Sri Lanka is planning to strengthen public finances and reduce money printing to stabilize the economy, Treasury Secretary Mahinda Siriwardene said ahead of discussions with the International Monetary Fund.
Secretary Siriwardene said a circular to cut current spending will be issued immediately.
However In April, 125 billion rupees was printed taking the Central Bank’s outright Treasury bill stock to 1,853 billion rupees, from 1727 billion rupees at the end of March.
The government has paid Rs 123 billion not only the salaries but also the festival advance (of state workers) to protect the country, Finance Ministry sources revealed.
The present administration has stepped up money printing at a time of civil unrest demanding essential commodities, fuel and cooking gas at a reasonable price amidst economic crisis triggered by dollar scarcity, massive external debt and balance of payment issues, with the Central Bank (CB) printing a sum of Rs. 20.28 billion on April 18 and 19.
It printed Rs 1.22 billion on April 18 and Rs.19.06 billion on April 19, the day a protestor was shot dead and 24 others injured when police opened fire to disperse angry crowds in Rambukkana who demanded fuel for reduced prices following a massive hike in petrol and diesel on the previous night.
Several protests have been witnessed this week in Kandy, Galle, Gampola, Mathugama, Baddegama, Avissawella, Kegalle, Hingurakgoda, and Madampe and buses were unable to proceed on their journeys on the Chilaw-Colombo main road as protestors thronged the road.
The CB has printed Rs.1.79 trillion during the period of January 2020 to April 19, 2022, official data showed. CB Governor Dr. Nandalal Weerasighe told a recent media briefing that the bank will curtail money printing while refusing to divulge details of money printed in 2021 and 2022 stating that anyone can find it from the CB web site.
However a sum of Rs 19.06 billion was printed two weeks after his assumption of office, and while he was away attending IMF meetings in Washington.
The CB had printed a massive sum of Rs. 130 billion in October 2021 alone. According to the available data, from December 2019 to October 2021, the CB has printed Rs. 2.8 trillion.
Sri Lanka printed nearly money amounted to Rs 1.4 trillion in year 2021.Earlier this week, former Governor Ajith Nivard Cabraal admitted that certain issues can arise owing to printing money and the CBSL is reducing the amount of money being printed at present.He said that the practice of printing money is not a new phenomenon.
Sri Lanka’s inflation increased to 18.8 per cent in March 2022 from 15.1 per cent in February as the Central Bank printed money to keep interest rates low and the depreciation of currency rupee float, Census and Statistics Department data shows.
Colombo University Professor in Economics Sirimal Abeyratne said that there was a limit for the money printing especially during a recession, as aggregate demand, consumer demand, business demand and international trade gets disruptive.
He noted that Sri Lanka is facing commodity shortage and inflationary pressure, so it is opportune to contain the money printing otherwise “we will end up aggravating our inflationary pressure”.
“Sri Lanka will have to increase investments and exports taking prudent policy decisions at this critical moment but resorting to money printing will definitely affect the economy,” he warned.
Several leading international firms have expressed their intrest in providing financial advice in its efforts to restructure external debt running up to US$ 12 billion, Finance Ministry sources said.
This was in resposnse to call made by the Finance Ministry has finally for Requests for proposals (RFPs) from reputed global firms to appoint financial advisors and legal consultants to support the country’s sovereign debt restructuring exercise.
Three leading international firms, Ayres Investment Management LLP, DecisionBoundaries LLC and Perella Weinberg LP are among firms seeking to provide financial advice to Sri Lanka’s , reuter news agency reported
However Sri Lanka may take nearly three weeks to appoint advisers to guide an overhaul of its debt, according to according to Finace Minister Ali Sabri ina move seen as key to unlock emergency funds needed to ease its worsening economic crisis.
The country is aiming to choose financial and legal advisers in 15 to 20 days, Finance Minister Ali Sabry said in a Bloomberg Television interview with Kathleen Hays and Haidi Stroud-Watts late Wednesday in Washington.
Some bondholders are weighing their options after the South Asian island nation unilaterally suspended external debt payments ten days ago, four sources familiar with the situation said, asking not to be named because talks are private.
The move comes as the government faces ongoing street protests over fuel, food and medicines shortage. With little foreign currency, the crisis-hit nation of 22 million people has also asked for emergency aid from the International Monetary Fund (IMF) and bilateral lenders, such as China and India.
