LKR forecasted between Rs.240-270 against US$ by year-end on heavy debt repayments, rising imports

• FCR estimates LKR value ranging Rs.230 & 245 by 1H’22
• But expects envisaged bilateral inflows estimated at US$ 6.4bn to provide lifeline
• SL has US$ 6.4 bn in Fx liabilities for remainder of 2022
• FCR says floating currency would help remittances to recover
• Tourism inflows projected at US$ 2.12bn for 2022
• Harvard Medical Professor says it’s time to move on from pandemic

First Capital Research (FCR) said the current pressure on the foreign exchange rate if released by way of a floating, would resul t in a steeper depreciation and estimated the value of the rupee between Rs.230 - 245 in 1H22 against the US dollar and Rs.240 - 270 by the year-end, translating into a 33 percent depreciation. Explaining the reasons for the larger than usual range, the research house said it was due to the significant macroeconomic weakness, extreme uncertainty and lack of policy direction.

“Sri Lanka’s lower foreign reserve position and high f o r e i g n c u r r e n c y d e b t repayments are the primary concerns for the significant weakness in the currency. The rise in imports despite the ongoing import restrictions is an added concern,” FCR said in their Investment Strategy report for 2022.

Sri Lanka’s rupee is fixed at Rs.199 - 203 to a dollar but the parallel rates operate in the north of 240 levels. Nevertheless FCR said an expected currency float would also support the recovery of the remittances, which sank to a 10-year low last year.

They estimate the worker remittances to reach US$ 6, 726 million in 2022 from US$ 5,500 million in 2021 under a floated exchange rate scenario. While the Balance of Payments would continue to remain in deficits, potentially reaching an estimated US$ 4.5 billion in 2022, the independent research house said the expected bilateral inflows to provide some lifeline

While Sri Lanka has already or nearly received US$ 1.9 billion worth Indian relief package, FCR projects another US$ 2.0 to US$ 3.5 billion worth financial assistance from Japan and elsewhere bringing the total for the year up to US$ 6.4 billion.

Sri Lanka has an estimated US$ 6.9 billion worth foreign debt repayments for 2022, of which a US$ 500 million sovereign bond was settled in January, leaving US$ 6.4 billion for repayment in the remainder of the year.

Besides, the research agency also estimates tourism to gradually recover to generate US$ 2,120 million in 2022 before fully recovering to US$ 4, 897 million in 2024.

However, there is also potential for a faster recovery if pent-up demand for leisure travel materialises and if the virus is increasingly proved to be milder and fades away in the next few months.

On Friday, a Harvard Medical School Professor, Dr. Stefanos Kales said the pandemic protocols that ignore the economy are a, “big mistake,” and it is time to let the young, healthy and “anyone who wants to move on” from the pandemic to do so.

In a paper published on LinkedIn in January he said for the majority of children and adults, “Covid-19 is not a serious threat, only a nuisance that impedes schooling, work and travel.”

Dr. Khales said that many of the current protocols are from medical professionals who only focus on infectious disease rather than public health. “Public health is balance,” he stressed. He said it is time to stop or dramatically reduce testing of healthy people who show no symptoms, a strategy, which he called “ doomed to failure”.

“As expressed by another physician I recently heard on the radio, it is like trying to stop a snowstorm by catching each and every snowflake, rather than keeping the roads open by plowing,” he said.

“We would never screen well people for the cold or flu virus. Let’s stop testing healthy kids in schools and universities,” Dr. Khales added. “ I think public health people should give recommendations but people who are elected should ultimately decide what to do. Certainly they have to be balanced and we have to consider recommendations from all sides,” he said on CNBC last week.

While adding that vaccines “are excellent”, in saving many lives, preventing hospitalisation and illness, he said vaccinated people are fearful of getting infected and they are overestimating the danger that COVID poses to them. Recalling younger vaccinated people telling him that they are still uncomfortable dining inside restaurants, he said, “ I just think that the risk perception here is way off”.