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CB Governor pins hopes on tourism to achieve higher growth rate



… says CB professionals capable of handling the situation on their own

With the upward trend in tourist arrivals in Sri Lanka, the tourism industry could help boost the economic growth rate in 2022, Central Bank Governor Ajith Nivard Cabraal said on Thursday.

“The tendency for that is evident. I had a meeting with tourism stakeholders on Wednesday. Their data showed that there would be 50,000 arrivals for this month and they expect it to go up to 75,000 in December. They expect tourist arrivals to increase between 10%-20% on a monthly basis in 2022.

The industry players have set apart required funds to facilitate the incoming leisure travellers and together with authorities they have ironed out shortcomings in the travel sector to pave the way for tourists to have a comfortable stay in the country. When we see that rejuvenation in Tourism, it will help achieve a growth rate of 6% in 2022,” he said.

The Central Bank Governor said so at a media briefing held to announce its latest monetary policy stance where the Monetary Board of the Bank has decided to maintain the policy rates at current levels.

“As all stakeholders of the Sri Lanka Tourism Industry are moving forward to attract more tourists via strategic developments, its increased contribution to the overall economy looks more promising,” he said.

However, the Governor said that inward remittances from the Sri Lankan migrant workforce had decreased during the past few months and the Central Bank was taking measures to address the issue.

“We have put forward a plan and are implementing it to increase our remittances again. About 230,000 people go for jobs overseas per year. They were not able to go in the last two years due to the pandemic. That gap caused the decrease in remittances. Now we can see them going back, which is a good thing.

However, a lot of migrant workers send remittances through informal channels. We have gathered information about this and have taken steps to retard and discourage the sending of money via informal channels because they are not regularized as official channels. So, in the future, we will take action against those who engage in this practice in an undue manner. This happens because the migrant workers get lower returns when they remit their money through banks. We are taking action to encourage migrant workers to send money through official channels by introducing a pension scheme, insurance schemes etc. The banks already pay an additional Rs. 2 for each US dollar sent by them. When other measures are also implemented, we will be able to equate the previous levels of remittances or even higher than that.”

Referring to the controversy whether Sri Lanka could default on its international sovereign debt servicing, the Governor said,” We clearly say that we will pay all our debt and we have set apart funds for that. So there is no need for anyone to speculate on it. We have determined ways to do it and it has been spelled out in the Central Bank’s Road Map. We will inform the public more about how it is taking place, by the end of the year.

Addressing another controversy on the conversion of export proceeds, he said,” This is a very simple thing. If someone imports some goods, he takes rupees to the bank, converts it into dollars and pays for the import. In the same way when someone exports, dollars are sent in and the dollars are converted into rupees. That’s how the export-import cycle completes itself. If importing of goods is necessary for a value added export, such exporters have been given the permission to pay for such imports in dollars. If they service any dollar loans, they can get dollars to do that. If they need foreign currency for international travel they can have access to their dollars. If they want to invest in Sri Lanka Development Bonds, they can use their dollars to do that also. We have asked them to convert the balance of their export proceeds after all these are allowed. I have spoken with the members of the Chamber of Commerce and the Apparel sector about this and they don’t have any grievances about that.”

Talking about the hot topic of debt restructuring and the IMF, he said “We have no fear or issue in going to the IMF to arrange a facility, but the thing is, we must face it all by ourselves without seeking help from outside. Our International Sovereign Bonds (ISB) quantum was USD 5 billion in 2014 when our GDP was USD 79 billion. It was pressurized when Sri Lanka raised USD 6.9 billion in ISBs between April 2018 and June 2019. By end 2019, ISBs were USD 15 billion and the GDP was only 84%. That means, ISBs which remained at 6% went up to 18%. Then we decided that we won’t take more and ISBs and get into a debt trap. As an alternative, we sought to raise loans through other means and repay our loans. That is what is in progress.

Even if the IMF comes, it will ask us to do the same. So we don’t need anyone from the outside to do it for us. For example, the IMF would ask us to change or scrap rules on maximum retail prices. We have already done it. The IMF may ask us to depreciate the rupee.

They may ask us to raise interest rates by 30%-40%-50%. And would ask us to reduce the number of government employees, cut back pensions, sell various government assets etc. They will suggest such a reform agenda. But our opinion is, that is not necessary.