Asset managers BlackRock Inc. and Ashmore Group Plc. are among the creditors organizing in a group ahead of the talks, and have hired law firm White & Case for advice, Reuters reported.
Recent filings show major asset managers such as Fidelity, T Rowe Price and TIAA also hold some of the country’s outstanding dollar bonds.
A debt restructuring would be the first for Sri Lanka, facing its worst economic crisis in decades
“The Government of Sri Lanka through Ministry of Finance has published the Request for Proposals (RFPs) from interested parties/agencies for the appointment of Financial Advisors and Legal Consultants for managing its external debt sustainability,” the Central Bank (CB) announced on Saturday.
Last Friday, newly appointed CB Governor Dr. Nandalal Weerasinghe assured that financial advisors and legal consultants would be appointed within two weeks, expediting the procurement process.
The bids were closed on 16th of this month and subsequently authorities are expected to complete the evaluation process within a week and finalise suitable parties.
The financial advisor will be tasked with supporting the government in debt management including evaluating government debt stock and representing the government’s interest in negotiation with creditors and arranging meetings with them.
The financial advisor will also be responsible for designing a mechanism and process to engage with IMF in improving medium and long-term debt engagement and reforming strategies.
The government is seeking to appoint an experienced financial advisor with global and regional presence. Further, the government also welcomes joint bids from two or more financial advisors.
Meanwhile, the legal consultant will advise the government on debt management strategies and execution of such strategies while reviewing legal and regulatory issues on debt management.
Along with the financial advisor, the legal consultant will also be tasked with representing the government’s interest in negotiation with creditors and arranging meetings.In addition, the legal consultant will also be tasked with coming up with strategies for the government in securing development assistance from official development agencies and during the debt restructuring exercise and reaching consensus with private creditors and bilateral official creditors on possible re-profiling of public debt.
The International Monetary Fund (IMF) has informed the Sri Lanka Team led by Finance Minister Ali Sabri that there was a need for macroeconomic stability, emphasizing the importance of stronger social safety nets to mitigate the adverse impact of the current economic crisis on the poor and vulnerable.
During their talks in Washington the IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors.
“Going forward, the IMF team will support Sri Lanka’s efforts to overcome the current economic crisis by working closely with the authorities on their economic program, and by engaging with all other stakeholders in support of a timely resolution of the crisis.”
During the 2022 IMF and World Bank Spring Meetings in Washington, D.C., IMF Managing Director Kristalina Georgieva and other senior members of IMF management met with a Sri Lankan delegation.
Sri Lanka team was led by Finance Minister Ali Sabry and Central Bank of Sri Lanka Governor Nandalal Weerasinghe, and discussed policy actions to address economic challenges.
The IMF team for Sri Lanka held initial technical discussions on an IMF-supported program with the delegation.
Masahiro Nozaki, mission chief for Sri Lanka, issuing statement said that During April 18–22, the Sri Lankan delegation and the IMF team had fruitful technical discussions on the authorities’ request for an IMF-supported program.
The discussions covered recent economic and financial developments in Sri Lanka, the need for implementing a credible and coherent strategy to restore macroeconomic stability, and the importance of stronger social safety nets to mitigate the adverse impact of the current economic crisis on the poor and vulnerable.
The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors.
“Going forward, the IMF team will support Sri Lanka’s efforts to overcome the current economic crisis by working closely with the authorities on their economic program, and by engaging with all other stakeholders in support of a timely resolution of the crisis.”
India’s Finance Minister Nirmala Sitharaman claims that she told the International Monetary Fund and World Bank that China must be treated just like any other creditor once talks begin to restructure Sri Lanka’s debt;
“All creditors must be treated equally and with transparency,” Sitharaman said in an interview in Washington Friday. “I’ve emphasized that point in general and in the context of Sri Lanka.”
China has already stepped in to provide urgently needed help for Sri Lanka to borrow US $1 billion from Beijing so that it can repay existing Chinese loans due in July, as well as a $1.5 billion credit line to purchase goods.
The island nation currently facing a dollar crisis South Asian nation, which is running out of dollars to pay for imports,is also seeking aid from neighbor India, the World Bank and the IMF.
Sitharaman said she has also requested the IMF consider rapid aid for middle income-classified Sri Lanka — typically given only to low-income countries — as the pandemic has destroyed the island’s tourism revenue.
With foreign-exchange earnings dwindling, Sri Lanka struggled to manage its external debt, which had grown in part due to loans from China to fund ambitious infrastructure projects.
