The COVID-19 pandemic and the imposition of a partial lockdown in Sri Lanka in the second half of March 2020 affected external sector performance in March 2020. Breakdown in supply and demand chains along with the interruption of domestic production processes resulted in a notable decline in merchandise exports as well as merchandise imports. However, with a greater decline in the expenditure on imports compared to the decline in earnings from exports, the trade deficit narrowed over the same period in 2019. The tourism industry was severely affected with the imposition of travel restrictions globally and the closure of the Bandaranaike International Airport (BIA). Workers’ remittances declined notably in March 2020, with the return of migrant workers from affected countries as well as the reported job terminations of some workers abroad.
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External Sector Performance - March 2020
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Suspension of Business of NatWealth Securities Limited
The Monetary Board of the Central Bank of Sri Lanka (CBSL) at its meeting held on 28.05.2020, having considered the continuous failure to comply with the Directions applicable to NatWealth Securities Limited (NWSL) as a Primary Dealer, acting in terms of the Regulations made under the Registered Stocks and Securities Ordinance and the Local Treasury Bills Ordinance, has decided to suspend NWSL from carrying on the business and activities of a Primary Dealer for a period of six months with effect from 01.06.2020.
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CCPI based Inflation declined further in May 2020
Headline inflation as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2013=100) declined to 4.0 per cent in May 2020 from 5.2 per cent in April 2020. This was solely driven by the statistical effect of the high base prevailed in May 2019. Food inflation (Y-o-Y) declined to 9.9 per cent in May 2020 from 13.2 per cent in April 2020. Further, Non-food inflation (Y-o-Y) also declined to 1.6 per cent in May 2020 from 2.1 per cent in April 2020.
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Cancellation of the licence of 'The Finance Company PLC'
The Finance Company PLC (TFC), is a Finance Company, carried its finance business activities under the Finance Business Act No. 42 of 2011 (FBA) and was severely impacted by the failure of a number of financial institutions within the Ceylinco Group in 2008. Since then, the financial status of the company deteriorated gradually, leading to a severe liquidity crisis.
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NCPI based Inflation decreased further in April 2020
Headline inflation as measured by the yearon- year (Y-o-Y) change in the National Consumer Price Index (NCPI, 2013=100) decreased to 5.9 per cent in April 2020 from 7.0 per cent in March 2020. This was driven by the monthly decline of prices of the items in the Food category and the statistical effect of the high base prevailed in April 2019. Accordingly, Food inflation (Y-o-Y) declined to 12.2 per cent in April 2020 from 14.1 per cent in March 2020. Meanwhile, Non-food inflation (Y-o-Y) also declined to 1.1 per cent in April 2020 from 1.8 per cent in March 2020.
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Sri Lanka Reiterates its Commitment to Meeting all its Financial Obligations
The Government of Sri Lanka finds inferences in recent media reports questioning its ability to honour its debt service obligations. The Government notes with dismay such inferences made by certain media to imply that Sri Lanka is at risk of falling into a sovereign debt crisis by comparing Sri Lanka with other sovereigns which are said to be in similar situations. The Government wishes to categorically deny all such baseless claims, and would like to reiterate to all stakeholders that Sri Lanka will duly honour all its debt service obligations in the period ahead.
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Sri Lanka Purchasing Managers’ Index - April 2020
The COVID-19 induced downturn in the Sri Lankan manufacturing sector deepened during April as reflected by further contraction in Manufacturing PMI, which recorded at an index value of 24.2 with a fall of 5.8 index points from the previous month, reaching the lowest level since the beginning of the survey. This decline in index was mainly driven by New Orders, Production and Employment sub-indices which declined at record rates.
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External Sector Performance - February 2020
The trade deficit widened in February 2020 compared to February 2019, as expenditure on imports increased at a faster pace than the increase in earnings from exports. The tourism industry, which recovered faster than expected in the aftermath of the Easter Sunday attacks, was affected again with the outbreak of COVID-19 evolving as a pandemic from late February 2020. Workers’ remittances recorded a year on year growth, while foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded net outflows in February 2020. The Sri Lankan rupee, which remained relatively stable up to the second week of March 2020, depreciated significantly in the latter part of March up to mid-April 2020, but started to stabilise thereafter, and recorded a significant appreciation in the first week of May 2020. Significant implications on the external sector performance are expected from the COVID-19 pandemic from March 2020 onwards, particularly in the areas of merchandise trade, tourism, workers’ remittances and foreign investment.
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Central Bank of Sri Lanka Implements Extraordinary Regulatory Measures to Provide Liquidity to Banks amidst COVID-19 Outbreak
The Monetary Board of the Central Bank of Sri Lanka (CBSL), in the wake of the possible adverse impact on liquidity and other key performance indicators of licensed commercial banks and licensed specialised banks (licensed banks) due to the implementation of the credit support scheme to assist COVID-19 hit businesses and individuals, and the need to meet other urgent liquidity needs of banks, considers it imperative to strengthen the liquidity positions of banks.
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Delisting of Sri Lanka by the European Commission from its List of High Risk 3rd Countries
The European Commission has de-listed Sri Lanka from its list of High Risk Third Countries with Anti- Money Laundering and Countering the Financing of Terrorism Strategic Deficiencies published on May 07, 2020.