The Editorial Courtesy The Island

Despite some reassuring noises from the Central Bank, the rupee keeps depreciating and the repercussions across the national economy must necessarily be pervasive. We’ve already had a fuel and gas price increase and given the way the global oil markets are behaving, it is unlikely that local prices will remain frozen at current levels over any length of time. They are most likely to go up further. Up until now, the government has not revealed the oil pricing formula. A week ago we urged in this space that this formula be made public and predicted that if this is not done sooner than later, an application under the Right to Information (RTI) law will be inevitable. Such a formula, replete with technical jargon, will obviously not be intelligible to most ordinary people. But businessmen will need to know where the prices will go to plan for eventualities. This will not be possible if the formula is not made public. Meanwhile public transport fares, both bus and rail, have gone up. We dread to think of what the rising price of aviation fuel will do to SriLankan Airlines which has been bleeding the economy for a number of years since the Mahinda Rajapaksa government, for petty personal reasons, chose to terminate what was then a profitable partnership with Emirates.

The Colombo Stock Exchange is a barometer on the state of the economy and it has taken a heavy beating in recent months reaching a four and a half year low in the middle of last week. It looked up on Thursday and Friday and brokers reported that this reversed three consecutive weeks of downturn. But it is unlikely that the market is going improve dramatically in the short to medium term with the foreign sell-off continuing. While there are some hopes that a return to the market by the EPF, now being talked about but with no firm dates set, will improve the situation. The exchange rate and political uncertainties connected with upcoming elections will most likely continue to keep foreign investors who were a major prop on the CSE out of the market.

National Development Bank (NDB) recently floated a rights issue, priced at Rs. 105 a share which closed under-subscribed last week. The bank was issuing new shares in the proportion of one new share for every three held to its existing shareholders. State agencies were among the lead shareholders of the bank holding considerable stakes. Whether or not they had subscribed to their rights will be known shortly. The 105-rupee price was way below the net asset value per share which ran over Rs. 190 for the year ended Dec. 31, 2017, the last full year for which the bank had published its accounts. Although the NDB share, like most others, was caught up in the share market downturn soon after the rights issue was first announced, there was even then a comfortable premium favoring the rights issue price vis-a-vis the then prevailing secondary market price the share commanded on the CSE. So much so, the bank’s directors did not see the need to spend money underwriting the issue which has fallen short of the approximately Rs. 6.1 billion targeted. By the time the issue closed on October 4, the NDB share had fallen below the rights issue price.

NDB is one of the stronger banks in the country with the Bank of Ceylon as its lead shareholder. Though banking profits in recent years have been spectacular with prices of commercial banking shares shooting up, even these blue chips have taken a heavy beating in the current share market downturn. There is no doubt that the NDB rights issue was badly timed. But saying so now is wisdom after the fact. Shareholders of privately controlled commercial banks like Hatton National Bank and Sampath (that had two rights issues in quick succession) did very nicely out of these issues priced way above that of NDB and were fully subscribed. That, of course, is if they realized profit when the time was right. If they did not and held on to their shares hoping for a further appreciation and bigger capital gain, the market has moved against them.

The government has taken a raft of measures to stem the outflow of foreign exchange to fund imports but these came much later than they should have. It was in 1732 that Alexander Pope famously said in his “An Essay on Man” that “hope springs eternal in the human breast.” People and governments too often postpone difficult decisions in the hope that the situation would improve. Nobody would seriously doubt the proposition that we have far too many privately owned vehicles for a country of our size and resources. Part of the reason for this is the thoroughly inadequate public transport system that incentivizes people to get a vehicle of their own, be it a three-wheeler, motor car or motorbike. While import duties on vehicles have been prohibitively high, succeeding government had sweetened the pill for certain privileged categories including public servants and MPs with concessionary or duty free permits, most of which have been sold at mind-boggling profit. These have now been ‘temporarily’ suspended after nearly all the MPs – the PM and Speaker have been exceptions we’re told – have utilized their entitlements and the media has seized on this with glee.

While the government targets higher revenue, little if anything has been done to eliminate waste and profligacy in the public sector as pointed out by the JVP last week. Tax money is spent with gay abandon on extravaganzas that are obscene in the context of the hardships ordinary people have to face every day. These can only become worse with the decline of the macro economy.