The external sector performance remained subdued in August 2018. During the month, the deficit in the trade account narrowed marginally compared to a year earlier as the rise in export income outpaced the growth in import expenditure. Meanwhile, other inflows to the current account continued to be modest in August 2018 with a marginal increase in earnings from tourism and a decline in workers’ remittances. On a net basis, the financial account of the Balance of Payments (BOP) recorded outflows during the month, due to withdrawals of foreign investments from both the government securities market and the Colombo Stock Exchange (CSE) and continued debt service payments.
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External Sector Performance - August 2018
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The Parliament of Sri Lanka passes the resolution to raise Rs. 310 billion by way of loans in or outside Sri Lanka for Active Liability Management by the Government of Sri Lanka
The Parliament on 26.10.2018 resolved under section 3 of the Active Liability Management Act of 2018 (ALMA) that “a sum not exceeding Rs. 310.0 billion may be raised by the Government of Sri Lanka (GOSL) by way of loans, in or outside Sri Lanka for such purposes as specified in the provisions of the Active Liability Management Act No 8 of 2018”.
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Land Price Index – First Half of 2018
The Central Bank of Sri Lanka (CBSL) compiles and analyses several indicators, in order to monitor the developments in the real estate sector. Accordingly, the Land Price Index (LPI) (base year: 1998) has been compiled annually from 1998-2008 and bi-annually from 2009-2017, covering 50 centers of 5 DS divisions in the Colombo District. With the increasing importance of monitoring land prices due to the recent developments in the real estate sector, the geographical coverage of LPI was expanded to 82 centers covering all DS divisions in the Colombo District and revised its base period from 1998 to 1st half of 2017 to accommodate this expansion. The LPI with improved coverage is available bi-annually from 2017 onwards.
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Inflation in September 2018
Headline Inflation, as measured by the change in the National Consumer Price Index (NCPI, 2013=100), which is compiled by the Department of Census and Statistics (DCS), decreased to 0.9 per cent in September 2018, the lowest since January 2016, from 2.5 per cent in August 2018 on year-on-year basis. The deceleration in year-on-year inflation in September was driven by both the base effect and the monthly decline in Food prices. The change in the NCPI measured on an annual average basis decreased from 4.7 per cent in August 2018 to 4.0 per cent in September 2018.
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The Government of Sri Lanka secured USD 1 Billion Foreign Currency Term Financing Facility
The Government of Sri Lanka invited to submit proposals from international and domestic banks and investment houses for a Foreign Currency Term Financing Facility (FCTFF) denominated in United State Dollar (USD) or Japanese Yen (JPY) or Euro or of their combination up to a limit of USD 1,000 million in March 2018.
Accordingly, four proposals were received from international and domestic banks and investment houses. Through a strict evaluation and negotiation process by a Cabinet appointed Steering Committee and Technical Evaluation Committee, the China Development Bank (CDB) was selected as the syndicate arranger based on least cost and longer maturity period given in its proposal submitted.
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Sri Lanka Purchasing Managers' Index - September 2018
The Manufacturing Sector PMI decreased to 54.1 index points in September 2018 from 58.2 index points recorded in August 2018. The slowdown observed in manufacturing activities in September was mainly driven by the slowdown in new orders and production, especially in manufacturing of food and beverages activities. Respondents highlighted that they had to increase their prices during the period due to increase in input cost of imported raw materials with rupee depreciation. This led to a decline in demand for their products, which in turn resulted in a decrease in new orders and production. However, new orders and production of manufacturing of textiles, wearing apparel, leather and other related products, which are mostly export oriented improved during this period. Overall employment and stock of purchases also slowed down. Meanwhile, lengthening of suppliers’ delivery time usually indicates that economy is booming with expanding activities in the short run. However, in this instance, lengthening of suppliers’ delivery time was due to manufacturers’ intentional increase of the lead time with the expectation of rupee stabilization. Thus, it does not indicate an expansion in economic activities. Overall, all the sub-indices of PMI recorded values above the neutral 50.0 threshold signalling an overall expansion in September yet at a slower pace compared to August.
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Progress on Implementation of the Recommendations of the Presidential Commission of Inquiry to Investigate, Inquire and Report on the Issuance of Treasury Bonds (COI) during the period from 1 Feb 2015 to 31 March 2016
The Central Bank wishes to inform the public that several measures have been initiated and some have already been implemented, to strengthen transparency and accountability in several areas of operations of the Central Bank in line with the recommendations of the COI.
In relation to the legal framework within which the Central Bank operates, measures are under way to strengthen several laws applicable to the Central Bank. Amendments are being formulated with respect to the Monetary Law Act and the Registered Stocks and Securities Ordinance.
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The Central Bank Responds to Misleading Newspaper Articles on Rupee Depreciation
The Central Bank of Sri Lanka (CBSL) wishes to make the following statement in relation to the article titled “Government and CB have abdicated vital statutory duty by not being able to deal with rupee depreciation” that appeared in various newspapers on 08th and 09th October 2018.
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External Sector Performance - July 2018
Sri Lanka’s external sector recorded a moderate performance in July 2018. The trade deficit continued to widen in July 2018 (year-on-year) with higher import expenditure despite export earnings surpassing US dollars 1 billion during the month. Earnings from tourism recorded a modest growth while workers’ remittances declined marginally, on a year-on-year basis, during the month. The financial account recorded moderate inflows during July, while requirements of debt servicing and other outflows resulted in a decline in gross official reserves to US dollars 8.4 billion as at end July 2018. The foreign exchange market continued to be under pressure with outflows of foreign investments from the government securities market and increased foreign exchange demand for imports thus necessitating intervention by the Central Bank to curtail intraday excess volatility in the exchange rate.
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IMF Staff Completes Review Mission to Sri Lanka
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.