Post on 16-Apr-2022
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | 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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
4
5
6
7
8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mil
lio
n K
g
Rubber Production
2019 2020 2021Source : Rubber Development Department
…rubber production is on an upward trend…
7
Economic Research Department | Central Bank of Sri Lanka
150
175
200
225
250
275
300
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mil
lio
n n
uts
Coconut Production
2019 2020 2021Source : Coconut Development Authority
Coconut production
has recovered to a great extent…
8
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Pe
tab
yte
s (1
PB
= 1
mn
GB
)
Data Usage Volume
2019 2020 2021
10
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
40
50
60
70
80
90
100
110
120
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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
Economic Research Department | Central Bank of Sri Lanka
Purchasing managers’
indices show positive
sentiments across
manufacturing...
10
20
30
40
50
60
70
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Ind
ex
val
ue
Purchasing Managers’ Index for Manufacturing Activities
2019 2020 2021Source : Central Bank of Sri Lanka
13
Economic Research Department | Central Bank of Sri Lanka
…and services…
Source : Central Bank of Sri Lanka
20
25
30
35
40
45
50
55
60
65
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Ind
ex
val
ue
Purchasing Managers’ Index for Services Activities
2019 2020 2021
14
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
Accordingly, the trade deficit narrowed…
0
100
200
300
400
500
600
700
800
900
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US
D m
n
Monthly Trade Deficit *
2019
2020
2021
Sources : Sri Lanka Customs, Central Bank of Sri Lanka
* February 2021 data are preliminary16
Economic Research Department | Central Bank of Sri Lanka
A notable rebound in
workers’ remittances
was observed…
250
350
450
550
650
750
850
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US
D m
nWorkers’ Remittances
2019 2020 2021Source : Central Bank of Sri Lanka
Note: February 2021 data are provisional
17
Economic Research Department | Central Bank of Sri Lanka
IT/BPO
sector
performed
notably in
2020…
Source : Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Source : Central Bank of Sri Lanka
20
Economic Research Department | Central Bank of Sri Lanka
Despite the setback in 2020, a strong pipeline of FDI inflows awaits, particularly with the introduction of the Colombo Port City Commission law…
Source : Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
-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
Source : Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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)
Source : Central Bank of Sri Lanka
28
Economic Research Department | Central Bank of Sri Lanka
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
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Growth of Credit to the Private Sector (Y-o-Y)
2019 2020 2021
29
Source : Central Bank of Sri Lanka
Economic Research Department | Central Bank of Sri Lanka
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
Economic Research Department | Central Bank of Sri Lanka
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