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Sri Lanka exporters should convert, rupee worth 185 to dollar: Minister Cabraal
by Imesh Ranasinghe
Sri Lanka’s rupee should be around 185 to the US dollar, State Minister for Money and Capital Markets Nivard Cabraal has said urging exporters to convert dollar inflows without holding them back.
“I think the rupee should be around 185 to the US dollar depending on the macroeconomic factors,” Minister Cabraal said at a conference last week.
Cabraal a former central bank Governor kept the rupee stable for several years, though after a fall in 2012, it was not allowed to appreciate when credit fell in 2013 and the central bank bought billions of dollars for its reserves, for reasons that are not clear.
Sri Lanka’s rupee fell sharply in over January 2021 after the central bank printed money and brought rupee interest rates below local dollar yields over the past year amid a credit downgrade which drove up dollar bond yields, making forward premiums negative and incentivizing importers to cover forward.
As exporters also unwilling to sell forward at a discount, banks bought dollars in the spot and near term market, using the printed money from the central which are sloshing around as excess liquidity to provide forward cover to importers, putting pressure on exchange rate.
Some exporters loaned dollars and were borrowing rupees due to the inverted interest rates.
Due to unprecedented levels of excess liquidity in the overnight market interest rates did not move up in a correction – which would have raised the forward premium – despite interventions by the central bank which reduced some excess liquidity.
Excess liquidity fell from 266 billion rupees at the beginning of the year to around 120 billion rupees amid dollar losses to interventions and debt repayments.
The central bank then closed the forward market, preventing banks from giving forward cover.
“So the central bank took necessary actions about that,” Cabraal said. “And because of those actions taken by the central bank in the past few days, we once again saw the rupee being appreciated.”
Minister Cabraal asked exporters to convert their dollars as soon they receive them, as they may face losses by listening to fear mongers.
“We should keep in mind that it is a tough period for the world, so in such a tough period when we are going forward we all should go forward together,” he said.
“It’s like going in a boat, when that boat is going in a rough sea we should not shake the boat, If one or two tries to shake the boat everyone in the boat will have to face the consequences.”
Cabraal said if some are shaking the boat in that manner will, they will have to take necessary steps in order to stop them from shaking and making the boat unstable,
“It is what the central bank has done now,” he said. “There are other things the central bank can do but our opinion is that it is not necessary to do them now.”
Analysts have blamed a so-called ‘flexible exchange rate’ where a pegged exchange rate is suddenly turned into a floating exchange rate as money printing puts pressure triggering panic and uncertainty forcing importers settle bills immediately taking more credit and exporters to watch and wait.
There have been calls for central bank reform to stop the instability.
The rupee has appreciated in recent days from around 196 to 191 to the US dollar.
Meanwhile Cabraal said in 2014, when Mahinda Rajapaksa administration had left office, the US dollar was 131.5 rupees to the dollar.
At the time the only accusations from the economic experts in the opposition at that time were that the Central Bank is controlling the rupee as it was stable for years and the rupee should be allowed to float.
“But after they came into power the rupee depreciated for 5 years like never before with an annual average depreciation of 6.7 percent,” he said.
There were no global crisis or any other problem during those five years but the rupee depreciated to 181.63 against the US dollar.
“The rupee only depreciated by 2.6 percent in 2020, it is a big achievement when considering the tough period we are going through, meanwhile, the central bank was able to collect 282 million dollar to buttress its reserves,” Cabraal.
Other analysts had also blamed the last administration for giving the central bank independence to target a real effective exchange rate on contested claims that the rupee was more ‘overvalued’ than East Asia while printing money.
The resulting currency crisis then created consumption shocks that lowered growth.
More money was then printed on the basis that there was an output gap, triggering another currency crisis and destroying the economic credential of the United National Party, which was the largest partner of the then ruling coalition.
Analysts had warned of the outcome earlier.
Analysts and economists are now warning that the current monetary framework involving so-called modern monetary theory, with high levels of excess liquidity would also have dangerous consequences as soon as economic activity picks up.
While tourism receipts fell, with no dollar income for tourist sector workers and hotel owners to spend, imports will fall by the same amount, unless money was printed, and credit picked up.
There have been steady losses in foreign reserves, mostly from the financial account despite weak credit lowering imports. (ECONOMYNEXT)
ECONOMYNEXT – Sri Lanka is projected to lend 2,533 million US dollars mainly to the US and Euro areas during an International Monetary Fund deal in 2023 including a mandatory 1.4 billion US dollars collected from exports and remittances, according to official documents.
Sri Lanka is expected to get two tranches of 331.2 million dollar (254 million special drawing rights each) in March and September 2023 from the IMF.In 2023 Sri Lanka has to repay 256.4 million dollars from an earlier IMF loan taken during an earlier currency crisis.
Net inflows from the IMF would be 406.12 million US dollars in 2023 if the first review is completed in September 2023.Sri Lanka has committed to collect at least 1.4 billion US dollars from remittances and exports and lend to the US and other developed nations during 2023 under the IMF deal.
A large volume has already been collected. An ad hoc peg is now operated under the IMF deal to buy dollars and export to the West, as ‘below-the-line outflows. Sri Lanka’s foreign reserves are usually loaned to highly rated sovereign or sovereign linked borrowers, mainly in the US.
But there have been amounts of Euro assets in Sri Lanka’s foreign reserves at times, triggering forex losses when the dollar to Euro parity changed.Under the IMF program there is a performance criterion to increase net international reserves by 1,948 million dollars during 2023.
