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External Sector Performance – May 2020

The external sector showed signs of stabilisation, with the removal of most lockdown measures in the second week of May 2020. The impact of restrictions on non essential imports was observed in May with a notable reduction in merchandise imports. Meanwhile, merchandise exports, which dropped significantly in April, rebounded more than expected during the month. Workers’ remittances were significantly low in May 2020 compared to the same period in 2019, but recorded a notable increase compared to the extreme low levels recorded in April 2020. In relation to financial flows, the total exposure of foreign investment in the government securities market remained significantly low with a marginal outflow of government securities being recorded in May. With the resumption of trading in the Colombo Stock Exchange (CSE) in mid May 2020, there were some outflows of foreign investment. The Sri Lankan rupee stabilised, mainly aided by an improved trade deficit, recording an appreciation of 3.5 per cent during the month of May.

Compensation Payments to the depositors of The Finance Company PLC under the Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS)

The compensation payments to the depositors of The Finance Company PLC under the SLDILSS subject to a maximum amount of Rs.600,000 per depositor was commenced on 07.06.2020 through 63 branches of the People’s Bank island wide.

The funds required for making compensations to approximately 147,000 depositors whose eligibility has been confirmed by The Finance Company PLC have already been allocated from the SLDILSS.

Suspension of Business of “ETI Finance Ltd and Swarnamahal Financial Services PLC”

The Monetary Board (MB) of the Central Bank of Sri Lanka (CBSL) at its meeting held on 10th July 2020 has decided to suspend business of ETI Finance Ltd (ETIF) and Swarnamahal Financial Services PLC (SFSP), in terms of Section 31 of the Finance Business Act, No. 42 of 2011 (FBA) with effect from 13th July 2020.

ETIF and SFSP have become insolvent due to various irregularities taken place, since 2011. Due to the inability of Board of Directors and Senior Management of the respective companies to satisfactorily address the said deficiencies, the MB on 02nd January 2018 issued Directions restricting the affairs of the Companies and the powers of the Board of Directors of the two Companies. A Panel of Management was also appointed by the MB to oversee the affairs of both Companies.

Further Measures to Encourage Opening of Special Deposit Accounts

The Government of Sri Lanka introduced the Special Deposit Account (SDA) on 08.04.2020 to seek assistance for the national effort to overcome the effects of COVID-19 outbreak in the country. It is encouraging to note that there is a favorable response on the same and so far, Sri Lanka has received USD 87 mn (approx.) into SDAs.

The Government of Sri Lanka in consultation with the Monetary Board of the Central Bank of Sri Lanka has taken further measures to encourage opening of SDAs as stated below.

Central Bank approved more than Rs. 60 billion working capital loans to COVID-19 affected businesses

The Central Bank of Sri Lanka (CBSL) approved 22,306 loans amounting to Rs. 60,250 million under the Saubagya COVID-19 renaissance facility as of 10th July 2020 with the approval given for 2,066 new loans, amounting to Rs. 6,978 million during the week ended on 10th July 2020. The licensed banks had already disbursed Rs. 30,528 million among 13,333 borrowers island-wide as of 9th July 2020. 

The CBSL, in consultation with the Government of Sri Lanka, has introduced the Saubagya Covid-19 Renaissance Loan Scheme to provide working capital loans at 4 per cent (p.a.) interest rate to businesses adversely affected by the COVID-19 outbreak, through Licensed Banks, thereby supporting the revival of economic activity in the country. This Loan Scheme is available for COVID-19 affected businesses with an annual turnover below Rs. 1 billion, including self-employment and individuals. The Rs. 1 billion limit of annual turnover will not be applicable to businesses engaged in tourism, exports and related logistical supplies.

Monetary Policy Review - July 2020

The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 08 July 2020, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points each, to 4.50 per cent and 5.50 per cent, respectively. The Board arrived at this decision with a view to inducing a further reduction in market lending rates, thereby encouraging the financial system to aggressively enhance lending to productive sectors of the economy, which would reinforce support to COVID-19 hit businesses as well as to the broader economy, given conditions of subdued inflation.

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