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45th SAARCFINANCE Governors’ Meeting and Symposium

The Central Bank of Sri Lanka hosted the 45th SAARCFINANCE Governors’ Meeting and Symposium during 13-14 June 2024 in Colombo. The event was attended by the Governors, Finance Secretaries, and other delegates from the Central Banks and Ministries of Finance in the SAARC region.

The SAARCFINANCE Governors’ Symposium, themed “Central Banking amid Multi-faceted Global Economic Challenges,” was held on the first day of the event. Honourable Ranil Wickramasinghe, the President of Sri Lanka and Minister of Finance, Economic Stabilisation, and National Policies, graced the inaugural ceremony and delivered the keynote speech. In his address, the President emphasised the importance of strengthening regional cooperation to tackle contemporary economic challenges and promote growth. He also reiterated the need for monetary and fiscal stability and highlighted the efforts being taken to strengthen the legal framework to ensure lasting stability in the country. The Secretary General of SAARC, Ambassador Md. Golam Sarwar also attended the inauguration.

IMF Executive Board Concludes 2024 Article IV Consultation with Sri Lanka and Completes the Second Review Under the Extended Fund Facility

The IMF Executive Board completed the 2024 Article IV Consultation and Second Review under the 48-month Extended Fund Facility with Sri Lanka, providing the country with immediate access to SDR 254 million (about US $336 million) to support its economic policies and reforms.

Performance under the program has been strong. All quantitative targets for end-December 2023 were met, except the indicative target on social spending. Most structural benchmarks due by end-April 2024 were either met or implemented with delay. Nevertheless, the economy is still vulnerable and the path to debt sustainability remains knife-edged. Sustaining the reform momentum and efforts to restructure debt are critical to put the economy on a path towards lasting recovery and debt sustainability.

The Article IV Consultation focused on wide-ranging reforms to restore macroeconomic stability and debt sustainability, maintain price stability, safeguard financial stability, rebuild external buffers, and implement growth-oriented structural reforms, including by strengthening governance.

Central Bank of Sri Lanka to Function as the Regulatory and Supervisory Authority of Money or Value Transfer Service Providers

Currently, institutions providing money transfer services in Sri Lanka such as banks and non-bank financial institutions, are regulated by the Central Bank of Sri Lanka (CBSL) or other relevant authorities to ensure financial system stability. However, some entities providing similar services operate outside the formal system, potentially disrupting the money transfer system and not being subject to Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulatory framework.

To address this, the Minister of Finance, Economic Stabilization, and National Policies issued the Money or Value Transfer Service (MVTS) Providers Regulations, No. 1 of 2024 dated April 20, 2024, under the provisions of the Payment and Settlement Systems Act, No. 28 of 2005. Accordingly, effective from June 3, 2024, these regulations require all MVTS providers to be registered and be monitored, offering unregistered or unlicensed MVTS providers the opportunity to formalize their operations and engage in the money transfer business through formal channels.

CCPI based headline inflation decelerated in May 2024

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decelerated to 0.9% in May 2024 from 1.5% in April 2024. This deceleration in the headline inflation is broadly in line with the projections of the Central Bank of Sri Lanka (CBSL).

Prices of the items in the Food category, on year-onyear basis, remained unchanged in May 2024 (i.e., 0.0% Food inflation (Y-o-Y) in May 2024 compared to 2.9% in April 2024). Nevertheless, Non-Food inflation (Y-o-Y) accelerated to 1.3% in May 2024 from 0.9% in April 2024. On a month-on-month basis, inflation continued to decline. Accordingly, monthly change of CCPI recorded -0.57% in May 2024 due to the price decreases of 0.37% observed in the items of Food category and the price decreases of 0.20% observed in the items of Non-Food category. Meanwhile, core inflation (Y-o-Y), which reflects the underlying inflation trends in the economy, accelerated marginally to 3.5% in May 2024 from 3.4% in April 2024.

Sri Lanka Purchasing Managers’ Index (Construction) - April 2024

Following the seasonal pattern where activities across many sectors slowdown during the traditional new year celebrations, Sri Lanka Purchasing Managers’ Index for Construction (PMI - Construction) decreased to an index value of 31.9 in April 2024. This indicates a contraction in construction activities compared to the previous month. As per the respondents, most construction sites were temporarily closed during the month due to the extended new year holidays, leading to this month-on-month decline.

External Sector Performance - April 2024

Exports increased more than imports (y-o-y), reducing the trade deficit in April 2024. However, cumulative trade deficit for Jan-Apr 2024 widened.

The momentum in tourism continues, though tourist arrivals slowed in April 2024 in line with the seasonal pattern.

Inflows to the other services sectors also remained strong in the first four months of 2024.

Workers’ remittances continued to contribute notably to the external current account and forex market liquidity.

Foreign investment outflows from the government securities (G-Sec) market continued in April 2024.

Gross Official Reserves stood at US$ 5.5 billion at end April 2024, recording over US$ 1 billion increase from end 2023.

The Sri Lanka rupee remained appreciated during the year up to end May 2024.