Our opinion is that we can meet our obligations to our creditors without seeking a reform agenda of that nature. We are in the process of resolving this issue.”

Touching upon money printing by the Central Bank, the Governor said, “In the recent months, we have been able to find the money from the Treasury bill market. Gradually the bill yields have also eased. This shows that our monetary policy is flowing to the market and responding to its objectives as envisaged. That’s why the Monetary Board of the Central bank has decided to keep the policy rates unchanged,”

Last but not least, Governor Cabraal came up with his take on the inflation which is biting the vulnerable sections of the people as well as the middle class.

“Globally, inflation has risen substantially In the U.S. inflation has hit a 30-year high. Europe, Brazil, Russia, India, China all face increased inflation as commodity prices have increased. This is supply-driven inflation, not demand driven. That is why our inflation is also 2% over the target range. At this moment, increasing interest rates won’t be needed. Interest rate can’t control it. Interest rates can control demand side issues. We already see some optimum level at the demand side with the rate increases in recent times. The Monetary Board has taken this into account as it decided to keep interest rates unchanged,”

The Governor, however, pointed out that there is a clash between stability and growth and the Central Bank is taking all necessary decisions as and when necessary to drive growth while maintaining stability and refilling low foreign reserves.

Cabraal said that Central Bank officials comprised more than 30 PhDs, more than 200 Master’s Degree holders, chartered accountants, legal personnel and experts in many other disciplines are able to handle the challenge without seeking foreign expertise.

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Personal income tax shock dims economic activities



ECONOMYNEXTSri Lanka’s personal income tax hikes have hit economic activity in the first quarter though despite currency stability helped businesses cut prices, Hemas Holdings, a top consumer goods group has said.As the currency stabilized, as central bank ended contradictory money and exchange policy conflicts, businesses had cut prices. Mainstream economists generally claim that price falls lead to delayed transactions and try to generate positive inflation through money printing, though businesses believe otherwise.

“The market witnessed price reductions and promotional trade schemes to stimulate consumption,” Hemas Holding told shareholders in the March quarterly statement.

“However, changes made to the personal income tax structure severely impacted modern trade sales volumes as consumers rationalised their purchases under reduced disposable income levels.”

Sri Lanka hiked personal income tax rates in 2023. Value added taxes were raised to 15 percent from 8 percent last year. Another 2.5 percent cascading tax was imposed on top of VAT, the effect of which was estimated to be around 4.5 or more through the cascading effect.

While value added tax allows the government to get tax revenues after citizens make transactions and getting the economy to work, based on best decisions needed to drive the economy to satisfy real needs, income tax kills economic decisions and transfers money to state actors, analysts say.

Net gains on income tax therefore comes at a cost of lost value added tax as well as killed real economic activities which would otherwise have been based on decisions of those who earned the money.

UK also almost doubled VAT in 1979, also to 15 percent, cut the base income tax rate and widened thresholds above inflation to give choice to individuals, amid criticism from Keynesian style or mainstream economists to recover the economy, after two back-to-back IMF programs failed to deliver concrete results, analysts point out.At Hemas Holdings, group revenues went up 52.6 percent to 32 billion rupees in the March 2023 quarter from year earlier amid price inflation as the rupee fell, and cost of sales went up 45.1 percent to 22.2 billion rupees, allowing the group to boost gross profits 72 percent to 9.8 billion rupees, interim accounts showed.

However, administration costs went up 54 percent, selling and distribution costs went up 36 percent, and finance costs went up to 1.3 billion rupees. Profit after tax was flat at 1.06 billion rupees.Sri Lanka’s central bank stabilized the rupee in the second half of 2022 after the rupee collapsed from 200 to 360 to from two years of money printing and also removed a surrender rule in March allowing the exchange rate appreciate.

The US Fed also tightened policy from March 2022 helping bring down global commodity prices after triggering inflation not seen for 40 years through Coronavirus linked money printing or accommodating a real shock through monetary expansion.

“While the modern trade channels witnessed a slow down due to the adverse impact of the tax reforms and high cost of credit on the middle-class urban population, the general trade channels experienced significant growth and increased foot fall,” Hemas told shareholders.

“The decline in global commodity prices in the second half of the year, enabled the business to make price reductions across the portfolio.

