An International Monetary Fund (IMF) mission team led by Messrs. Peter Breuer and Masahiro Nozaki visited Colombo from June 20 to 30, 2022 to discuss IMF support for Sri Lanka and the authorities’ comprehensive economic reform program. Ms. Anne-Marie Gulde-Wolf, Deputy Director of the IMF’s Asia and Pacific Department, participated in policy discussions.
At the end of the mission, Messrs. Breuer and Nozaki issued the following statement:
Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2013=100) increased to 54.6% in June 2022 from 39.1% in May 2022. This increase in Y-o-Y inflation was driven by the monthly increases of both Food and Non-Food categories. Accordingly, Food inflation (Y-o-Y) increased to 80.1% in June 2022 from 57.4% in May 2022, while Non-Food inflation (Y-o-Y) increased to 42.4% in June 2022 from 30.6% in May 2022.
Land Valuation Indicator (LVI) for Colombo District increased by 17.9 per cent on year-on-year basis to 178.7 during the second half of 2021. The annual increase and the semi-annual increase (11.9 per cent) of LVI, showed the highest increase in LVI observed since 2017.
All sub-indicators of LVI, namely Residential LVI, Commercial LVI and Industrial LVI contributed to the overall increase. Industrial LVI recorded the highest annual increase of 21.1 per cent, followed by Commercial LVI and Residential LVI.
By virtue of the powers vested under Section 19 (1) read together with section 19 (2) of the Financial Transactions Reporting Act, No. 6 of 2006 (FTRA), financial penalties are imposed on Institutions for non-compliance with the provisions of the FTRA. The penalty may be prescribed taking into consideration the nature and gravity of relevant non- compliance of the Financial Institution.
Accordingly, as Sri Lanka’s regulator for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT), the FIU collected penalties as indicated below, amounting to Rs. 1.5 million in total for the period from 1 October 2021 to 31 December 2021 to enforce compliance on Financial Institutions. The money collected as penalties were credited to the Consolidated Fund.
The Monetary Board of the Central Bank of Sri Lanka (Monetary Board) established the Advisory Committee for Revival of Failed Finance Companies (Committee) in October 2021 to examine possible revival options for five (5) failed finance companies, i.e., Central Investments & Finance Ltd., ETI Finance Ltd., TKS Finance Ltd., The Finance Company PLC and The Standard Credit Finance Ltd, of which licenses have been either cancelled or suspended. The Monetary Board has vested the Committee with the responsibility of recommending possible revival options or recommending liquidation for aforementioned five failed finance companies if such revival options do not seem feasible.
With the intention of attracting foreign currency in the hands of the public into the formal banking system, the Minister of Finance has issued an Order under Section 8 of the Foreign Exchange Act No. 12 of 2017 as follows:
i.To deposit into a Personal Foreign Currency Account or into a Business Foreign Currency Account as specified in the Order, or
Recognising the need to implement a comprehensive cross border transactions and domestic foreign currency transactions monitoring system as a key national priority, the Central Bank of Sri Lanka (CBSL) has implemented a new data collecting system known as the International Transactions Reporting System (ITRS) with the participation of Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs). The ITRS is a comprehensive data gathering system on cross border transactions and domestic foreign currency transactions and is aimed at filling multitude of existing data gaps. It will help policy formulation in many aspects by providing valuable inputs for both statistical and regulatory purposes.
Headline inflation, as measured by the year-on-year (Y-o-Y) change in the National Consumer Price Index (NCPI, 2013=100) increased to 45.3% in May 2022 from 33.8% in April 2022. This increase in Y-o-Y inflation was driven by the monthly increases of both Food and Non-Food categories. Accordingly, Food inflation (Y-o-Y) increased to 58.0% in May 2022 from 45.1% in April 2022, while Non-Food inflation (Y-o-Y) increased to 34.2% in May 2022 from 23.9% in April 2022.
Purchasing Managers' Indices for both Manufacturing and Services activities indicated a subdued performance in May 2022.
Manufacturing PMI recorded an index value of 50.3 in May 2022, with an increase of 13.9 index points from the seasonally low value in the month of April.
Services PMI dropped marginally to an index value of 42.4 in May 2022 indicating a contraction in services activities for the second consecutive month.
Import expenditure declined, year-on-year, for the second consecutive month, while earnings from exports increased in April 2022. This reduction in imports has gathered pace in May 2022, as per the provisional data from Customs. As a result, the trade deficit recorded a notable year-on-year contraction. Meanwhile, tourist arrivals and workers’ remittances showed a moderate performance in April 2022, compared to the previous month. However, workers’ remittances rebounded in May 2022 supporting the stability of the external current account. Foreign investment in the government securities market and Colombo Stock Exchange (CSE) recorded marginal net inflows during April 2022. Considering continued pressures in the domestic foreign exchange market, the Central Bank introduced measures in May 2022, including the restrictions on open accounts and consignment payments terms that have helped curtail activity in the informal market and narrow the gap between the official and grey market exchange rates. Further, the Central Bank commenced providing daily guidance on the degree of volatility (with an allowable two-sided variation margin) to all licensed commercial banks from 13 May 2022 based on exchange rate determined in the interbank market on the preceding day. The implementation of these measures has brought in a greater stability in the exchange rate determination thus far.
