Economic

Sri Lankan shares are set to open up next week afresh after ending a record-breaking month of July, stock market analysts said. The improvement of the external sector performance, local exports, lower interest rates and decrease of imports created some positive investment sentiment, they pointed out.

The retail market participation in stock trading has been improved significantly during the month of July, analysts said. Sri Lanka’s All Share Price Index (ASPI) has increased by 620 points for the month of July 2019 taking the ASPI from 5372.28 points to just under 6,000 points, closing on a 6 month high.

Finance Minister Mangala Samaraweera said that growth during this period amounted to 11.6% outperforming all major global stock indices.

Sri Lanka’s S&P20 Index has performed particularly well during this period growing 22% in the month, taking the index from 2,450 points to 3,051 points.

The market has responded to the improvement in macroeconomic stability as inflation declined to 2.1% in June, interest rates (1 year TB) declined by over 250 basis points this year.

Tourism and consumption is recovering quickly after Easter Sunday attacks, and the Rupee has appreciated 3.7% this year as the trade deficit has declined rapidly. The return of the EPF to the equity market, under prudent governance structures, is another boost to the equity market, stock market analysts said.

The Monetary Board of the Central Bank of Sri Lanka (CBSL), acting in terms of the regulations made under the Registered Stock and Securities Ordinance and the Local Treasury Bills Ordinance, announced that they have decided to extend the suspension of business and activities of the Primary Dealer Unit of Pan Asia Banking Corporation PLC (PABC) for a period of six months with effect from 10.00 a.m. on 15th February 2019, in order to continue the investigations being conducted by the Central Bank.

CBSL emphasised that this regulatory action suspends PABC’s access to the primary auctions for government securities. Furthermore, it does not affect any of the other activities/services of PABC.

Sri Lanka’s authorised money changers numbering around 65 in Colombo and suburbs have come under Central Bank scrutiny following allegations that they are siphoning off vast amounts of foreign currency.

Authorised dealers are required to hand over the foreign currency they buy to the Central Bank and obtain proceeds in Sri Lankan Rupees.

As part of the investigations, Central Bank officials in disguise are visiting authorised money changers to check whether they are involved in illegal transactions.

These investigations followed complaints that authorised money changers who were only allowed to buy foreign currency and deposit it with the Central Bank were involved in major rackets and financial misappropriations.

Under existing laws authorised money changers should deposit a minimum of US dollars 1.5 million a year with the Central Bank.

A senior treasury official said it had been revealed that the foreign exchange brought into the country was not being fully contributed to the national reserve as part of the money was smuggled out of the country.

Therefore, the Central Bank will take stern action against unauthorised money changers and errant foreign exchange dealers.

However, Authorised Money Changers Association claimed that they were finding it difficult to continue with the business as there were several unauthorised money changers and no action was being taken against them.

He said there were only 65 authorised money changers, but there were a large number who were operating without a licence.

He denied allegations that the authorised money changers were involved in large scale foreign currency rackets.

The Central Bank annually receives more than Rs. 7 billion from money changers.

The Monetary Board of the Central Bank of Sri Lanka (CBSL) has decided to reduce decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) with the aim of stabilising inflation and to stimulate economic growth, The CBSL announced.

The decision was taken at its Monetary Board meeting held yesterday (30).

Accordingly,the SDFR and SLFR of the Central Bank has been reduced by 50 basis points to 7.50 per cent and 8.50 per cent, respectively.

"The Board arrived at this decision following a careful analysis of current and expected developments in the domestic economy and the financial market as well as the global economy, with the broad aim of stabilising inflation at mid-singledigit levels in the medium term to enable the economy to reach its potential," THe CBSL said.

A dovish approach to monetary policy is observed globally

Driven by a number of factors such as increased trade tensions, weakened business confidence and softened external demand, a slowdown in global economic growth is observed.

"This has prompted key advanced economies to become increasingly dovish, while several emerging market economies have also relaxed their monetary policy stance to support economic activity, given subdued inflation pressures," CBSL said.

Following the modest growth in 2018, the economy is expected to have grown at a higher pace during the first quarter of 2019, mainly due to improved performance in Agriculture and Industry-related activities.

However, the Central Bank added that the Easter Sunday attacks have affected confidence and sentiments of economic agents, particularly disrupting tourism and related activities.

Dr. Hiroto Izumi, the Japanese Prime Minister’s Special Advisor, reaffirmed his Government’s commitment to develop the East Container Terminal of the Colombo South Harbour as a joint venture partnership of Sri Lanka and India, at a meeting he had with Prime Minister Ranil Wickremesinghe recently.

