EIU - August 2018
Sri Lankan Economy
CBSL Downgrades 2018 Growth Forecast: The Central Bank of Sri Lanka (CBSL) downgraded Sri Lanka’s growth forecast for 2018 to 4% from 4.5% forecasted in January this year.
CBSL Policy Rates Remain Unchanged: The Monetary Board of the Central Bank of Sri Lanka decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) will remain at 7.25% and 8.50% respectively.
Draft Paper of TAP Launched: A draft framework of the Trade Adjustment Programme (TAP) was recently published by the Ministry of Development Strategies and International Trade (MODSIT). The purpose of this programme is to smoothen the transition of firms and workers to the new market conditions created by trade liberalisation.
Import Duty on Cars Increased: The Ministry of Finance recently increased the import duty of less than 1,000cc motor vehicles with effect from 01st August 2018. The first half of 2018 saw vehicle imports rise by 120% compared to the same period in 2017 and was higher than what was imported for the full year in 2017.
Exports to EU Up in the First 12 months Since Regaining GSP+: Sri Lanka’s exports to the EU increased by 11% in the past twelve months since Sri Lanka regained GSP+ concession in May 2017. Apparel, the top export product of Sri Lanka, which accounts for about 60% of the total exports, grew by 8% during the last 12 months.
LKR Continues to Weaken driven by Global Factors: The rupee continued to weaken against the US dollar with the spot declining by 0.7% in the first four weeks of August owing to a strengthening US dollar, outflows from local government securities and importer demand. The MSCI Emerging Market Currency Index has declined by 1.9% in this period while declining by 7.7% since the start of April 2018.
12-Month Treasury Bill declines by 0.7% in last 3 months: Since the primary auction on 25th of May 2018, the 12-month Treasury bill yield has declined by 0.73% ( as at 24 August 2018 auction) to stand at 9%.
Moody’s Warning on Rising Rates: Moody’s Investor service has warned that Sri Lanka was amongst the most sensitive to rising global interest rates owing to the debt refinancing obligations the country has in the forthcoming years (2019-2022).
Notable Widening of the Trade Deficit in 1H 2018: During the first half (1H) of 2018, growth in import expenditure (12.7%) outpaced the increase in export earnings (6.2%) and as a result the trade deficit widened by 20% on a Y-o-Y basis.
Global Oil Fall in July: In July, Brent oil fell 6.9% from US$ 79.44 a barrel to US$ 74.29 a barrel owing to concerns over a future oversupply in the market. However, prices have picked up in the second half of August as tighter inventories and shrinking output from Iran weighed in.
Greece can Now Enter International Markets: As a crucial step in its journey towards economic recovery, Greece will now be able to borrow money again in International capital markets. The country recently exited the third and final bailout programme of a nine-year debt crisis.
Global Merchandise Trade up by 16% in 1H-2018, slowdown expected in 3Q: According to the trade value data released by the World Trade Organization, global merchandise trade grew by 13% to USD 17,916 Bn during the first six months of 2018 compared to the same period of 2017. However, the WTO expects that global trade expansion will likely slow further in the third quarter of 2018.
Turkey Economic Crisis: The ongoing Turkish currency and debt crisis was characterized by the Turkish Lira plunging in value, high inflation, rising borrowing cost and correspondingly rising loan defaults. The crisis was caused by the Turkish economy’s excessive current account deficit and foreign currency debt.