Sri Lankan Economy

Economic Research Department Central Bank of Sri Lanka

Sri Lankan Economy: Towards a New EraEconomic Research Department

Central Bank of Sri Lanka

March 2021

Economic Research Department | Central Bank of Sri Lanka

In September 2020, amidst global and domestic economic challenges and uncertainties, the Central Bank of Sri Lanka released a slideshow,

suggesting that Sri Lanka is on a steady recovery path…

We showed that the hard facts and indicators enable us to reasonably conclude that SRI LANKA is on a steady path towards high economic

growth…

The second wave of COVID-19 posed further setbacks in October/November 2020, but the economy is steadily progressing as

displayed in latest economic indicators…

…let us explore some of these indicators.

2


Projection Release 2020 2021

IMF September/October 2020 -4.6 5.3

World Bank January 2021 -6.7 3.3

ADB September/October 2020 -5.5 4.1

Actual / CBSL Projection

March 2021 -3.6 6.0

In 2020, the performance of the Sri Lankan economy beat expectations of multilateral agencies…

3.5

8.0 8.49.1

3.4

5.0 5.0 4.53.6 3.3

2.3

-3.6

6.0

-6

-4

-2

0

2

4

6

8

10

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021(Proj.)

%

Real GDP Growth (YoY)

3

Sources : Department of Census and Statistics, Central Bank of Sri Lanka


6.10

39.35 (Mar 15, 2021)

5.49 (Mar 19, 2021)

3.92 (Mar 22, 2021)

3.68

3.01 (Mar 22, 2021)

2.98 (Mar 22, 2021)

1.68

1.49

0.70 (Feb 5, 2021)

0.16 (Mar 14, 2021)

0.08 (Mar 13, 2021)

0 10 20 30 40 50

World

Maldives

Nepal

Sri Lanka

India

Indonesia

Bangladesh

Cambodia

Malaysia

Myanmar

Pakistan

Thailand

COVID-19 Vaccine Doses Administered per 100 People (23 Mar 2021)

Source: https://ourworldindata.org/

COVID-19 pandemic has been contained to a large extent, and the local immunisation drive is continuing…

Global Sri Lanka

Cases 124,143,841 90,514

Deaths 2,733,634 551Source: JHU

(24-03-2021 | 7:53 am)Source: HPB

(23-03-2021 | 2:03 pm)

4


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2017 2018 2019 2020 2021 (Proj.)

Mil

lio

n M

T

Paddy Production

Maha YalaSource : Department of Census and Statistics

Note: Paddy production for 2020 Yala season is provisional

The country is experiencing the third consecutive year of bumper paddy harvest…

5


10

15

20

25

30

35

40

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mil

lio

n K

gTea Production

2019 2020 2021Source : Sri Lanka Tea Board

Tea production

has returned to the levels observed in

2019…

6


4

5

6

7

8


Mil

lio

n K

g

Rubber Production

2019 2020 2021Source : Rubber Development Department

…rubber production is on an upward trend…

7


150

175

200

225

250

275

300


Mil

lio

n n

uts

Coconut Production

2019 2020 2021Source : Coconut Development Authority

Coconut production

has recovered to a great extent…

8


Power generation has normalised…

Source : Ceylon Electricity Board

800

900

1,000

1,100

1,200

1,300

1,400

1,500

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

GW

h

Electricity Generation

2019 2020 2021

9


Data usage has shown strong growth, highlighting continuity of economic activity through online platforms and work-from-home arrangements…

Source: Major Telecommunications Service Providers in Sri Lanka

0

20

40

60

80

100

120

140

160

180


Pe

tab

yte

s (1

PB

= 1

mn

GB

)

Data Usage Volume

2019 2020 2021

10


Local cement production has shown strong growth, depicting positive sentiments in the sector…

0

200

400

600

800

1,000

1,200Ja

n

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

Jan

2019 2020 2021

MT

' 00

0

Cement Availability

Local Imports

Sources: Major Cement Producers in Sri Lanka, Sri Lanka Customs

11


40

50

60

70

80

90

100

110

120


Ind

ex

val

ue

Index of Industrial Production

2019 2020 2021

Industrial production has reached pre-pandemic levels…

Source : Department of Census and Statistics

12


Purchasing managers’

indices show positive

sentiments across

manufacturing...

