from merchandise exports increased moderately by 4.1% (year-on-year) to $ 980 million in November 2018. The growth in exports was driven by industrial exports while agricultural exports continued to decline. The twin development saw trade deficit narrow significantly in November to $ 785 million as against $ 999 million a year earlier. 

Exports in the first 11 months grew by 5% to $ 10.85 billion whilst imports were up 8.3% to $ 20.5 billion, resulting in the cumulative deficit expanding to $ 9.64 billion in comparison to $ 8.59 billion in the corresponding period of 2017.

Limits...

Terms of trade, which represents the relative price of imports in terms of exports, improved by 1.6% (year-on-year) to 112.8 index points in November 2018 due to an increase of export prices supported by a marginal decline in import prices.

In November under industrial exports, export earnings from textiles and garments increased notably in November 2018 mainly driven by exports to the USA. In addition, garment exports to non-traditional markets such as India, Canada and Australia as well as the EU market increased along with textile and other made up textile articles. 

Earnings from petroleum products increased significantly in November 2018 reflecting higher bunker and aviation fuel prices despite a slight reduction in export volumes in comparison to that of November 2017. Export earnings from machinery and mechanical appliances also increased substantially during November 2018 due to improved performance in all sub-categories therein.

Further, export earnings from food, beverages and tobacco, rubber products and base metals and articles rose in November 2018, contributing towards the increase in industrial exports. However, export earnings from printing industry products, gems, diamonds and jewellery and leather, travel goods and footwear declined in November 2018.

Earnings from agricultural exports recorded a decline during the month due to poor performance in almost all sub-categories except the categories of unmanufactured tobacco and vegetables. Reflecting lower average export prices and exported volumes, export earnings from tea declined in November 2018.

Export earnings from spices also declined during the month due to the lower volumes in most categories of spices. Further, earnings from coconut exports declined due to the drop in both kernel and non-kernel products. Earnings from seafood exports also declined in November 2018 while in cumulative terms, seafood exports rose with higher exports to the EU market.

The export volume index in November 2018 increased by 2.9% while the export unit value index increased by 1.1%, implying that the growth in exports was driven mainly by the increased volume, rather than the price, compared to the volume and unit value indices in November 2017. 

Import expenditure on consumer goods declined (year-on-year) notably in November 2018 due to lower expenditure on food and beverages driven by rice, vegetables, dairy products and sugar imports. Such reduction in imports on food and beverages can be attributed to the combined effect of lower import volumes due to higher domestic production and lower commodity prices in the international market. Expenditure on non-food consumer goods such as telecommunication devices and home appliances decreased in November 2018 on a year-on-year basis, partly due to measures taken by the Central Bank to restrict certain categories of non-essential consumer goods imports. 

“Expenditure on personal vehicle imports showed a significant decline of 34.8% in November 2018 from the previous month, reflecting the impact of policy measures put in place to curtail personal vehicle imports. It is expected that the importation of motor vehicles and non-essential consumer goods could decelerate further in the coming months,” it said. 

Expenditure on the importation of investment goods also decreased in November 2018 mainly due to lower imports under many sub-categories. Specifically, a significant decline was seen in expenditure on the importation of cement and vehicles for commercial purposes compared to November 2017.

In contrast, import expenditure on intermediate goods increased, albeit marginally, driven by fuel, base metals and fertiliser imports. 

Expenditure on fuel imports increased with the combined effect of higher import prices and volumes of both refined petroleum products and coal, despite a reduction recorded in the import volume of crude oil. Meanwhile, expenditure on base metal imports increased driven by iron and steel. However, expenditure on gold imports continued to decline significantly in November 2018, reflecting the impact of customs duty imposed on gold in April 2018. 

Expenditure on wheat and maize also dropped during the month mainly due to lower imported volumes. Import expenditure on mineral products and textiles and textile articles also declined during the month, contributing to mitigate the pressure on import expenditure.

Both import volume and unit value indices decreased by 8.6% and 0.5%, respectively in November 2018. This indicates that the decline in imports during the month was driven by the reduction in volumes imported despite lower prices of imported goods in comparison to the corresponding period of 2017. 

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