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EIU - April 2018


  • Central Bank ends tight monetary policy with a rate cut in April owing to growth concerns as inflation and private sector credit growth eases
  • Sovereign bond issue aids building buffer to face debt refinancing risks
  • Rising global oil prices ( highest since November 2014) as government considers introducing pricing formula for fuel

Sri Lankan Economy

CBSL Cuts Policy Rate: Central Bank of Sri Lanka (CBSL) reduced the Standing Lending Facility Rate (SLFR) by 25 basis points in early April 2018 considering the favorable developments in inflation as well as lower than expected GDP growth that further widened the gap between actual and potential GDP growth.

USD 2.5 billion Sovereign Bond Issuance: The CBSL issued USD 1.25 billion each of 5-year and 10-year bonds as Sri Lanka reentered the international capital with is largest offshore bond offering so far.

Trade Rises:  Both export earnings and import expenditure increased significantly in January 2018 with each increasing by 12% on a Y-o-Y basis. As a result, the trade deficit expanded during the month as the absolute growth in imports offset the increase in export earnings.

Gross Official Reserves Declined: By USD 613 million to USD 7.3 billion in March 2018 compared to the previous month

Inflation Eases Further: CCPI headline inflation eased to 4.2% (from 4.5% in February) in March 2018 while the CCPI core inflation declined to 3.4%. In March 2018, the NCPI headline inflation decreased to 2.8% which was the lowest since April 2016 and NCPI Core inflation declined to 1.9%.The decline in inflation has been driven by an improvement in food supply conditions.

IMF Agreement Reached: The 4th review saw a Staff-Level Agreement reached though the completion of the review in June will be subject to a cabinet approval of an automatic fuel pricing mechanism.

Stock Market Performance: The ASPI was up marginally by 0.7% so far during the month of April and is up 2.4% for the year (as at 23 April 2018).

Global Economy

Oil Prices Rise: OPEC Reference Basket increased by less than 0.5% to USD 63.76 per barrel in March 2018. However in April, Brent oil price has risen over USD 70 per barrel, its highest levels since November 2014 over concerns in the Middle East.

Global Trade Expected to Rise: The World Trade Organization (WTO) expects a global trade volume growth of 4.4% in 2018 accompanied by a GDP growth of 3.2%.

South Asia’s Remains Fastest Growing Region: South Asia is expected to remain the fastest growing region in the world with growth in South Asia forecasted to pick up to 6.9% in 2018 driven by an uptick in growth from India.

Remittances Rising: After two consecutive years of decline, remittances flows to Lower-Middle-income countries increased by 8.5% in 2017, rising to USD 466 billion. Globally, remittances reached USD 613 billion. The rebound was driven by the growth in the EU, Russia and the US.


Below 5% Growth was forecasted for Sri Lanka

As per the latest South Asia Economic Focus Report of the World Bank, Sri Lanka’s economic growth is projected to rebound in 2018 from a low base of 3.1% recorded in 2017.  It is expected to be driven by private consumption and investment. Projected growth for 2018 is 4.8%.  As per the report, the outlook for Sri Lanka remains favorable due to government’s reform agenda of improving competitiveness, governance and public financial management. Together with the IMF EFF programme, these reforms will add to confidence and support fiscal consolidation efforts. The World Bank stated that a further slowdown in reform implementation, in a challenging political environment, remains the key risk to the forecasts.

IMF Team Reached a Staff-Level Agreement on the 4th Review of the EFF Programme

The IMF team reached a staff-level agreement with the Sri Lankan authorities on the 4th review under the EFF arrangement. As per their view, all the quantitative performance criteria set out for end of December under the program were met as the authorities have successfully advanced fiscal consolidation and strengthened international reserves. The IMF Board is expected to consider Sri Lanka’s request for completion of the 4th review in June 2018, based on the cabinet’s approval of an automatic fuel pricing mechanism.  The IMF also notes that progress in implementation of the new Inland Revenue Act and other revenue measurers in the 2018 budget remains essential for meeting social goals and improving debt dynamics. It adds that the Central Bank should continue to remain vigilant in guarding against inflationary pressures while continuing to build reserves and supporting greater exchange rate flexibility.

60% of the Country’s Districts were in Poverty-March 2018

Source: Department of Census and Statistics

As per the latest district wise poverty line data published by the Department of Census and Statistics, 15 out of 25 districts in the country were in poverty for the 27th consecutive month.

The national poverty line in March 2018 has decreased to Rs. 4,528 from Rs. 4,547 in February 2018.  Moneragala continued to be the poorest district with a minimum expenditure per person per month to fulfill basic needs reported at Rs. 4,263 while Colombo remained the richest district recording Rs. 4,915 in March 2018.

Highest Labour Force Participation for Male is from 35-39 age group where that for Female is from 45-49 age group.

Department of Census and Statistics recently released the Labour Force Survey statistics for Q4 of 2017. The highest participation rate for male was reported from the 35-39 age group (96.5%), while that for female was reported from the 45-49 age group (51.4%). Total number of employed persons in the country is estimated to be 8. 3 million of which about 44.7% engaged in the services sector, 28.3% in industries and 27% in agriculture sector. Percentage employed in the industries sector has increased while that of agriculture and services decreased in Q4 of 2017 on a Y-o-Y basis.


South Asia Regained the Leading Role in Global Growth

According to the World Bank, South Asia was the fastest growing region throughout 2015, but its economic growth declined for five consecutive quarters; from 9% in Q1 of 2016 to below 5.5% in Q2 of 2017, on the back of India’s deceleration. The South Asian region’s growth accelerated to 6.3% in the Q4 of 2017 and further to 7.2%in the Q1 of 2018. Meanwhile, growth in East Asia and the pacific; the other leading region, remained at 6.5%. Sub-Saharan Africa and Latin America and the Caribbean continued their recovery, with both regions growing more than 2% in the Q4 of 2017.

South Asia is expected to remain the fastest growing region in the world. Growth in South Asia is forecasted to pick up to 6.9% in 2018, mainly reflecting India’s growth resurgence. As per the World Bank, growth should further strengthen to 7.1% on average in 2019-2020, reflecting a broad-based improvement across most of the region.

India Retains Top Position in the World as a Remittances Recipient

According to the latest Migration and Development Brief of the World Bank, India retained the top position as recipient of remittances with its diaspora sending about USD 69 billion back home in 2017. This is a sharp increase by 9.9% reversing the dip experienced in 2016, Remittances receipts to low-middle-income countries reached USD 466 billion in 2017 and this is an increase of 8.5% over USD 429 billion recorded in 2016. Globally, remittances reached USD 613 billion, an increase of 7% Y-o-Y. As per the World Bank, the stronger than expected recovery in remittances is driven by growth in Europe, Russia and the US.

Remittances receipts to South Asia grew moderately by 5.8% in 2017 on a Y-o-Y basis. Sri Lanka is the 4th highest remittances receiver with inflows of USD 7.2 billion. As mentioned above, India is the top receiver of remittances followed by Pakistan (USD 19.7 billion) and Bangladesh (USD 13.5 billion)


Global Trade Volume to Grow 4.4% in 2018

The World Trade Organization (WTO) expects a global trade volume growth of 4.4% in 2018 accompanied by GDP growth of 3.2% at market exchange rates, after experiencing the largest increase in trade volume for six years in 2017. This faster trade expansion was driven by stronger economic growth across regions, led by increased investments and fiscal expansion. However, the continued expansion of global trade depends on robust global economic growth and governments pursuing appropriate monetary, fiscal and trade policies.

Source: WTO




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The Ceylon Chamber of Commerce

Economic Intelligence Unit

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