Sri Lanka heading toward external forex crisis: Economist

ECONOMYNEXT - Sri Lanka is heading towards and foreign exchange crisis and slowing growth, with external payments mounting, top economist has warned.

"We are heading towards an external foreign exchange crisis, economic growth is decelerating," W A Wijewardene, to economist and former Deputy Governor Sri Lanka's central told an economic forum.

Wijewardene said external payments for the next 12 months were 4.5 billion US dollars and the import bill was also rising.

He was speaking at an economic forum in Colombo.

Meanwhile economic growth was also slowing. Sri Lanka's economic statistics are also disputed.

Analysts have warned the central bank that domestic credit and imports are being driven to unsustainable levels by money printed to maintain low interest rates amid a rising budget deficit.

Sri Lanka will have to swim upstream amid global troubles: George Soros

ECONOMYNEXT - Sri Lanka will have to 'swim upstream' as the external global environment becomes more hostile and funds flow out of developing countries and China's economy becomes unstable, investor George Soros said.

He said the world was now in a deflationary situation and developing countries that benefitted from a commodity boom was no longer doing so.

With interest rates in the US going to positive territory the trends may get stronger he said.

There was instability in China and its currency was falling he said. The falling Chinese currency will export deflation, he said.

He said the money was no longer coming to developing countries and harsh choices will have to be made instead of waiting for things to get better.

In addition to people connected to his Open Society Foundation, his investment person was also in Sri Lanka to look for opportunities, he said.

He saw opportunities in Sri Lanka's tourism.

The US Fed and the Bank of England had managed to prevent a return to a great depression, Sorso said.

However falling oil prices was increasing disposable income which people were not using to consume but to repay debt, he said.

This was bad for financial markets as people will put off consumption in the expectation that prices will fall next year, he said.

The deflationist mantra, which is used by many economists to promote positive inflation however has not happened in Sri Lanka.

As oil prices were cut in 2015, people not only stepped up consumption, and even borrowed to buy durable goods, helped by central bank credit (money printing), creating an unsustainable boom.

China currency devaluation de-stabilizing the world: Soros

ECONOMYNEXT - A falling Chinese currency is de-stabilizing the world, and the country is trying to transfer its problems to the rest of the world, where the makings of a crisis is seen, investor George Soros said.

"China has a major adjustment problem," the Hungarian-born US investor told an economic forum in Colombo.

"It has a lot of choices. It can actually transfer to the rest of the world its own problems by devaluing its currency. That is what China is doing."

"The exchange rate is now dropping and it is de-stabilizing the rest of the world. China is now inflicting on the rest of the world these deflationary pressure.

He said deflation was bad as people tended to repay debt.

The current environment reminded him of the 2008 crisis.

"I would say it amounts to a crisis," Soros said. "It is just that we are at the beginning of that. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008."

Soros said he had told his investment managers to be 'very very cautious'.

Many economists and policymakers in the US also has a tendency to blame China for many troubles and try to push up its currency claiming that is manipulating the currency.

China doesn't actually have a reserve currency that other countries peg to.

US attempts to push up China's currency goes back a long way. In 1934 the US bought large volumes of silver to push up China's currency, forcing the country to abandon the silver standard.

China has had loose policy in the past few years and it also upped state spending to boost growth as the US also loosened monetary policy, firing a bubble.

China Exim Bank, HNB to fund Sri Lanka expressway extension

ECONOMYNEXT – Sri Lanka will borrow 360 million US dollars from the Exim Bank of China and 63.58 million dollars from Hatton National Bank to fund the extension of the Southern Expressway, a government spokesman said..

Health Minister Rajitha Senaratne said the cabinet of minister had approved a proposal by Finance Minister Ravi Karunanayake to get 85 percent of the project funds from Exim Bank of China and the balance from HNB.

The expressway extension consists of four sections from Matara to Hambantota with a total length of 96 kilometres.

The construction contract between the Road Development Authority and China State Construction Engineering Corporation Ltd. was signed in September 2014.

The funds are for the fourth phase of the Southern expressway project, a section of 26 kilometres from Beliatta to Wetiya, Senaratne told a news conference.

The Beliatta - Wetiya section total cost of construction is 423.9 million US dollars.

Exim Bank of China will give the loan under its preferential buyer credit facility at an interest of two percent a year with a 20-year repayment period including a five year grace period.

Exim Bank fees also include a one-time upfront fee of 0.25 percent of the total loan amount and a commitment fee of 0.25 percent which has to be paid each year on the undisbursed amount of the loan.

CB to receive $ 1 b forex next month from Saudi

By Charumini de Silva

Central Bank Governor Arjuna Mahendran yesterday confirmed an inflow of foreign exchange nearing $ 1 billion from Saudi Arabia in February to bolster reserves and shore up a troubled currency.

The boost to reserves was a result of the Central Bank inviting Saudi banks to invest part of their reserves in Sri Lanka by linking up with Sri Lankan banks.

A top level delegation of Sri Lankan bankers led by Mahendran visited Saudi Arabia in December to explore new areas of cooperation with the Kingdom.

“These banks have strong reserve bases which they like to invest all over the world. We invited Saudi banking institutions to link up with our banks to channel funds. Within the next month I expect about $ 500 million to $ 1 billion foreign exchange to come to Sri Lanka,” he told the Daily FT.

At a time when Sri Lanka is opening up to financial markets, Mahendran explained that it would be strategically important to Sri Lanka to attract and facilitate investments of this nature.

“Foreign bank partnerships are expected to play a greater role in economic activities and make a significant contribution to the economy. This will bring in foreign currency into Sri Lanka and at the same time will help to build up our official reserves,” he pointed out.

The Governor noted Sri Lanka’s official reserves had risen from $ 6.5 billion to a little over $ 7 billion in December 2015 as a result of borrowed money from markets and remittances coming into the system.

In order to assist over 550,000 Sri Lankans working in Saudi Arabia who remit some SR 10 billion annually, Mahendran said he was negotiating with the Saudi Arabian Monetary Agency (SAMA) Governor to enable Sri Lankans’ remittances from Saudi Arabia to reach banks in Sri Lanka directly.

“SAMA has responded positively to consider opening the payment gateway to enable this service in a year or two,” he added.

Representatives from leading banks such as Bank of Ceylon, People’s Bank, Commercial Bank, HNB, NDB, Amana, Seylan Bank, Sampath Bank and Deutsche Bank AG accompanied the Governor during his visit in December.

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