Sri Lanka had about $3.5 billion in debt from China by end-2020, excluding loans to state enterprises, according to central bank data.
Minister of Finance Ali Sabri PC says there are a number of issues that need to be addressed in obtaining financial assistance from the International Monetary Fund, including the duration, which could prove to be an obstacle.
The government has asked some creditors to restructure its debt and also approached China, Japan, and the Asian Development Bank amongst others for help, Ali Sabry said.
India has already agreed to double an existing USD 500 million credit line for fuel and defer about USD 1.5 billion in import payments that Sri Lanka needs to make to the Asian Clearing Union. It has also extended the tenure of a USD 400 million swap given in January, the Indian High Commission said on Friday.
Talks with the World Bank have also been very positive,” Sabry said, adding: “In the next four weeks to six months we expect about USD 500 million from them, which will be partly used to provide direct cash transfers to the poor”.
We have a three-pronged strategy. One is to get an IMF programme going, second to secure bridge financing and third to get Sri Lanka back on a growth trajectory in a year or so,” he said.adding that the government hopes to appoint financial advisers and an international law firm to start formal debt negotiations with creditors in the next 10 to 15 days.
Accordingly, the Minister said that he discussed the country’s situation with the World Bank as well, which agreed to provide 300 – 600 Million USD between two months to four week’s time. This amount will be directed for the benevolence of those who are in poverty, he added.
The Asian Development Bank has agreed to provide funds for Sri Lanka, especially to obtain medicines and other necessities for the people, the Finance Minister said.
Moreover, the Finance Minister of India, Nirmala Sitharaman also agreed to provide an amount worth 500 Million USD to purchase fuel, while an amount of 1.4Bn USD to be paid has been postponed till January via the Asian Clearing Union, Minister Sabry said.
“Apart from that, we have requested a 1 Billion USD loan to import essential items. They are also considering our request to lend another 1 Billion USD after the first one,” the Finance Minister said in reference to India. Moreover, the Finance Minister said that he met with economic experts from the US, and their Finance Ministry as well.
The Finance Minister said that there are three strategies for funding; immediate emergency funding, bridge financing or to go in line with the growth trajectory. Sri Lanka has to agree to IMF funding conditions, which is that debt needs to be sustainable, and Sri Lanka is taking many steps, such as staff-level talks, discussions with creditors and fiscal reforms to make it possible, the Finance Minister added.
The Opposition Leader Sajith Premadasa invited professionals to join hands and play a proactive role with SJB to build a sound policy platform to make our motherland prosperous. He made this invitation at the “Forward, Together for the Nation” forum organized by the National Council of Professionals which was held today (24th April) at Bandaranaike Memorial International Conference Hall, in which, he was the chief guest.
“Everyone has to unite, mobilize our energies and capacities and make a strong determination to extricate our motherland from this quagmire”, mentioned Sajith Preamadasa. He blamed ths economic catastrophe on the hero-worshipping, refusal to listen to professional advise and knee jerk reactions by the Rajapakse administration.
He also mentioned the steps we have to take to get the country out of this maze that it’s stuck in. He emphasized the need for a social democratic approach which gives credence to social-market economic features and inclusive growth.
“We need to embark on a new modern pathbreaking industrialization program.”, said Sajith while mentioning that himself and SJB will strive towards building a Sri Lanka devoid of racism, discrimination and hate speech and making democracy victorious.
Sajith also assured that SJB will never resort to expedient temporary political arrangements to get perks and privileges. SJB will not betray the outcry of the people, reiterated Sajith while requesting everyone to join hands with SJB to embark on a new journey of hope, aspirations, achievements and progress.
School teachers and principals will launch a strike action by collectively going on sick leave tomorrow in objection to the government’s repressive conduct, said Joseph Stalin, Secretary of the Ceylon Teachers’ Union, speaking to media on behalf of the Teachers and Principals Trade Union Alliance today (24).
The government that failed to provide solutions to the country’s problems should resign immediately, he pointed out, revealing that after tomorrow’s trade union action, a large-scale strike action will be launched on April 28.
CHIANG MAI – After a year of political, social and economic self-destruction, Myanmar’s coup-installed junta appears now to be committing financial suicide.
On April 3, Myanmar’s central bank issued a directive requiring all Myanmar citizens to change their foreign currency holdings and transmittances from overseas into Myanmar kyats at state-licensed banks. The directive, published in state media and branded by critics as a desperate money grab, said the transfer must be done within “one working day.”