10

20

30

40

50

60

70

80


Ind

ex

val

ue

Purchasing Managers’ Index for Manufacturing Activities

2019 2020 2021Source : Central Bank of Sri Lanka

13


…and services…

Source : Central Bank of Sri Lanka

20

25

30

35

40

45

50

55

60

65


Ind

ex

val

ue

Purchasing Managers’ Index for Services Activities

2019 2020 2021

14


Export earnings recovered, while imports remained subdued…

-

200

400

600

800

1,000

1,200

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

US

D m

n

Monthly Export Earnings*

2019

2020

2021

Source : Sri Lanka Customs* February 2021 data are preliminary

15

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

US

D m

n

Monthly Import Expenditure*

2019

2020

2021


Accordingly, the trade deficit narrowed…

0

100

200

300

400

500

600

700

800

900


US

D m

n

Monthly Trade Deficit *

2019

2020

2021

Sources : Sri Lanka Customs, Central Bank of Sri Lanka

* February 2021 data are preliminary16


A notable rebound in

workers’ remittances

was observed…

250

350

450

550

650

750

850


US

D m

nWorkers’ Remittances

2019 2020 2021Source : Central Bank of Sri Lanka

Note: February 2021 data are provisional

17


IT/BPO

sector

performed

notably in

2020…


564604 628

677724

786848

899

971

0

200

400

600

800

1000

2012 2013 2014 2015 2016 2017 2018 2019 2020

US

D m

n

Inflows to the IT/BPO sector

18


0

50

100

150

200

250

300

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

No

. of

Tou

rist

s (‘

00

0)

Tourist Arrivals

2019 2020 2021Source : Sri Lanka Tourism Development Authority

After several months,

Sri Lanka recommenced

welcoming tourists.

A rebound is expected,

particularly in the second half of the

year…

19


Amidst headwinds, the external current account deficit improved…

-8

-6

-4

-2

0

2

4

6

8

-12,000

-8,000

-4,000

0

4,000

8,000

12,000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

(P

)

% o

f G

DP

US

D m

n

External Current Account

Trade balance Services (net) Primary income (net)

Secondary income (net) CA as a % of GDP (Right Axis) CA Balance


20


Despite the setback in 2020, a strong pipeline of FDI inflows awaits, particularly with the introduction of the Colombo Port City Commission law…


0

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US

D m

n

FDI (Including Loans)*

* To BOI Companies

21


-200-150-100-50

050

100150200

Jan

-19

Feb

-19

Mar

-19

Ap

r-19

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct

-19

No

v-19

De

c-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-20

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oct

-20

No

v-20

De

c-20

Jan

-21

Feb

-21

Mar

-21

(up

to

23)

US

D m

n

Monthly Net Absorption


Recent policy measures have enabled a gradual absorption of forex related to workers’ remittances and exports proceeds, towards building forex reserves…

* The requirement for licensed banks to sell 50% of the conversions of exports proceeds and 10% of inward worker remittances to the CBSL was temporarily suspended on 17-03-2021.

22


Debt servicing obligations were

duly met, dispelling

adverse speculation and

uncertainties caused by the unwarranted

sovereign rating downgrades…

0.8 0.91.5 1.6 1.3

2.0

1.01.4

1.8

3.22.8

0.50.6

0.7 0.80.9

0.9

0.9

1.1

1.3

1.41.5

1.31.5

2.22.4

2.2

2.8

1.9

2.4

3.1

4.64.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US

D b

nGovernments’ External Foreign Currency Debt Servicing

Principal InterestSource : Central Bank of Sri Lanka

23


6,108.5

4,248.0

7,135.8

4,000

5,000

6,000

7,000

8,000

9,000

De

c-19

Feb

-20

Ap

r-20

Jun

-20

Au

g-2

0

Oct

-20

De

c-20

Feb

-21

Ind

ex

Po

ints

All Share Price Index (ASPI)The Colombo

Stock Exchange

displayed its potential…

Average No. of Trades

2018 3,690

2019 4,968

2020 14,689

Up to mid-March 2021

34,477Source: Colombo Stock Exchange

24

Business confidence has returned…

Source : LMD

25


Share of foreign debt of the Government has declined notably…

55.5 56.2 56.8 54.8 53.5 57.0 57.3 56.5 59.7 57.7 55.9 54.7 54.5 57.0 58.4 58.8 57.3 54.6 50.5 52.4 60.0

44.5 43.8 43.2 45.2 46.5 43.0 42.7 43.5 40.3 42.3 44.1 45.3 45.5 43.0 41.6 41.2 42.7 45.4 49.5 47.6 40.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020(Prov.)

