Wednesday, July 6

Country Defaults, Sees Inflation Soar to 40%: Sri Lanka Latest


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(Bloomberg) — Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that has led to a political crisis and street protests against soaring costs of everything from food to fuel.

The country’s policy makers had flagged to creditors that the island nation wouldn’t be able to make payments within the grace period, and is therefore in pre-emptive default, central bank Governor Nandalal Weerasinghe said at a briefing Thursday.

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Prime Minister Ranil Wickremesinghe has yet to choose a finance minister, who will help lead talks with the International Monetary Fund over badly needed aid.

Key Developments

Sri Lanka Enters Default and Warns Inflation May Surge to 40%Sri Lanka Sees Inflation Touching 40% After Holding Rates (2)Selling Troubled Flag Carrier a Tough Task for New Sri Lanka PMSri Lanka Can’t Find Cash to Pay Even One Ship for Petrol

All times local:

Stock Markets Fall (12:20 pm)

The Colombo All-Share Index slumped more than 3% amid a global equity selloff.

Sri Lanka Sees Inflation Touching 40% in Next Few Months (11:42 am)

The island nation with Asia’s fastest inflation, currently around 30%, sees that number soaring to 40% in the next few months, the head of its central bank said.

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The country will also cap the amount of foreign currency its citizens can hold at $10,0000, Weerasinghe told reporters in capital Colombo.

The country is struggling to find dollars to pay for the imports of everything — from food to fuel to life saving medication.

Prime Minister Addresses Cooking Gas Shortages (11:20 am)

Wickremesinghe said cooking gas supplies that were supposed to have been unloaded Wednesday had yet to reach. The premier has asked the chairman of Litro Gas, the country’s main LPG provider gas supplier to explain the delay.

Sri Lanka Holds Rates Amid Debt Crisis (7:30 am)

The Central Bank of Sri Lanka held its benchmark standing lending facility rate at 14.5% on Thursday. Five out of eight economists in a Bloomberg survey expected a hike of up to 300 basis points, while three expected a hold.

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The earlier rate hikes did little to cool inflation, currently running at almost 30% — a product of shortage of everything from food to fuel as the nation struggles to pay for imports.

Opposition Asks Tourists to Visit Sri Lanka Again (7 am)

Opposition leader Sajith Premadasa used a parliament address to make a pitch to tourists to visit as the country struggles to rebuild much needed foreign exchange reserves. His party tweeted the video clip of Premadasa hyping up Sri Lanka’s surf spots and tourist attractions.

Constitutional Draft to Curb President’s Powers to be Finalized (10:13 pm)

Wickremesinghe said in a tweet that the draft of the constitutional amendment to curb President Gotabaya Rajapaksa’s wide-ranging powers is expected to be finalized by next week.

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He has also instructed the staff of the prime minister’s office to slash expenses by half.

No Forex to Pay For Even a Day’s Fuel, Minister Says (2:00 pm)

“There is a petrol ship in our waters,” Energy Minister Kanchana Wijesekera told parliament Wednesday as the country asked citizens not to line up at fuel stations. “We do not have the forex.”

Sri Lanka “hopes” to release the ship “today or tomorrow,” the minister said. The nation also owes the same supplier $53 million for an earlier shipment of gasoline, he added, without elaborating.

The prime minister has said the government is working to obtain dollars in the open market to also pay for three ships with crude oil and furnace oil that have been anchored in Sri Lankan waters. He told parliament Wednesday that the administration was in discussions with the World Bank to channel part of the $160 million aid provided for social welfare, for fuel imports.

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Stocks Keep Rallying While Dollar Bonds Are Mixed (10:56 am)

The Colombo All-Share Index jumped as much as 3.5% to the highest level since April 6, before paring about half of that advance. Still, the key index was on course for a fifth session of gains. Its rebound of over 20% from last month’s low seems to suggest that equity investors have priced in the worst.

Sri Lanka’s dollar bonds traded mixed as the nation formally goes into a default for the first time. The debt due this July was indicated 0.24 cents higher on the dollar, while the securities maturing in 2030 was 0.22 cents lower.

Gold Could be Last Resort For Sri Lankans Scrambling For Funds (10: 45 am)

Sri Lankans may sell as much as 20% more gold this year as people in extreme distress sell their jewelry to raise funds, according to Chirag Sheth, a consultant at London-based Metals Focus Ltd. Citizens had sold about 7 tons in 2021, he said. Demand for the precious metal had dropped by a third in the island nation from the pre-pandemic years as tourism took a hit.

While old gold sales are “very strong,” the metal is also turning out to be the last resort for people who do have some money to park their funds as “you cannot put your money in stocks, banks interest rate is lower and your local currency is depreciating,” Sheth said.

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