Economic Capsule - September 2016

Economic CapsuleSeptember 2016

Research & Development Unit

237th Issue

C O N T E N T S

BANKING AND FINANCE

Commercial Bank of Maldives launches operations

Commercial Bank launches new series of ATM machines

ECONOMY & BUSINESS

Sri Lanka GDP growth slows in 2Q, 2016

CB Governor says 2Q growth should be higher than 2.6 %

Sri Lanka slips in global competitiveness ranking

Colombo becomes the fourth fastest-growing destination city in the world

Sri Lanka launches 'Techno City' as part of megapolis development project

Cinnamon Life launches second residential tower ‘The Suites at Cinnamon Life’

Oxford Business Group’s info-graphic on Sri Lanka

Booming tourism, local demand seen threat to Sri Lanka fruit exports

Sri Lanka lube market grows 6.8% in 2015

Asian Development Outlook 2016

London still top finance centre

Economic Update

IMF views on Sri Lanka

ANALYSIS & FORECAST

Condominium Industry in Sri Lanka

October, 2014


Banking & Finance

4< Research & Development Unit >

Commercial Bank of Maldives launches operations

(Left) Maldivian President Abulla Yameen Abdul Gayoom unveiling the plaque at the opening of Commercial Bank of Maldives and (right)

Commercial Bank of Ceylon Managing Director Jegan Durairatnam speaking at the opening ceremony

The Commercial Bank of Maldives, a subsidiary of the Commercial Bank of Ceylon and a joint venture with Tree Top Investments Maldives, formally inaugurated its banking operations in the Maldives on 26 September, with the opening of its head office and first branch in the archipelago’s capital Malé by Maldivian President Abdulla YameenAbdul Gayoom.

Bringing together the expertise of Commercial Bank of Ceylon, which holds a majority stake of 55%, and the deep local market knowledge of the Maldivian partner, which owns 45% of the joint venture, Commercial Bank of Maldives would follow a strategy of providing access to its services through the integration of modern technology and infrastructure to serve growing consumer and business needs in the market.

The joint venture is the third overseas banking operation of the Commercial Bank of Ceylon, after Bangladesh, which the bank entered in 2003, and Myanmar, where the bank opened a Representative Office in June 2015.


Commercial Bank launches new series of ATM machines

Commercial Bank has launched a new generation of machines that offers several new advancements on the standard ATMs and deposit machines, including cash deposits that are credited instantly.

Card-less cash deposits are possible and the new machines accept cash deposits into third party accounts as well, and can be used to settle utility bills and dues on Commercial Bank credit cards.

Additionally, the new machines offer services such as balance inquiries, transfers of funds between linked accounts and changing of personal identification numbers (PINs) and accept requests for mini statements. Detailed receipts are issued in respect of the transactions processed.


October, 2014


Economy & Business

7

Sri Lanka GDP growth slows in 2Q, 2016

Sri Lanka’s GDP growth slowed to 2.6% in 2Q, 2016 compared with 5.2 % in 1Q, 2016.

5.6 % 2.2 %

Source: Department of Census & Statistics

Cont..

8

Sri Lanka GDP growth slows in 2Q, 2016 (cont…)

4.9 %



9

CB Governor says 2Q growth should be higher than 2.6 % Sri Lanka’s second quarter economic growth for this year

should be higher than the published 2.6 %, according to Central Bank Governor. The Governor expect it to be higher than the current figure, once it gets revised.

“If you look at proxies for growth like availability of cement for the construction sector, electricity consumption and credit growth, economic growth may not have slowed down as much as 2.6 %,” according to the Governor.

“Credit is growing at about 25 % in the second quarter and inflation was low at that time. So you can’t have high credit growth, low inflation and low growth. The money has to go somewhere,”. “So, there are chances that figure is revised upwards.”

Coomaraswamy further expected the third and fourth quarters to record more growth than last year’s numbers as he sees an upward movement in business confidence. “So our expectation is that this year’s growth would be about 5 % or little bit more than that and next year it will be a bit higher than that.”

Source: Lanka Business Online


Sri Lanka slips in global competitiveness rankingSri Lanka has slipped three positions to number 71 in the latest ranking of global competitiveness by the World Economic Forum. The WEF’s Global Competitiveness Report 2016/17 identified Sri Lanka as the most advanced economy in the South Asian region but noted the country has slipped three positions to 71st out of 138 countries assessed, but with a stable score.

