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Central Bank of Sri Lanka Co-hosted the 4th CBSL-ADBI-APAEA Joint Workshop

The Central Bank of Sri Lanka co-hosted the CBSL-ADBI-APAEA Workshop for the fourth consecutive year, in collaboration with the Asian Development Bank Institute (ADBI) and the Asia-Pacific Applied Economics Association (APAEA), on 27 October 2023 at the John Exter International Conference Hall of the Central Bank. This year’s conference was held under the theme of ‘Monetary Policy and Central Banking Issues in Asia and the Pacific’.

IMF Reaches Staff-Level Agreement on the First Review of Sri Lanka’s Extended Fund Facility Arrangement

IMF staff and the Sri Lankan authorities have reached a staff-level agreement on economic policies to conclude the first review of the 48-month EFF-supported program. Sri Lanka will have access to SDR 254 million (about US$330 million) in financing once the review is approved by IMF Management and IMF Executive Board.

Macroeconomic policy reforms are starting to bear fruit and the economy is showing tentative signs of stabilization. Sustaining the reform momentum and addressing governance weaknesses and corruption vulnerabilities are critical to put the economy on a path towards lasting recovery and stable and inclusive growth.

Completion of the review by the IMF’s Executive Board requires: (i) the implementation by the authorities of all prior actions; and (ii) the completion of financing assurances reviews.

Imposition/ Collection of Administrative Penalties by the Financial Intelligence Unit (FIU) to Enforce Compliance on Financial Institutions from 01 April 2023 to 26 September 2023

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. 1.7 million in total from 01 April 2023 to 26 September 2023 to enforce compliance on Financial Institutions. The money collected as penalties were credited to the Consolidated Fund.

Sri Lanka Purchasing Managers’ Index (Manufacturing and Services) - September 2023

Purchasing Managers Indices in September 2023 indicated a contraction in Manufacturing activities and an expansion in Services activities.

Manufacturing PMI recorded an index value of 45.7 in September 2023, indicating a contraction in manufacturing activities. This setback was contributed by the subdued performance observed in all the sub-indices.

Services sector PMI recorded an index value of 54.7 in September 2023, indicating an expansion in the services activities at a slower pace compared to the previous month. This was led by the increases observed in New Businesses, Business Activities, Employment and Expectations for Activity. Nevertheless, Backlogs of Works remained contracted during the month.

The Central Bank of Sri Lanka further reduces policy interest rates

The first monetary policy review by the Monetary Policy Board under the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA) was held on 04 October 2023. In this review, the Board decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points (bps) to 10.00 per cent and 11.00 per cent, respectively. The Board arrived at this decision following a careful analysis of the current and expected developments, including low inflation and benign inflation expectations in the domestic economy, with the aim of stabilising inflation at the envisaged 5 per cent level in the medium term, thereby enabling the economy to reach its potential growth. The Board expects that this reduction of policy interest rates, along with the significant easing of monetary policy effected previously, including the directions issued by the Central Bank to licensed banks to reduce interest rates, and the significant reduction of risk premia on government securities, would accelerate the downward adjustment in market interest rates, particularly lending rates, in the period ahead. The financial sector is urged to pass on the benefits of the continued easing of monetary conditions to individuals and businesses adequately and swiftly, thereby supporting the envisaged rebound of the economy.

External Sector Performance – August 2023

The merchandise trade deficit widened in August 2023 compared to a year ago led by higher decline in export earnings than the decline in import expenditure. However, both export earnings and import expenditure increased compared to July 2023. 

Both workers’ remittances and earnings from tourism recorded notable improvements in August 2023 compared to the previous year.

In August 2023, foreign investment in the government securities market recorded a net outflow, while foreign investment to the Colombo Stock Exchange recorded a net foreign inflow in August 2023.