Due to the global financial crisis, many foreign investors who have invested in development markets repatriated their short-term investments back to their countries for meeting rising liquidity requirements. Sri Lanka has not been an exception. With the increased outflow of foreign exchange coupled with declined inflows due to a lower demand for exports, there was pressure on the exchange rate to depreciate amidst virtual drying up of credit lines, according to the Central Bank 2008 report.
The combined effects of the crises are expected to affect government revenue due to lower imports, profits, economic activities, etc. Limited external and domestic financing also constrain the ability to finance a higher budget deficit.
The financial system of the country has been robust and not been directly affected significantly by the global crisis. However, as a result of the crisis, Sri Lanka has lost external reserves and a likely to face balance of payment difficulties unless a substantial inflow of foreign exchange is ensured. In this context, the country has implemented several measures including the promotion of investments in government securities by the Sri Lankan Diaspora, arranging swap facilities and providing bonus interest on NRFC and RFC accounts. These will be further strengthened by the pending Stand-by Arrangement with the IMF which will build up confidence internationally on the debt repayment capacity of the country and encourage further capital inflows while ensuring fiscal consolidation as envisaged by the government.
Several project have been already identified in the comprehensive public investment programme of the government ‘Randora’ to be implemented in the northern province (NP) such as the construction of the Mannar Bridge at a cost of Rs.2,116 million and the Jaffna Water Supply Scheme costing Rs.11,800 million. In 2009, allocations have been provided for the development activities in the NP through different ministries, the Central Bank said.
In order to restore the livelihoods of the people, various incentive schemes are to be implemented covering fishing and agriculture, agriculture processing, palmyrah, coconut and cashew plantations with a major focus on rural based micro-industries in the medium term.
Measures will also be taken to exploit the wide range of natural resources in the NP. Accordingly, the re-establishment of the major factories such as the Cement Factory in Kankesanthurai and Chemical Factory at Paranthan will be expedited.
Commodity Hedging: Risks for buyers
and sellers
The principle of suitability casts upon the seller the responsibility of ascertaining the appropriateness of the buyer of a product before entering into a formal deal with him. Since many financial products and derivatives are complex in nature, not all buyers could adequately assess the risks they are taking when buying such products.
In view of the fact that such derivative products are of high value, the resultant losses to buyers could also be substantial. Hence, it is the responsibility of the seller to make the buyer ‘suitable’ to enter into a deal with him. In other words, the two parties to a derivative transaction should be well-informed of the risks faced by each other and participate in the deal as equal partners, the Central Bank said on hedging. |
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