Switzerland, Singapore and the United States remain the world’s most competitive economies with India being the highest rising economy, climbing 16 places to be ranked at No 39.

Source: Global Competitiveness Report 2016/17, World Economic Forum


Colombo becomes the fourth fastest-growing destination city in the world Fastest-Growing Destination Cities with at Least One Million Overnight Visitors in 2016 (2009–2016 CAGR)

Asia-Pacific’s Fastest-Growing Destination Cities Top 10 Details

Source: Global Destination Cities Index by Mastercard


Sri Lanka launches 'Techno City' as part of megapolis development project

Sri Lankan Prime Minister, Ranil Wickremesinghe, launched the first phase of the construction of 'Techno City’, which will be the “technological hub” of the ambitious multi-billion dollar Western Province Megapolis project.

According to the PM the Techno City, along with the Financial City in the Center of Colombo, will exploit Sri Lanka’ strategic location in the Indian Ocean region to secure Foreign Direct Investment (FDI) on a massive scale and spur local industries and investments.

• The area from Malabe to Homagama in the Western Province has been seen as the most suitable place for the construction of Techno City as it is heavily populated and is a bustling trading hub.

• The Malabe area will be divided into three technical zones and Homagama into seven technical zones.

• Sri Lanka's science and technology institutions, such as University of Moratuwa, University of Sri Jayawardhenapura, University of Colombo, Arthur C Clarke Institute for Modern Technologies and the National Science Center will commence projects in Techno City. The Urban Development Authority (UDA) is to grant 25 acres to each university and 10 acres to each technical institution involved in Techno City.


Cinnamon Life launches second residential tower ‘The Suites at Cinnamon Life’

Cinnamon Life, announced the launch of ‘The Suites at Cinnamon Life’, the second residential tower to be constructed as part of a 4.5 mn square foot integrated resort by Waterfront Properties (Private) Limited, a member of the John Keells Group.

At the time of launch, pre-bookings for ‘The Suites at Cinnamon Life’ have exceeded 15%, whilst over 50% of the floor space of the first residential tower ‘The Residence at Cinnamon Life’ has already been sold.

Comprised of 196 luxurious apartments, the second residential tower will rise 39 stories to a height of 136 meters and will include a comprehensive suite of facilities including an elegant swimming pool, modern gymnasium, steam and sauna rooms, and a landscaped podium and roof-top featuring breath-taking views of the island’s commercial capital.


Oxford Business Group’s info-graphic on Sri Lanka

Oxford Business Group’s (OBG) info-graphic noted tourism’s rising contribution to GDP, with foreign arrivals up 18% in 2015 and expected to more than double by 2020.

It also highlighted the positive impact that strong tourism growth was having on real estate, especially hotel supply, with stock rising by 35.7% in the three years to 2014 and further luxury developments in the pipeline.


Booming tourism, local demand seen threat to Sri Lanka fruit exports

The boom in tourism and local consumption is posing a threat to Sri Lanka fruits and vegetable export industry which cannot find enough supply to meet demands of overseas buyers, according to Anne Junaid, outgoing chairman of the Lanka Fruits & Vegetable Producers, Processors & Exporters’ Association.

“Selling is the least of our problems, exporting and finding the market for the produce is also the least of our problems, finding the produce to export is the biggest problem we face right now.”

Sri Lanka state land to encourage fruit exports

The Sri Lankan government plans to give fruit and vegetable exporters access to land owned by state plantations in a bid to increase supply which has become a constraint in increasing earnings.The Export Development Board (EDB) is trying to get unused land owned by the state-run Janatha Estate Development Board for cultivation according to its chairperson IndiraMalwatte.


Sri Lanka lube market grows 6.8% in 2015

Sri Lanka’s lubricant market has grown by 6.8 % to Rs 23.4 bn in 2015, with 10.1 % growth in automotive lube and 7.7 % increase in industrial lube, according to the lubricant market report 2015, compiled by Public Utilities Commission of Sri Lanka (PUCSL) said.

However the marine lubricant market has shown a reduction of 37.7 % in 2015 compared to year 2014 while the grease market has shown a moderate growth of 4.7 %.

In the automotive lubricants market segment the highest growth is shown in four stroke motorcycle oil with an increase of 29 % and petrol vehicle lubricants have increased by 14.8 %.