“However, the benefit of appreciation of the Sri Lankan Rupee in March 2023 was not seen during the quarter due to the lag effect but is expected to realise in the quarters to come, provided the current economic conditions prevail.”

Hemas is also has operations in Bangladesh where the central bank is also buying up government securities with tenors as long at 20 years to mis-target the interest rate, triggering forex shortages and depreciating the Taka, according to analysts who study the country.

Inflation had hit 9.3 percent in Bangladesh by March.

“In the face of numerous challenges including slowdown in the global economy, depreciation in Taka, heightened inflation and depleting foreign currency reserves, the country entered an IMF programme in January 2023,” the firm said.

“The value-added hair oil market witnessed a degrowth, as consumers curbed consumption in many non-essential items and switched to value-for-money alternatives.”

Mainstream economists mis-target rates to boost growth known as either monetary stimulus or bridging an output gap, though the effort result in instability and economic contractions.

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Speaker says he has no power to deal with smuggler MP



Mahinda Yapa

By Norman Palihawadane

Speaker Mahinda Yapa Abeywardena said on Friday that he had no powers to initiate disciplinary actions against Ali Sabri Raheem, who was arrested at the Bandaranaike International Airport (BIA) in Katunayake along with a stock of undeclared gold and mobile phones on Tuesday (May 23).

Commenting on a letter handed over to him by 20 opposition MPs seeking action against Raheem, the Speaker said that the Opposition MPs stated that Raheem had misused his MP’s privileges.In the letter, the MPs noted that Raheem had misused Parliament privileges accorded to MPs and his diplomatic passport to smuggle the undeclared goods via the VIP lounge of the Bandaranaike International Airport (BIA).

“He has violated the Parliament-approved Code of Conduct for Members of Parliament in its entirety,” the letter said.

The group stressed that the violation of laws passed in Parliament by the MPs themselves will lead to a breakdown of trust among the public towards MPs of both the Government and the opposition.

“It may lead to a situation where the citizens will also refuse to adhere to the country’s laws,” they said.  The MPs, therefore, called on the Speaker to take strict action against the offending MP.

The request was signed by opposition leader Sajith Premadasa, several other MPs of the SJB, SLFP General Secretary Dayasiri Jayasekara, Supreme Lanka Coalition member MP Udaya Gammanpila, MP Vasudeva Nanayakkara and several others.

Puttalam District MP Ali Sabri Raheem was arrested at the BIA along with a stock of undeclared gold and mobile phones on May 23.

The Customs officials on duty at the airport had impounded a total of 3.5kg of undeclared gold and 91 mobile phones from the possession of the parliamentarian who was returning to the island from overseas.Later, the MP was fined Rs. 7.5 million and released on payment of same while the undeclared gold and mobile phones were confiscated.

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Lankan hospitality professional grabs top US luxury hotel job



Sanjiv Hulugalle

Sanjiv Hulugalle has been appointed Group President – Hospitality & Real Estate in May 2023 overseeing all aspects of Kohler luxury hospitality businesses and championship golf courses, the company announced.

“He provides full-scope strategic and operational leadership strength, vast global experience, and a service mindset. He possesses an outstanding track record of hiring, training, engaging, and retaining high-performing teams focused on delivering exceptional one-of-a-kind luxury resort experiences, a news release on the appointment said”.

Prior to joining Kohler, Hulugalle served as Regional Vice President and General Manager at Mauna Lani Resort, Hawaii, part of the Auberge Resorts Collection. In that role, he managed Mauna Lani along with regional responsibility for five additional properties around the world, delivering significant growth, large-scale renovations, and increased revenue.

Before that, he was the Regional Vice President and General Manager at Jumeirah Al Naseem and Madinat located in Dubai, and spent 22 years with Four Seasons Hotels and Resorts in general management leadership roles.

His vast work experience in the luxury resort business has led him to work in 12 countries on four continents, including Syria, Dubai, Malaysia, and China.

He holds a bachelor’s degree from the Australian College of Physical Education in Sydney and began his upwardly mobile career as a physical training instructor in the hotel industry serving a short internship at Ahungalle Hotel during his university period.Sanjiv is the son of Mr. Arjuna and Mrs. Sally Hulugalle of Colombo.

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