Rupee still not out of the woods 0 808

By : Kenneth De Zilwa

The USD/LKR has halted its slide temporarily. The main factor had being CBSL “Moral Suasion” and regular intervention in the spot market.  Despite these measure the external environment vulnerability had seen the currency slip by 19pct in 2018.

USD-&-LKR
Source: Thomsonreuters

 

The analysis below indicates the rupee weakness over the past 2 years. Thus we continue to believe that the overall trend of a stronger Dollar viz a viz the LKR would continue in 2019.

The Central Bank has made it position clear as they are going stick to an exchange rate policy of cautious intervention at times of excessive volatility in the forex market, Central Bank Governor Dr. Indrajit Coomaraswamy said on 4th January 2019 at the launching of the economic road map for 2019.

Recommendation by Econsult – Stay long Dollars and use opportunity of selling by the CBSL / Moral Suasion to buy Dollars on dips

Forward Market Quotes For USD/LKR- FWD prices must be used in pricing of Cost of sales

FWD price = Spot + Premium

Forward-Price
Source: Thomsonreuters

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Sri Lanka in a Transforming South Asian Economic Landscape (Data as at 2018) 0 852

SL in Transform

 

  • India remains the Global leader and among the fastest growing economies of the world with a population of 1,316 Mn and USD 2,689 Mn.
  • Bangladesh with 162 Mn people with a GDP of USD 286 Bn has also sustained high economic growth in recent times.
  • Pakistan With a population of 199 Mn people and economy of USD 306.0 Bn GDP has slowed down its growth momentum, but remains a potentially important player in the region.
  • Nepal with a population of 29 Mn and an economy of USD 28 Bn sustains 6 percent growth in GDP in its transition to a lower middle income country.
  • Bhutan and Maldives with smaller in terms of population as well as GDP sustain near 7 percent growth in their respective GDP. Maldives commands the highest per capita income status in South Asia  while Bhutan commands one of the happiest country in the world,
  • Sri Lanka with 21 Mn people and a GDP of USD 92 Bn have lost its growth momentum and its development drive in recent years although it is still commanding the highest per capita income of around USD 4,000 in South Asia next only to Maldives.
  • Afghanistan with 30 Mn population remains as one of the poorest economies in the world with 2.5 percent growth in GDP and South Asia.   

 

Source : IMF – World Economic Outlook 2018 and Country Economic Updates
Source : IMF – World Economic Outlook 2018 and Country Economic Updates

By: BiZnomics Special Economic Correspondent

The Price We Pay For Not Understanding The ‘Price’ 0 798

In the book titled ‘Marx’s ‘Theory of price and its Modern Rivals’, Sri Lankan born and educated Prof. Howard Nicholas exposes the flaws in the many theoretical debates in money, price and inflation. This he does by revealing the inconsistencies and contradictions in economic theories submitted to explain price. This is nothing new in Sri Lanka and many developed countries attributable to the fact the certain economists, due to a false understanding, are misled on what price is all about. Therefore, let us examine this false interpretation and try to understand the real parts that from PRICE which we play in commerce.

According to Prof. Nicholas, Orthodox economists starting with David Ricardo have not quite understood the concept of ‘price’ and how it is computed. He argues that the explanation of price by Marx, who had a deep understanding of the capitalist system, is more logical and clear. To understand Price we have to first understand how commodities bearing a price tag are produced and marketed. Prof. Nicholas who refers to this process as the- Production Cycle’ explains that present day economists go astray since at the outset they focus only on the process of exchange, assuming individuals are naturally endowed with commodities. This mistake causes them to ignore cost of production and focus on individuals and their choices when explaining prices.

A second important point made by Prof. Nicholas in his book is that when explaining price, from the outset we need to bring money into the picture. This is, to explain prices as money- prices. When products calculate the values of their commodities, they do so in terms of money thereby setting money prices. Buyers of goods in markets make payment in accordance with these money- prices. According to economic orthodoxy, the prices that matters are relative prices. That is, the price of one product in terms of another and not in terms of money. In fact, although this may not be so apparent when reading standard economics text books, money has no role to play in the basic explanation of prices. It only makes its appearance when macro-economic phenomena, in particular the aggregate level of prices are considered.

The third major argument prof. Nicholas advances is that the basis for explanation of cost of production of the commodity as its money cost of production, needs to be seen as the labour time spent in production. This is what Marx referred to as the value of commodity. Labour time spent in production amounts to money costs, when money represents labour time by itself. This happens when money is used by producers, to depict the value of the product. The importance of explaining prices is perhaps best been by producers, to depict the value of the product. The importance of explaining prices is perhaps best seen by the present downward pressure on global prices, resulting from the massive technological change across the globe. Despite unprecedented levels of printing of currency by Central Bank of major countries, world inflation rate has continued to fall down. This underlines the importance of labour productivity in explaining price, and the incorrect explanation of money and price by economists. It may also be the clearest practical support for Marx’s price theory as seen by Prf. Nicholas

By : Dr Kenneth De Zilwa