Sales and Market Share

Source: Lubricant Market Report 2015 by Public Utilities Commission of Sri Lanka


October, 2014


International


Growth has held up in developing Asia despite a difficult external environment, and the region is expected to grow steadily with forecasts unchanged from Asian Development Outlook 2016.

Sri Lanka

The growth forecast for Sri Lanka in 2016 is revised down to 5.0% from 5.3% on unexpected weakness in the 2Q, which held growth in the 1H to 3.9%. The growth forecast for 2017 is revised down to 5.5% from 5.8% in light of continued lackluster global demand and the need for fiscal policy adjustment.

Source: ADB


London still top finance centre

London's role as the world's top financial centre could be under threat as the implications of Britain leaving the European Union start to sink in, according to a survey.

The Z/Yen 20th global financial centres index (GFCI), which looks at 87 financial centres, showed that London remains just ahead of New York, followed by Singapore and Hong Kong.

The survey looked at competitiveness, business environment, infrastructure, and responses to questionnaires from people working in financial services.

Z/Yen said the Brexit referendum result was not reflected as it was based on data to the end of June 2016, just after the June 23 vote.

Source: Global Financial Centres Index - Z/Yen


October, 2014


Analysis & Forecast


Economic Update

Money Supply: Broad money expansion continued to remain high at 17.8 % in July 2016, on a yoy basis, compared to 17.0 % recorded in the previous month, mainly driven by credit flows to the private sector and the government from the banking system.

The growth of credit granted to the private sector by commercial banks was at 28.5 %, yoy, in July 2016, compared to 28.2 % in the previous month.

Interest Rates: Market interest rates, which increased in response to monetary tightening measures of the Central Bank, are expected to slow down credit expansion in the months ahead.

Inflation: Reflecting the normalisation of domestic supply conditions as well as the suspension of the implementation of certain changes to government tax policy, inflation declined further in September 2016, on a yoy basis.

External Sector: The deficit in the trade account expanded marginally by 0.7 % (yoy), during the first seven months of 2016 as the decline in export earnings was greater than the contraction in the expenditure on imports.


Economic Update (cont..)

External Sector (cont..): Strengthening the external position, earnings from tourism increased by an estimated 16.0 % during the first eight months of the year, while workers’ remittances increased by 4.5 % during January-July 2016.

In addition to the confidence gained from the Extended Fund Facility of the International Monetary Fund (IMF-EFF), increased investment inflows on account of government securities as well as other financial flows to the government helped to stabilize the domestic foreign exchange market reflecting these developments, gross official reserves were estimated to have improved to USD 6.6 bn by end August 2016.

Fiscal Performance: Sri Lanka’s fiscal deficit recorded Rs.328.3 bn in the first half of 2016. This amounts to almost half of the target for 2016 which is Rs.659 bn (5.4% of GDP).

This half-year achievement is all the more creditable in view of the delay that the government has faced in implementing VAT hikes due to two court rulings which forced the government to temporarily suspend the move.

Source: CBSL – Monetary Policy Review – Sep, 2016, Ministry of Finance


IMF views on Sri Lanka

A staff team (mission) from the IMF visited Colombo during Sep.13- 23, 2016 to hold discussions on the first review of its current EFF programme in Sri Lanka. In relation to the first half of 2016, the IMF team has noted the improvement in the balance of payments, reduced growth mainly due to recent floods, and the slightly higher inflation.

The mission has commended the authorities for meeting all quantitative targets of the EFF programme through end-June, 2016. However, the mission has highlighted some shortcomings in relation to implementing the tax reform package. Accordingly the mission has noted that the government should expedite the legislative process of implementing the VAT amendments that are required to support revenue targets for 2016 and 2017.

The mission has welcomed the CBSL’s move to preemptively raise policy rates to maintain inflation within its target band, and urged the CBSL to stand ready to tighten further should inflation or credit growth continue to rise.


IMF views on Sri Lanka (cont…)

The IMF mission has welcomed the effective tightening of fiscal and monetary policies that contributed to improving market confidence and easing pressures on external balances. In light of easing external pressures, the mission encourages the CBSL to continue its effort to rebuild international reserves and maintain exchange rate flexibility to further develop the foreign exchange market.

In this regard, the mission and the authorities have discussed plans for a transition to flexible inflation targeting as the monetary policy framework, possibly supported by IMF technical assistance.

Source: IMF

The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC

The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence of using such information for whatever purpose. < Research & Development Unit >

Economy & Finance

Economic Capsule - September 2016