It is still unclear how the crude measure will be enforced and implemented but follow-up guidance has said that US dollars must be changed at a rate of 1,850 kyats to the greenback, yielding the central bank a windfall on the exchange at the prevailing market rate of 2,015 kyats to the dollar.
Other currencies will be calculated at similar, most likely unfavorable, rates dictated by the central bank. According to the World Bank, Myanmar’s foreign reserves stood at a mere US$7.8 billion as of December 2020, just over a month before the February 2021 coup and the last reliable public data on the country’s reserve position.
Myanmar’s foreign debt is estimated at between $10 and $11 billion. Western sanctions imposed in punitive response to the military’s seizure of power from Aung San Suu Kyi’s elected administration have targeted the military’s key economic interests and certain top personages.
According to the central bank’s first statement on the new measures, all transfers of foreign currency “must be carried out through [authorized] banks with the permission of the Foreign Exchange Supervisory Committee.”
All foreign currency account holders will also be forced to convert holdings acquired before April 3 into kyats, with a vague option to apply for an exemption to the new rules. It was also announced that some foreign currency may be kept in approved banks following approval by relevant authorities, including the Myanmar Investment Commission.
The foreign investment community is understandably up in arms over the surprise and draconian order.
Stacks of Myanmar kyat are seen on the counter before a client collects them, at a bank in Yangon, Myanmar October 19, 2015. Photo: Agencies
On April 4, the Japanese Embassy sent a letter to the junta saying “Japanese companies operating in Myanmar will face serious challenges in following the new regulation, which will cause difficulties in continuing their businesses in the country. It will also be detrimental to the function of the Embassy of Japan and other official organizations.”
Two days later, the Singaporean Embassy issued an almost identical statement that merely changed “Japanese companies” to “Singapore companies.” Both embassies requested exemptions for companies from their respective countries, which are among Myanmar’s top providers of foreign investment.
On April 8, a dozen business groups — among them the French Myanmar Chamber of Commerce, AustCham Myanmar, EuroCham Myanmar, the British Chamber of Commerce in Myanmar, and the German Myanmar Business Chamber — issued a joint statement saying that the new foreign currency rule “needlessly lowers the living standards of the Myanmar people, halts foreign business activity, stops the flow of foreign direct investment (FDI), and creates trade tensions with other countries.”
Restriction on the use of foreign currencies, the statement noted, “disconnects Myanmar from the global economy and global financial system.”
According to well-placed sources in Yangon, not even local banks seem to know what the new rules actually mean, how they will be enforced by military authorities, and what will happen if the banks are deemed to have violated them.
Analysts and observers believe there are three main reasons behind what many see as a desperate move to gain access to foreign currency at a time the local economy has nearly collapsed due to the military’s February 2021 coup and the nationwide unrest that has followed.
The first and most obvious motivation stems from the fact the junta has nearly depleted its foreign reserves and desperately needs a way to earn, or in this instance, take foreign currency to avoid defaulting on foreign debts.
Another reason may be to control, and possibly strangle, money flows from foreign donors and exiled groups to anti-junta activists and civil society groups inside the country. The new measure will effectively make it illegal to hold foreign funds, making it easier for authorities to track and check transfers to such groups.
Myanmar’s new foreign exchange rules may aim to block foreign money flows to activists and civil society organizations. Image: Twitter
Only entities registered with authorities will be allowed to receive funds from abroad — and then that money would in any case have to be changed into kyats unless they have acquired an exemption from that rule.
But holders of kyat accounts may withdraw only 500,000, or the equivalent of less than US$250, per week under the military junta rules. That, of course, has raised the question of whether the central bank actually has enough kyat reserves to cover the conversion of all foreign holdings into local currency.
Only entities registered with authorities will be allowed to receive funds from abroad — and then that money would in any case have to be changed into kyats unless they have acquired an exemption from that rule.
But holders of kyat accounts may withdraw only 500,000, or the equivalent of less than US$250, per week under the military junta rules. That, of course, has raised the question of whether the central bank actually has enough kyat reserves to cover the conversion of all foreign holdings into local currency.
The third reason for the move became clear when the Japanese and Singaporean embassies issued their statements requesting exemptions from the new rules.
Inadvertently, perhaps, the pleas were made to the “Ministry of Foreign Affairs” of “The Republic of the Union of Myanmar” and thus amounted to de facto official recognition of the coup-installed government that has otherwise been shunned and sanctioned by the West.
