The import expenditure declined, while earnings from exports increased in May 2022, year-on-year, extending the contraction in the trade deficit for the third consecutive month. Meanwhile, tourist arrivals slowed in May 2022, compared to the previous month. Workers’ remittances increased in May 2022, compared to April 2022. Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded marginal net inflows during May 2022. Considering the liquidity pressures witnessed in the domestic foreign exchange market, the Central Bank imposed cash margin requirements in May 2022, while the Government introduced restrictions on open accounts and consignment payments terms, among others. These measures were expected to curtail activity in the informal foreign exchange market and narrow the gap between the official and grey market exchange rates. Meanwhile, the weighted average spot exchange rate in the interbank market remained stable around Rs. 359 per US dollar during the month, helped by the measures introduced to manage pressures in the domestic foreign exchange market, along with the market guidance.
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External Sector Performance - May 2022
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Extending the Order issued on Possession of Foreign Currency
The Minister of Finance has issued an Order under Section 8 of the Foreign Exchange Act No. 12 of 2017 extending the amnesty period granted for persons in or resident in Sri Lanka to deposit or sell the foreign currency in possession to an Authorized Dealer (A Licensed Commercial Bank or National Savings Bank) as specified in the Order, by another 14 working days up to 26.07.2022.
For further information you may refer the Order under Section 8 of the Foreign Exchange Act published in the Gazette (Extraordinary) Notification No. 2287/16 dated 05 July 2022, which can be downloaded/ accessed via www.dfe.lk.
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The Central Bank of Sri Lanka further tightens its Monetary Policy Stance
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 06 July 2022, decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points to 14.50 per cent and 15.50 per cent, respectively. Having noted the higher than expected escalation of headline inflation recently and the increased persistence of high inflation in the period ahead, the Board was of the view that a further monetary policy tightening would be necessary to contain any build-up of adverse inflation expectations. In arriving at this decision, the Board weighed the impact of tighter monetary conditions on overall economic activity, including the micro, small, and medium scale businesses, and the financial sector performance, among others, against far reaching adverse consequences of any escalation of price pressures across all sectors of the economy in the near term. On balance, the Board was of the view that this policy adjustment would help guide inflation expectations to be anchored around the targeted level of headline inflation over the medium term, while curtailing any build-up of underlying demand pressures in the economy.
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Extension of the Suspension of Business of Perpetual Treasuries Limited
The Monetary Board of the Central Bank of Sri Lanka, acting in terms of the Regulations made under the Registered Stock and Securities Ordinance and the Local Treasury Bills Ordinance, has decided to extend the suspension of Perpetual Treasuries Limited (PTL) from carrying on the business and activities of a Primary Dealer for a further period of six months with effect from 4.30 p.m. on 05th July 2022, in order to continue the investigations being conducted by the Central Bank of Sri Lanka.
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Present CBSL Governor Re-appointed
The Central Bank of Sri Lanka is pleased to announce that His Excellency President Gotabaya Rajapaksa has re-appointed Dr P. Nandalal Weerasinghe as the Governor of the Central Bank of Sri Lanka for a further term of six years, with effect from 4th July 2022.
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IMF Staff Concludes Visit to Sri Lanka
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:
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CCPI based headline inflation recorded at 54.6% on year-on-year basis in June 2022
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.
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Land Valuation Indicator - Second Half of 2021
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.
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Imposition/Collection of Administrative Penalties by the Financial Intelligence Unit (FIU) to Enforce Compliance on Financial Institutions during the Fourth Quarter of 2021
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.
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Recommendations made by the Advisory Committee for Revival of Failed Licensed Finance Companies
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.