Economy Forward

  Background of the article The new government that has been labelled as the conventional leftist has chosen the IMF-Dollar debt based restructuring of the economy. This is intended to enter the dollar-based international capitalism as the country's new growth model.  Last two days, the govt. announced two new policies of seeking government efficiency, primarily through restructuring of 166 non-commercial state institutions, and Clean Sri Lanka through the state and private sectors.  The govt efficiency policy is clear from the Cabinet meeting held 19th  (Download the short video here)  and the President's speech on the status of public service yesterday  (Download the short video here) . Meanwhile, the whole US November 2024 Presidential election campaign of Donald Trump with the support of Elon Musk primarily promised two policies, i.e., to boost the Dollar to be the global reserve currency again and setting up a department of government efficiency t...

  Article's background I happened to read a meaningful opinion published in the Ethiopian paper "Capitol" regarding the IMF programme for Ethiopia. (Read the article here) .The article is reproduced below for easy reference. The design of IMF programes for all countries hit by foreign currency crises is almost same except the popular economic numbers of respective countries. The reason for the same design is the IMF's peculiar approach to the macroeconomic management of countries as highlighted below. The IMF believes that all economic ills under the sun and moon are because of the excessive budget deficit and debt. Accordingly, inflation, high interest rates, BOP deficit, currency depreciation, low growth and business investment and debt unsustainability are all direct results of the continuing budget deficit. Therefore, the IMF stabilization program has five essential elements. A medium-term loan to boost the foreign currency reserve for the time being.  Conditions ...

  Article's purpose This articles highlights the falsehood of clarifications given by the central bank (CB) on public concerns raised over its OMO (Open Market Operations) money printing operations. Such clarifications are covered in a speech of the CB Governor (see the video here) , the media interview of the OMO Head  (see the interview)  and a press release on 29th October (Read press release here) . However, new concerns are raised with the request to discontinue this kind of infusion of excess OMO liquidity. CB's clarifications Followings are the key points made by the Governor. The CB did not print money to fund the government as the new law prohibits direct lending to the government. OMO/monetary policy operations are similar to those of all central banks in the world. The CB estimates liquidity of the banking sector daily, weekly and monthly and carries on OMO accordingly to provide liquidity arising from bank lending operations. OMO are used for keep the cal...

  Article's purpose and background The purpose of this article is to  compare Sri Lankan monetary policy model with the Fed's monetary policy model in the current context and raise fundamental concerns over Sri Lankan policy model why it fails to support the recovery of the economy. The Fed's rate cut of total of 75 bps so far to 4.50%-4.75% with 25 bps today (7 November) and a jumbo cut of 50 bps in September confirms the global rate cutting cycle ( see the policy statement hare ) .  The Bank of England (BOE) (now at 4.75%) and Swedish central bank (now at 2.75%) also added another 25 bps today to their cutting cycles. European Central Bank (ECB) has delivered a 110 bps cut since June (now at 3.65%). All confirms a soft landing in respective economies, i.e., bringing inflation back to 2% target without any adverse impact on growth and unemployment (see two charts below). On the sidelines of the IMF-World Bank meetings last week, Sri Lankan central bank Governor stat...

  Article's purpose and background The purpose of this short article is  to provide highlights on central bank (CB) monetary policy operations during 1st three quarters of 2024, raising serious concerns over deflationary economy in years ahead and monetary policy failure to maintain the domestic price stability and to recommend  an emergency rate cut of at least 200 bps and a timely injection of fresh reserves of at least Rs. 3 trillion in years ahead to promote a fair distribution of credit across priority sectors such as exports and domestic foods to recover the economy before the second round of default possible in 2028 consequential to the commencement of foreign debt service on restructured terms. However, finding the leadership with capacity and energy to understand and implement the recommendation above is extremely difficult in the present IMF economic governance system. Leading highlights are as follows. Early signs of the economy being pushed to a deflation...