Whatever the case, the economic and diplomatic benefits the junta may derive from the new rules are bound to be dwarfed by the negative consequences of such an ill-conceived measure to assert more military control over the economy.
It’s unclear if the Japanese and Singaporean companies that are still in the country since the coup will consider uprooting if not given the exemptions they have requested. The rules will also likely deter other foreign companies from investing in the country, which was already a tough sell amid the post-coup political upheavals and devastation caused by Covid-19.
But Myanmar needs more, not less, foreign investment to revive the economy.
The International Labor Organization (ILO) stated in a January 2022 report that Myanmar is on brink of economic collapse one year after the coup. According to the ILO, the country’s employment losses in 2021 amounted to 8% of the workforce, or 1.6 million lost jobs. It said Myanmar’s construction, garment, tourism and hospitality industries were among the hardest hit, as were rural farmers.
Similarly, the United Nations Development Program (UNDP) issued a statement in December 2021 that estimated “by early 2022, nearly half of Myanmar’s 55 million population — some 25 million people — will be living below the national poverty line. There now appears little doubt that the country’s poverty headcount is likely to return to levels not seen since 2005, effectively erasing 15 years of pre-pandemic economic growth.”
Kanni Wignaraja, director of the UNDP Regional Bureau for Asia and the Pacific, was quoted as saying: “A slide into poverty of this scale could mean the disappearance of the middle class – a bad omen for any rapid recovery from this crisis,” she noted.
Myanmar Migrant workers pass the Thai-Myanmar border in an official service truck as they leave Thailand from Mae Sot in Tak province in northern Thailand. Photo: AFP / Ye Aung Thu
In many ways, Myanmar’s broad economy, especially foreign-exposed sectors like tourism, was until now a dollar-based economy, with many transactions conducted in foreign rather than local currency.
Trying to eliminate that economy overnight, analysts and observers predict, is bound to put more strain on an already fragile economy that contracted 18% in the year ended September 2021. The World Bank predicted a paltry 1% growth on that contraction in 2022, though the projection was made before the de-dollarization measure was announced.
But Myanmar’s increasingly isolated generals may not care, particularly if they think sympathetic allies like China will turn the other cheek on the foreign currency measure and bail them out if the economy slips deeper into crisis.
The junta’s lurch towards de-dollarization might thus give rise to a new yuan-based financial order – and even greater dependence on Beijing.
The government had set up roadblocks to prevent the march organised by the Inter-University Students Federation (IUSF) from Colombo Fort to Galleface today (24), in the event that an attempt by the security forces to obtain a court order barring the march was denied.
The IUSF march, however, continued and the protesters arrived at and staged their demonstration in front of the residence of Prime Minister Mahinda Rajapaksa in Wijerama.
The Criminal Investigation Department (CID) has reportedly consulted the Attorney General on the possibility to arrest former President Maithripala Sirisena and former Director of the State Intelligence Service (SIS) Nilantha Jayawardena over the allegation of failure to avert the Easter Sunday Massacre which killed more than 270 people three years ago.
Having a profound effect on the Sri Lankan government, Archbishop of Colombo, His Eminence Malcolm Cardinal Ranjith is currently in the Vatican with 60 victims of the genocide to meet with the Pope. Sources claim that the Catholic Church is preparing to file a lawsuit at the International Criminal Court (ICC) in the Hague, the Netherlands, in connection with the attack.
In the backdrop, the authorities have decided to arrest Sirisena and Jayawardena who have been accused of being failed to avert the attack but are not prosecuted with any charge to date, in an immediate measure prior to such an international move being proceeded, sources claimed.
There is a risk that the parties responsible in this country may not be able to go to any country where Catholic communities live, should such a case be filed at the ICC, sources further added.
Since this (24) morning the Police and the Military are responding to the march organised by the Inter-University Students’ Federation (IUSF) from Colombo Fort to the Galleface Grounds today in a rather bizarre manner by blocking many roads in Colombo Fort by setting up GI pipes.
It was also seen that roadblocks with iron spikes were being set up in in some roads. A large number of Police personnel were being deployed throughout the city, resembling a preparation for an attack.
Since April 09, people in and around the Galleface premises have been staging peaceful protests with no giving in to violence, and today, the IUSF is simply joining these peaceful grounds within their rights. It would be a question as to why the Police and the Military are putting efforts at this gravity to prevent such a peaceful march.