%

Composition of Domestic and Foreign Debt

Domestic Debt Foreign DebtSource : Central Bank of Sri Lanka

26


Given subdued levels of inflation and inflation expectations, the Central Bank conducted monetary policy with a focus on supporting the economic recovery…Jan-20

Policy Rates

50 bpsSRR

100 bps

Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Nov-20

Policy Rates

25 bpsPolicy Rates

25 bps Policy Rates

50 bps

SRR

200 bps

Policy Rates

100 bps

Targeted measures to

reduce specific

excessive interest

rates

Maximum interest rates on mortgage-

backed housing loans

Mar-21

Priority sector lending

targets to MSMEs to be introduced

• The Central Bank reduced policy interest rates five times by a total of 250 bps in 2020 in addition to 100 bps in 2019

• SRR was reduced by 300 bps in two occasions in 2020, in addition to 100 bps in 2019

• Bank Rate was also reduced by 650 bps during 2020

Jan-21

4.50

5.50

2.00

0

2

4

6

8

10

Jan

-19

Mar

-19

May

-19

Jul-1

9

Se

p-1

9

No

v-19

Jan

-20

Mar

-20

May

-20

Jul-2

0

Se

p-2

0

No

v-20

Jan

-21

Mar

-21

%

The Monetary Policy Cycle

SDFR SLFR SRR

Reaffirms the commitment to

continue the current

accommodative monetary policy

stance

27


Monetary policy easing measures have resulted in historically low interest rates, thereby passing the benefit of low inflation to entrepreneurs…

10.00

5.72

8.20

5.20

8.89

4.96

13.59

10.08

12.80

8.268.45

5.09

7.45

4.554

6

8

10

12

14

16

Feb

-15

May

-15

Au

g-1

5

No

v-15

Feb

-16

May

-16

Au

g-1

6

No

v-16

Feb

-17

May

-17

Au

g-1

7

No

v-17

Feb

-18

May

-18

Au

g-1

8

No

v-18

Feb

-19

May

-19

Au

g-1

9

No

v-19

Feb

-20

May

-20

Au

g-2

0

No

v-20

Feb

-21

%

Movements of Selected Market Interest Rates

Standing Rate Corridor AWPR (Monthly) AWDRAWNDR AWLR AWNLR364-day Treasury bill AWCMR (Month-end)


28


Credit to the private sector is expanding…

Increased focus towards channelling credit to productive sectors of the economy is expected to aid economic growth

4.2

6.57.8

3

5

7

9

11

13

15


%

Growth of Credit to the Private Sector (Y-o-Y)

2019 2020 2021

29



Expansionary policies have been supported by well managed inflation and inflation expectations…

Source : Department of Census and Statistics

-5

0

5

10

15

20

25

30

35

Feb

-79

No

v-8

0

Au

g-8

2

May

-84

Feb

-86

No

v-8

7

Au

g-8

9

May

-91

Feb

-93

No

v-9

4

Au

g-9

6

May

-98

Feb

-00

No

v-0

1

Au

g-0

3

May

-05

Feb

-07

No

v-0

8

Au

g-1

0

May

-12

Feb

-14

No

v-15

Au

g-1

7

May

-19

Feb

-21

Pe

r ce

nt

Year-on-year Inflation (Based on CCPI, Spliced)

12 Years of Consecutive Single

Digit Inflation

30

The novel economic model of the Government is focused on strengthening macroeconomic fundamentals…

Macroeconomic Aspirations for 2021

31

Macroeconomic aspirations for 2021 are backed by concerted efforts to enhance non-debt creating foreign exchange inflows…

While these aspirations are realised, short term foreign financing is mobilised from friendly nations and multilateral development partners. 32

The realisation of these aspirations are monitored regularly, and impediments and bottlenecks addressed…

33


Enhanced foreign exchange earnings and increased investment inflows are expected to assist SRI LANKA in reducing its dependence on external debt and improve macroeconomic resilience…

…these, along with supportive economic policies and necessary reforms towards improving the doing business environment, will help the country to return to a high growth path in 2021 and beyond.

34

Documents

Sri Lankan Economy