Sri Lanka is also expected to repay a 200 million US dollar swap to Bangladesh during 2023, which will also raise the NIR.At the moment Sri Lanka’s central bank is in debt after borrowing from India, Bangladesh, India including on Asian Clearing Union dues as well as the IMF. Year end net international reserves would still be negative.
Sri Lanka’s gross reserves are expected to rise by 2.5 billion US dollars to 4.4 billion US dollars in 2023 indicating that the country will lend 2.5 billion US dollars to the US and other highly rated borrowers. It may include re-invested interest coupons.
Sri Lanka is also expected to get 650 million dollars from the Asian Development Bank and 250 million dollars from the World Bank as part of partner support for the IMF deal. Outside of core monetary reserves linked to reserve money, balances in Treasury accounts are also counted as forex reserves.
The BAR Association of Sri Lanka (BASL) has condemned a protest staged outside the Law of Chamber of BASL President Saliya Pieris, PC on Friday.The protest was staged against the representation of Saliya Pieris, PC for notorious Sri Lankan drug kingpin Nadun Chinthaka alias “Harak Kata”.
Condemning the protest, BASL said in a statement that Saliya Pieris, PC was only conducting his professional duties with regard to a particular client.
“We are of the view the said protest seriously hinders his right to represent a client, a professional right which has been safeguarded by law,” it pointed out.
The BASL called on the Inspector General of Police (IGP) to take action to ensure that Saliya Peiris’s professional duties as an Attorney-at-law, are not hindered and to ensure his safety.
Full text of the letter: ” We write with reference to an organized protest outside the chamber of Mr Saliya Pieris, President of the \Bar Association of Sri Lanka.
We have been made aware the said protest relates to Mr. Pieris conducting his professional duties with regard to a particular client. We are of the view the said protest seriously hinders his right to represent a client, a professional right which has been safeguarded by law.In the case of Wijesundara Mudiyanselage Naveen Nayantha Bandara Wijesundara v Sirwardena and Others (SCFR 13/2019), the Supreme Court observed that:
“The first piece of legislation passed by the Parliament soon after the promulgation of the 1978 Constitution was the Judicature Act No. 02 of 1978. As the administration of justice in any civilized society cannot be effectively implemented without lawyers, the legislature in its wisdom, through the Judicature Act, established the legal profession.
Thus, there is no dispute that the legal profession is a sine qua non for the due administration of justice in this country and for that matter in any civilized society. The said profession is essential for the maintenance of the Rule of Law and maintenance of law and order and its due existence is of paramount importance to the organized functioning of the society which is primarily the basis for the smooth functioning of the country as a whole.”
Further, Section 41 of the Judicature Act which has clearly set out the right of representation, and, has further shed light on the above mechanism established for implementing the administration of justice in the country.
It is as follows; Section 41 of the Judicature Act (Right of Representation)
(1) Every attorney-at-law shall be entitled to assist and advise clients and to appear, plead or act in every court or other institution established by law for the administration of justice and every person who is a party to or has or claims to have the right to be heard in any proceeding in any such court or other such institution shall be entitled to be represented by an attorney-at-law.
(2) Every person who is a party to any proceeding before any person or tribunal exercising quasi-judicial powers and every person who has or claims to have the right to be heard before any such person or tribunal shall unless otherwise”
Therefore, we strongly demand that you take action to ensure that Mr. Peiris’s professional duties as an Attorney-at-law, are not hindered and to ensure his safety.”
ECONOMYNEXT – The State need not engage in business as its mandate is to provide services such as education and maintain law and order, President Ranil Wickremesinghe said Thursday defending plans to divest government-held shares of seven state owned enterprises (SOEs).
At a discussion at the presidential secretariat on Thursday morning, Wickremesinghe responding to a question about the decision said that Sri Lanka must no longer hold on to corporations and enterprises owned by the government.
Sri Lanka has been spending more on the state-run Ceylon Electricity Board (CEB) and the Ceylon Petroleum Corporation (CPC) than it has on education, he said.The following seven SOEs will undergo the divestment of state-held shares: Sri Lankan Airlines Ltd including Sri Lankan Catering Ltd, Sri Lanka Telecom PLC, Sri Lanka Insurance Corporation Ltd,
Canwill Holdings Pvt. Ltd., (Grand Hyatt Hotel), Hotel Developers Lanka Ltd., (Hilton Hotel Colombo), Litro Gas Lanka Ltd., including Litro Gas Terminals (Pvt) Ltd., (LPG retailing), and Lanka Hospital Corporation PLC
The State Owned Enterprises Restructuring Unit of the Ministry of Finance, Economic Stabilisation and National Policies will oversee the process, a statement said.
“Not all of them are loss making. But we do have to repay debt. You can’t keep these and pay back loans.
“If we can’t pay off our loans, we might have to sell something in the house and pay it,” said Wickremesnghe.
Asked why Sri Lanka should sell SOEs that aren’t making losses, he responded: “Why is the state engaged in business? That’s not our mandate. The state has no business engaging in business.”
“In what country is there a law that these (businesses) should be (held by the state)?” he added.
Noting that the crisis-hit nation is trying to embark on a path of recovery and rapid development, the president said Sri Lanka must follow India’s example.
“India is selling their airports, profit making ones. India has come to that stage. We have to go there too.”
Showers in Western, Sabaragamuwa and North-Western provinces and in Galle and Matara districts during the afternoon
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