Spotlight: Econ Op-eds in Summary (Week ended 28th July' 21)

21-7-29

Snapshots


1. CBSL restrictions imposed on LCBs

By: Tennakoon Rusiripala


  • The CBSL imposed restrictions on the repatriation of profits for foreign commercial banks and suspended discretionary dividend payments, share buybacks and outlined restrictions to curtail non-essential expenditure for LCB’s and LSB’s. These guidelines came into effect on 1st July 2021 and are set to last till 31st December 2021 and were imposed by the CBSL to help ease foreign exchange pressures of the country.


  • Prior to this, the President had issued directives to SOE’s to prevent wasteful expenditure. These however, failed to bring about the effect required, and the CBSL has now stepped in to monitor restrictions it has imposed. A recent COPE inquiry details instances where state banks sidetracked compliance procedures using deceptive tactics. Such tactics were also witnessed in two State banks in the 90’s as uncovered by an international audit firm.


  • There has been criticism levied against certain banks on fraudulent lending practices and that the current loan loss provisioning criteria is not being adequately recognized, where certain advances should have been transferred to the non-performing category. The CBSL needs to keep a watchful eye for  such issues within the banking sector, especially that of tax violations, which take place to a large extent within the sector.


Read More – Refer Daily FT


2. How will the economic crisis be resolved?

By Nimal Sanderatne


  • Sri Lanka is currently experiencing severely low foreign reserves amidst upcoming debt payments. Adding on to these existing woes, the recent policies which are not quite favorable towards the agricultural industry is threatening food shortages and requirements for food imports. With low reserves there could be severe shortages on medicine. Fuel costs are likely to increase due to the increase in global fuel prices.


  • With the current economic situation of the country, there are three possible options to choose; a makeshift arrangement to borrow from countries or come to currency arrangements, borrow short term at high cost by issuing International Sovereign Bonds or obtain assistance of the IMF by coming to an extended fund facility.


  • There is significant resistance by the government, central bank and economic advisors towards going to the IMF. The IMF facility would reject the current stringent import controls and most importantly, come to an arrangement for a phased reduction of the current massive fiscal deficit. Such fiscal consolidation would be in the interest of economic stability and growth that are the stated objectives of the Central Bank.


For full article – Refer The Sunday Times


(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. The bullet points provided for each summarised opinion article is written by Frontier Research and has no connection to the respective author. Furthermore, the information contained in these reports/emails are confidential and should not be shared publicly. Disclosure, copying and distribution is strictly prohibited.