A notable growth in tourist arrivals and continuous net foreign inflows to the stock exchange amidst a significant widening of the trade deficit characterised the external sector performance in February 2018. A surge in gold imports was the primary driver behind the fastest increase in overall merchandise imports in nearly 3-1/2-years, resulting in a further widening of the trade deficit in February 2018. Continuing the growth momentum observed in January 2018, earnings from tourism increased significantly in February 2018. However, workers’ remittances declined in February 2018 following a growth in January. The financial account of the balance of payments (BOP) recorded a net inflow of foreign investments to the stock exchange, helping to counterbalance a net outflow in the government securities market in February 2018.
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External Sector Performance – February 2018
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The Central Bank of Sri Lanka Maintains Policy Interest Rates Unchanged
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 10 May 2018, decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) remain at 7.25 per cent and 8.50 per cent, respectively. The Board’s decision aims at stabilising inflation in mid-single digit levels in the medium term, thereby contributing to a favourable growth outlook for the Sri Lankan economy.
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SL Purchasing Managers’ Index Survey - June 2016
The Manufacturing PMI recovered to the positive territory in June 2016 registering 55.1 index points, from the contraction observed in the last two months, which is an increase of 7.2 index points from May 2016. This improvement was bolstered by the significant increase observed in Production and New Orders Indices. Moreover, all the Sub-indices of PMI, apart from Suppliers’ Delivery Time increased compared to the previous month. Overall data points to an expansion where all the sub-indices apart from the Employment Index are above the neutral 50.0 threshold. The expectations for activities also indicated an improvement for the next three months. On yearon-year basis, the PMI index witnesses a marginal drop of 2.4 index points compared to June 2015.
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Foreign Sentiment Signals Confidence in Sri Lanka’s Economic Performance and Potential
In recent days, serious concerns have been expressed regarding the performance of the Sri Lankan economy.
In this context, it is instructive to gauge the level of external support for the Sri Lankan economy from international capital markets. This would be an independent barometer of the health of the Sri Lankan economy as international capital markets are hard-nosed in their assessments.
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The Annual Report of the Central Bank of Sri Lanka for the Year 2017
In terms of Section 35 of the Monetary Law Act No. 58 of 1949, the sixty eighth Annual Report of the Monetary Board of the Central Bank of Sri Lanka was presented to Hon. Mangala Samaraweera, the Minister of Finance and Mass Media, by Dr. Indrajit Coomaraswamy, the Governor of the Central Bank of Sri Lanka.A summary of the performance of the Sri Lankan economy in 2017 as reflected in the Annual Report is given below:
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Clarification on Treasury Bond Service Payments
The Central Bank of Sri Lanka (CBSL) has observed media reports erroneously highlighting lack of funds to pay-off Treasury bonds before their date of maturity.
CBSL notes that there is no accuracy in above media reports and highlights the unblemished debt service payment record of the government in servicing both domestic and foreign debt. The payment of interest and principal at maturity on due dates (timely payment) and not before the due date is followed to the rule by CBSL in discharging its agency function of managing public debt on behalf of the government.
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inflation in June 2016
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, increased to 6.4 per cent in June 2016 from 5.3 per cent in May 2016, on year-on-year basis. Both Food and Non-food categories contributed towards the year-on-year inflation in June 2016.
The change in the NCPI measured on an annual average basis increased to 3.1 per cent in June 2016 from 2.7 per cent in May 2016.
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Inflation in March 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), continued to follow the declining trend exhibited since November 2017. As such, the year-on-year NCPI headline inflation decreased to 2.8 per cent in March 2018, lowest since April 2016, from 3.2 per cent in February 2018. The monthly decline in Food prices in March 2018 supported by the favourable supply conditions attributed to this sharp decline in year-on-year inflation in March 2018. The change in the NCPI measured on an annual average basis decreased from 7.2 per cent in February 2018 to 6.7 per cent in March 2018.
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IMF Reaches Staff-Level Agreement on the Fourth Review of Sri Lanka’s Extended Fund Facility
After constructive discussions with the authorities in Colombo and during the Spring Meetings in Washington DC, Manuela Goretti, the IMF mission chief for Sri Lanka, issued the following statement:
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Monetary Policy Review – July 2016
The increasing trend in both headline and core inflation continued, reflecting the rise in demand driven inflationary pressures in the economy. Supply side disruptions arising from adverse weather conditions and the revisions introduced to the tax structure by the government also contributed to the upward movement in inflation in the past two months. Meanwhile, in the real sector, the available indicators suggest a continuation of the growth momentum in economic activity. In particular, power generation, tourism and port related services, construction sector, investment goods imports as well as the purchasing managers’ indices (PMI) for manufacturing and services sectors have shown improvements over the past few months.