Prime Minister Wickremesinghe met Dr. Hiroto Izumi, the Japanese Prime Minister’s Special Advisor, Akira Sugiyama, Ambassador of Japan and his team at Temple Trees.

“We made great progress on Japan- Sri Lanka economic cooperation,” the Prime Minister said.

“The East Container Terminal of the Colombo South Harbour will remain under the ownership of Sri Lanka, while there will be a joint venture with the partnership of Sri Lanka, India and Japan to manage the terminal. The Bandaranaike International Airport expansion project will also receive Japanese assistance. The light Railway Transit (LRT) project is now underway,” Prime Minister Wickremesinghe said.

“A LNG terminal will be built in Sri Lanka with Japanese assistance. Under the Greater Kandy Urban Development Plan, the City of Kandy will be developed with an aim to preserve the landscape and attract tourists, in line of the master plan developed for the City of Kyoto, Japan,” the Prime Minister Wickremesinghe further added.

During the meeting, the two sides also discussed the freedom of navigation in the Indian Ocean.

Finance Minister Mangala Samaraweera, Kabir Hashim, Malik Samarawickrema, Sagala Ratnayaka and Prime Minister’s Secretary Saman Ekanayake and Treasury Secretary Dr. R. H. S. Samarathunga were also present at the meeting.

Sri Lanka is planning to raise up to $1.5 billion via sovereign bonds, tapping global capital markets for the second time within three months, a government document showed on Thursday.

Government officials said the move was to capitalize on favorable market conditions. It comes nearly six weeks after suicide bombers killed more than 250 people in attacks at churches and luxury hotels on Easter Sunday.

That attack has badly dented the Sri Lankan economy, in particular deterring many thousands of foreign tourists from coming to the island.

“This is mainly to capitalize on the current market conditions which is favorable for us. The bonds we sold in March are now trading below or near the yields they were sold,” a government official told Reuters.

Sri Lanka is in talks with the Beijing-backed Asian Infrastructure Investment Bank for a $1 billion dollar loan, the finance ministry said, to help an economy that has been badly hit by a deadly terrorist attack and political turmoil.

“We have been discussing with the Asian Infrastructure Investment Bank to obtain nearly an additional $1 billion for further development of the Power and Highway sectors,” the ministry said in a statement late on Thursday.

The ministry said that the bank also approved $280 million for a renovations in the capital Colombo.

The ministry said that there are projects worth around $271 million being carried out across the country to boost growth.

Sri Lanka has been beset by political infighting since President Maithripala Sirisena sacked Prime Minister Ranil Wickremesinghe in October last year, before reinstating him weeks later after a constitutional crisis that hit the economy.

More recently, the lucrative tourism industry was badly hit after the Easter Sunday bomb attacks by Islamic militants that killed 250 people.

Sri Lanka’s economy grew at 3.7 per cent, its fastest pace in nearly a year from January to March, accelerating from a growth rate of 1.8 per cent the previous quarter – its slowest pace since early 2014, due to the political crisis.

But despite the recovery at the start of the year, growth will likely slump to a nearly two-decade low in 2019, a Reuters poll showed, as tourism, foreign investment and business activity eased sharply in the wake of the bombings.

Last month, central bank Governor Indrajit Coomaraswamy said he expected the economy to grow by 3 per cent or less this year, due to the impact of the bombings.

The bank had earlier projected 4 per cent growth.

The Colombo Port container volumes indicates an increase in the month of April 2019 by 9.1% compared to the same period last year. Together with the Jaya Container Terminal (JCT), South Asia Gateway Terminal (SAGT) and the Colombo International Container Terminal (CICT), the Port of Colombo’s cumulative Volume has increased by 5.9%.

In April 2018 the Colombo Port had handled a total of Transshipments volume of 441,437 TEUs that has increased up to 482,910 for the same period this year. Accordingly, with the increase marked at SLPA and other terminals compared from January to April 2018, the Port of Colombo Transshipment Volumes have marked an increase of 8.6 %. The container throughput at the Sri Lanka Ports Authority (SLPA) controlled terminals has also been increased significantly by 10.5% .

The Port of Colombo is ranked the world’s No.01 container growth port among the top 30 container ports for the year of 2018 in container handling. It has also recorded a 13.5% growth for the year 2018 over the same period of the previous year reaching to 22nd from the position of 23rd amongst global container ports, according to Alphaliner Monthly. It is also a significant achievement as it is the first time in history the Port of Colombo has topped a global maritime ranking. With this growth, Port of Colombo has leapt ahead many other Asian;Middle Eastern and European Ports. The latest release of Drewry Port Connectivity Index also ranked the Port of Colombo as the 11th best Connectivity Port in the world for 2018.

