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‘Lebanonization of Sri Lanka well under way’

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

y Hiran H.Senewiratne

The Sri Lankan economy bombarded with multiple internal and economic shocks, is now starting to witness impacts similar to the Lebanon situation, stock market analysts said.

In the long-term, Lebanon’s annual GDP growth rate is projected to trend around 2 per cent in 2022 and 2.50 percent in 2023, according to econometric models. Lebanon has a services-oriented economy, with banking and tourism being the most important sectors.

Yesterday CSE trading activities remained sluggish, which indicated an extreme level of rupee depreciation as against the dollar, which sold Rs 350 per dollar recently in the black market and yesterday it reached Rs 375. This was a 100 per cent depreciation against the dollar, market analysts said.

The rapid rupee depreciation coupled with high oil prices in the global market put the Sri Lankan economy into a more painful situation. Despite its price revisions Lanka IOC has also not been able to supply fuel in an uninterrupted manner to fuel stations and this too has adversely impacted the economy, stock market analysts explained.

The Sri Lanka rupee was quoted at 295/315 to the US dollar in the spot market Monday, but only bids were firm, while bond markets were mostly inactive, dealers said.

Commercial Banks were offering dollars for telegraphic transfers at Rs 295 and buying at Rs 280. The Central Bank indicative spot rate was Rs 294.98.

Sri Lanka’s rupee has been made more flexible but a clean float has not yet been established.

Economists and analysts have urged the Central Bank to raise rates and halt a surrender rule that is taking dollars away from the banking system and creating rupees.

Further, IMF recommendations to the debt management and debt restructure mechanism of the country triggered some selling pressure on the market, analysts said.

Amid those developments both indices moved downwards. The All- Share Price Index went down by 313.03 points and S and P SL20 declined by 105.46 points. Turnover stood at Rs 2.13 billion with two crossings. Those crossings were reported in Sampath Bank, which crossed 1.5 million shares to the tune of Rs 81 million, its shares traded at Rs 54 and Expolanka Holdings 250,000 shares crossed to the tune of Rs 66.25 million; its shares traded at Rs 265.

In the retail market top seven companies that mainly contributed to the turnover were; Expolanka Holdings Rs 304 million (1.16 million shares traded), LOLC Finance Rs 195 million (13.9 million shares traded), HNB Rs 185.3 million (1.54 million shares traded), Sunshine Holdings Rs 145.5 million (3.45 million shares traded), Browns Investment Rs 112 million (11.1 million shares traded), Softlogic Insurance Rs 70.5 million (one million shares traded) and JKH Rs 62 million (400,000 shares traded). During the day 97 million share volumes changed hands in 21800 transactions.

Based on IMF staff analysis, fiscal consolidation necessary to bring debt down to safe levels would require excessive adjustment over the coming years, pointing to a clear solvency problem.

Releasing the Country Report No. 2022/091: Sri Lanka: 2021 Article IV Consultation, the IMF staff said that a more ambitious adjustment, required to significantly reduce debt, would put Sri Lanka even further into the upper tail.

Yesterday, the Central Bank announced the official US dollar rate. The buying rate was 288.74 and the selling rate was Rs 298.99. These rates came into being following the free float of the rupee as against the dollar, initiated by the Central Bank.

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