Sri Lankan Economy
Economy grows by 3.2% in 2018, Q4 growth falls sharply: Sri Lanka’s GDP grew by 3.2% in 2018, easing further from the 3.4% growth recorded in 2017. The Q4 saw a growth of 1.8% which is the lowest since the Q1 of 2014. Growth was dragged down by the weak performance of the Industrial sector. The GDP growth achieved was below than expected by most forecasters including the Central Bank of Sri Lanka(CBSL).
Trade Deficit Widened in 2018, BoP in deficit: During the year, exports and imports recorded a growth of 4.7% and 6% respectively which saw a significant expansion in the trade deficit. Sri Lanka recorded a USD 1.1 Bn deficit in its Balance of Payments position owing to the widening trade deficit and the financial outflows from the local government securities market. During the month of December, the trade deficit contracted significantly owing to a decline in import growth reflecting the impact of policy measures implemented to discourage vehicle and non-essential consumer goods imports. (See the Dash Board for detailed analysis)
2018, FDI Inflows Up by 38% driven by Inflows to Port Container Terminals: Annual FDIs reached a new high for second consecutive years as inflows grew by 38% y-o-y to USD 2.37 Bn. The major driver of FDI was the inflows to port container terminals, which amounted USD 850 Mn and recorded a share of 36% of total FDI inflows to the country.
Colombo Land Prices Up by 18% in 2H-2018: As per the Land Price Index (LPI) by the CBSL, the land prices in Colombo went up by 18% during the second half of 2018 compared to the same period of 2017. Prices of industrial lands rose faster than residential and commercial lands.
CBSL Issued USD 2.4 Bn worth of ISBs: In early March, the CBSL issued USD 1 Bn, 5 years and USD 1.4 Bn, 10-year International Sovereign Bonds(ISBs) in order to capitalize on the strong market backdrop, and leverage on the positive momentum generated by the recent IMF staff-level agreement on the 5th review of the Extended Fund Facility Program.
Fiscal consolidation expected to continue in 2019: As per the National Budget 2019, the budget deficit for 2019 is expected to be 4.4% which is lower than the 5.3% (Provisional) recorded in 2018. The government is expecting to generate additional revenue of LKR.150 Bn through new proposals and also expected to finance 92% of the budget deficit through domestic sources.
Brexit Uncertainty Continues: At the time of writing, Brexit is postponed beyond 29 March 2019 with no certainty as to what kind of deal will be agreed upon by both parties. Under a No-Deal Brexit, current preferential tariff rates are expected to apply on countries that are part of the EU GSP+ scheme. However, it will be a temporary measure that will require the enactment of secondary legislation.
Global Oil Prices Up: In February 2019, the OPEC Reference Basket rose for the second consecutive month, increasing by about 9% (M-o-M) to average USD 63.83 per barrel. Oil prices were supported by expectations of tightening oil supply in the coming months amid increased unplanned outage.
Fed sees No Rate Hikes in 2019: The U.S. Federal Reserve expects no further rate hikes in 2019 citing an expected slowdown in the economy.
China-US to Resume Trade Talks: China is planning to resume trade discussions with the US which is aimed at ending the trade dispute. Previous US and China talk completed without a deal on 15th February, with the U.S. warning that “very difficult issues” remained unresolved.