While commending the consistent growth in numbers, Minister of Ports and Shipping Sagala Ratnayaka said the SLPA has also focused on fast-tracking strategic decisions pertaining to the expansion of the Colombo Port’s capacity. “Only such decisions,” the Minister said, “would ensure that our growth is sustainable. The key focus of the SLPA at this point in time is to expedite processes relating to the expansion of the Colombo Port.”

Sri Lanka Ports Authority (SLPA) won the Ports Authority of the Year 2019 Award by the Global Ports Forum (GPF) for the second consecutive year at the GPF awards ceremony 2019.

The relationship between the Management and representative bodies of workers, collaborative support by all parties and the wide engagement of all stakeholders have effectively contributed to the SLPA’s success.

Sri Lankan shares ended marginally higher on Monday, hovering near a six-week high hit last week, as trade turnover touched a more than four-month high amid continued foreign fund outflows, while the rupee ended weaker on dollar demand from importers.

The benchmark stock index ended 0.02% firmer at 5,384.93, steadying near its highest close since May 3 hit on Thursday. The bourse rose 1.61% last week but it has fallen 11.03% this year so far.

The Central Bank cut its key interest rates on May 31 to support a faltering economy as overall business and consumer confidence slumped following deadly bomb attacks in April.

(Reuters)

Sri Lanka's black and green tea exports to China has risen sharply so far this year with Chinese youth acquiring a taste for Sri Lanka's popular Ceylon tea, Sri Lanka Tea Board Chairman Lucille Wijewardena said here Wednesday.

In an interview with local media EconomyNext, Wijewardena said that in the first quarter of this year, almost 2.8 million kg of Ceylon tea were exported to China, up 210,300 kg or 8.2 percent from a year ago.

"These numbers are huge. And this is a great opportunity for our industry as we are now open to a market with the highest population in the world," Wijewardena said.

Wijewardena attributed the surge in tea exports to China mainly to Chinese youth developing a liking for consuming black tea with milk.

China was the seventh highest export market for "Ceylon tea" in March this year, ahead of other key markets like Syria, Germany and Japan.

He added that Sri Lankan tea carries a premium quality image, which attracts higher demand and global recognition.

Sri Lanka's Plantation Industries Minister Navin Dissanayake said in February that a mega global campaign would be launched this year to promote Ceylon Tea in order to boost the island's tea exports.

The global campaign will first start off in China and then in Russia, Germany, Ukraine and Japan.

Sri Lanka earned an estimated 1.43 billion U.S. dollars in 2018 through its tea exports.

Dissanayake said that with a better year expected for the tea industry, the government was targeting a revenue of 1.60 billion U.S. dollars from its tea exports in 2019. 

(Xinhua)

The Asian Development Bank (ADB), the Government of Sri Lanka, and the Regional Development Bank (RDB) on Friday signed loan and guarantee agreements to further assist Sri Lanka to provide affordable and accessible credit to rural micro, small, and medium-sized enterprises (MSMEs) in the country. Under the financial agreements, ADB will provide a $50 million loan with sovereign guarantee from the Government of Sri Lanka.

“MSMEs have high growth potential, create more jobs, and over time, potentially increase the tax base at a quicker pace than larger enterprises,” said ADB Country Director for Sri Lanka Ms. Sri Widowati. “Because of their distribution over the whole country, they also help reduce regional inequalities”.

Ms. Widowati signed the guarantee agreement on behalf of ADB while Dr. R.H.S. Samaratunga, Secretary to the Treasury, Ministry of Finance, signed for the Government of Sri Lanka. In addition, a loan agreement was signed between ADB and RDB.

With only about 30% of Sri Lankan firms having sufficient access to bank loans and other capital, limited access to finance is a key barrier facing entrepreneurs in Sri Lanka. These constraints are even greater for micro and small enterprises led by women or located in rural areas.

The project will not only directly fund $50 million of long-term financing through RDB to micro and small enterprises outside of Colombo, including women-led businesses, but will also be structured to provide RDB the additional regulatory capital that would leverage up to an additional $533 million of lending to MSMEs.

Implemented through the RDB, a state-owned bank whose mission is to strengthen the living standards of the rural population by providing affordable and accessible credit facilities; the bank’s unique business model and wider branch network across rural areas can effectively cater to rural small and micro enterprises that are mostly missed out by the private sector commercial banks.

