Sri Lanka says 2022 profits not finalised

Sri Lanka’s Central Bank is yet to finalize its profits for 2023, with Governor Nandalal Weerasinghe indicating that the decision on whether to transfer the profits to the government will be made after the balance sheet has been finalized, audited, and considered by the Monetary Board under the provisions of the Monetary Law Act.

As of now, the Central Bank holds about 2.5 trillion rupees worth of securities, which are paying around 30 percent. The bank also earned 15.5 percent from overnight lending to banks, however, lost 14.5 percent from money parked overnight.

The founder of the Central Bank, John Exter, had a different vision for the bank, intending for the peg with gold and the US dollar to limit the liquidity injections. Exter believed that within the limitations, the Central Bank should have the power to control the money supply while considering both the domestic and international stability of the rupee.

A profit transfer to the government would result in additional liquidity in the country’s banking system, however, Exter warned of the inflationary effects that such payments could have on the economy. Exter also stressed that a profit transfer should only be settled against existing state obligations to the Central Bank.

Unfortunately, these warnings were ignored, and the current inflationary policy cycle began with a profit transfer of 22 billion rupees in February 2020. The Central Bank’s foreign assets are now negative, with balances borrowed from India, Bangladesh, and the IMF, used to defend an artificially low policy rate.

Exter warned that Sri Lanka, being an export-oriented nation with a shortage of capital equipment, could face serious balance of payments difficulties if it pursued policies that raised domestic prices without an adequate response in domestic output. He also emphasized that Sri Lanka should not uncritically adopt policies from Keynesian economics.

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