Integral to the project is a technical assistance (TA) grant of $1 million from the Japan Fund for Poverty Reduction, financed by the Government of Japan, to support RDB’s sustainable long-term growth. The TA will upgrade RDB’s business model and directly promote gender mainstreaming through trainings to about 500 women entrepreneurs.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.

The Sri Lankan authorities have made progress to bring the Extended Fund Facility (EFF) program, under the International Monetary Fund (IMF), on track, despite 2018 being a tough year and IMF commends the measures taken to improve security with a sustained effort by all parties to improve monetary, policy and market stability to achieve higher growth following the terrorist attacks, said IMF Mission Chief for Sri Lanka, Manuela Goretti via a video conference from Washington last week.

Speaking to journalists at the IMF office in Colombo, the Mission Chief commended the efforts by Sri Lanka to advance fiscal consolidation through the well-targeted 2019 Budget.

She also commended efforts to rebuild reserves while maintaining a prudent monetary policy under greater exchange rate flexibility.

“Inflation remains anchored with prudent monetary policy management by the Central Bank,” Goretti said.

However, with regard to the implications of the recent terrorist attacks on the economy, the Mission declined to comment as it felt it is too early to assess the implication of the attacks on the economy. “It would be speculating to make assumptions at this point of time. However, we will be monitoring the situation in Sri Lanka,” the Mission Chief said while noting that meeting revenue targets will be critical as tourism, a key sector of the economy has been affected by the recent incidents.

However, according to the Mission Chief, the IMF will maintain its growth projection of 3.5 percent for Sri Lanka this year and thereafter, five percent in the medium term.

On the implications of the Easter attacks on other sectors, she said along with tourism, investor and market confidence too has been impacted negatively. The authorities need to stabilise the economy soon.

When queried about Sri Lanka’s refinancing position following the attacks, given the low ratings on the country, the Mission Chief noted that there was no major risk for Sri Lanka in refinancing as the country has successfully financed two large bonds. There is one coming in October next year. Sri Lanka is open to international capital markets.

country, the Mission Chief noted that there was no major risk for Sri Lanka in refinancing as the country has successfully financed two large bonds. There is one coming in October next year. Sri Lanka is open to international capital markets.

The global lender revised down its global growth forecast for 2019 to 3.3 percent from the previous level of 3.5 percent in its latest World Economic Outlook (WEO) as the trade war between the US and China, US sanctions on Iran and political instability across countries continue to weigh in heavily on the global economy.

When asked whether such headwinds would impact Sri Lanka’s growth, the Mission Chief said the slow down in international trade will be a loss for every economy. However, there is no immediate threat to Sri Lanka, in particular, from trade wars. Sri Lanka has already started to liberalise trade to be more competitive in international markets.

On the additional time offered to Sri Lanka, Goretti said an additional year was offered to Sri Lanka to complete the program supported by the IMF which remains broadly the same,” Goretti said. The Executive Board also approved an extension of the arrangement by one additional year, until June 2, 2020, with re-phasing of remaining disbursements.

Lanka could be taken off money laundering watch list - IMF

Sri Lanka could be taken off the Financial Action Task Force’s (FATF) ‘grey list’ of countries deemed not compliant enough with global rules to prevent money laundering and terrorist financing by the middle of this year, according to a report by the International Monetary Fund (IMF).

A team from the FATF, an intergovernmental organisation to combat money laundering and terrorist financing, is due to visit Sri Lanka this month, an IMF statement said.

The team will check Sri Lanka’s compliance with global Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) rules.
The FATF placed Sri Lanka under monitoring status, or a grey list, in 2017 saying there were strategic deficiencies in its compliance.

Earlier this year, Central Bank Governor, Dr. Indrajit Coomaraswamy said that Sri Lanka has recorded considerable progress in completing the Action Plan agreed with the FATF. “The Central Bank has taken steps to strengthen the national Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) policy framework of the country. We have also expanded our reach by way of entering into a Memoranda of Understanding with several agencies such as the Securities and Exchange Commission, Insurance Regulatory Commission and the Department of Motor Traffic. Several progressive policies will be adopted with the coordination of all stakeholders to deepen financial intelligence services,” he said in January.

The latest IMF statement said Sri Lanka has taken measures to strengthen the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime of the country.

“It is expected that Sri Lanka will be able to exit the ‘Grey List’ during the second half of 2019,” it said.

The IMF statement said, the authorities, in coordination of other stakeholders, are actively working towards successful completion of the time-bound action plan provided to Sri Lanka to address the strategic deficiencies identified in AML/CFT activities by the Financial Action Task Force (FATF).