Balance of paymnet

Higher Diploma in Business Financial ManagementGroup Presentation- November 2012

Balance Of Payment – Group 2


”The BOP is a systematic record of an economy’s transactions with the rest of the world for a specific period of time (IMF)”

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Balance Of Payment

• Supply and Demand of Foreign Currency• Money Going Out / Goods Coming Viz Viz• Service Going out / Money Coming in Viz Viz• Interset Coming in /going out• Transfer coming in / Going out

• How economy survive when there is a Deficit • Trade Deficit

• Where can Economy acquire money to balance the trade Deficit• FDI / I P S (inflows to private sector)/Inflows to the Government• Selling Reserves

• At the end all needs to Balance - BOP


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Key Elements of Balance of Paymnet

BOP

CURRENT ACCOUNT

OFFICIAL RESERVE

NET ERRORS & OMMISION

S

CAPITAL ACCOUNT


Current Acc

Trade Acc

Current Transfe

rs

Income

Service Trade

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Key Elements of Current Account


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Account

Capital Account Financial Account

Capital Account


BOP Current Account – Sri Lanka


BOP Current Account – Sri LankaSri Lanka reported a current account deficit equivalent to 2052 Million USD in the first half of 2012. Historically, from 2003 until 2011, Sri Lanka Current Account averaged -394.7 USD Million reaching an all time high of 274.0 USD Million in September of 2010 and a record low of -1695.0 USD Million in December of 2011.

Exports - Sri Lanka exports were worth 802 Million USD in September of 2012. Historically, from 2003 until 2012, Sri Lanka Exports averaged 1710.3 USD Million reaching an all time high of 2720.8 USD Million in March of 2011 and a record low of 680.1 USD Million in April of 2012.

Sri Lanka exports mostly textiles and garments (40% of total exports) and tea (17%). Others include: spices, gems, coconut products, rubber and fish. Main export partners are United States, United Kingdom, Germany, Belgium and ItalyExports from Jan 2012 to Sep. 2012In 2012 Exports income started to decline for the first 8

months in 2012

Declining of International Commodity Items Textile and Garment earning dropped mainly due to sharp decline of Int. Cotton PricesRubber products , gem and diamond ex. Income increased due to due to high prices in Int.Market Earning from Mineral products also increased considerably


Sri Lanka imports were worth 1315 Million USD in September of 2012. Historically, from 2003 until 2012, Sri Lanka Imports averaged 2716.1 USD Million reaching an all time high of 5641.0 USD Million in December of 2011 and a record low of 1441.0 USD Million in April of 2012. Sri Lanka imports petroleum, textile fabrics, foodstuffs and machinery and transportation equipment. Main import partners are India, China, Iran and Singapore.

Over the years Intermediate Goods (Petroliam Products, Textiles & Diamonds etc) Dominated majority of the SL imports in 2011 USD 12,275.30 Million , from Jan- Aug 2012 total no. of imports under this category is USD 7,727.60 million which is a -1.7 drop on YOY

Consumer goods tallies up to USD 2,085.60 million for the first 8 months of 2012 with major contributions from Food & beverages, Sugar & Dairy Products

Importation of vehicles was reduced to USD 398.30 million for this period since the increment of TaxesComposition of Imports – Jan – Aug 2012 Trade in Services

Trade in services account ended up with 55% which is USD 1,099 million for year 2011 which is a USD 392 million increase comparing to last year .

Post Conflict growth momentum in the tourism sector continued to improve in year 2011 with recording the highest ever tourist arrivals with a staggering amount of 855,975. For the first 9 month of 2012 amount goes up to 693,772

The growth of Communication services , Computer & Information Services had a remarkable growth in 2011 & same will continue to happen in 2012 also


TOURISUM •The average spending by a Tourist per night increased from USD 88 IN 2010 to USD 97 in 2012•A Target was set to achieve 2.5 million of tourists by 2016 with annual foreign exchange earings of USD 2.75 Billion . Earnings from Tourism for the first nine months in 2012 is about USD 711 Million

•Int. hotel chains like Shangri – La, Sheraton, Hyatt & Sun City already entered to industry in country 11 new air lines also registered to fly to SL

•Launch of Sri Lankan Air Taxi operations within the country will attract more tourist

•New locations (passikudha, Kalpitiya etc.) were added to product developmentInflows and out Flows of Income

•The income account recorded a deficit of USD 647 million with a increase of USD 30 million compared to year 2010. For the 1st half of the year 2012 deficit was USD 482 million with Receipts counting up to USD 145 million and the payments counted up to USD 627 million.

•Interest earned from Investment of reserves , profits from trading foreign currency and foreign securities contributed to the receipts in the income account but comparing the corresponding period of 2011 this was lower due to lower global interest rates .

•the Deficit in income account widened mainly because Interest paid on Foreign Loans , Coupon Payments and Treasury securities were increased in a higher pace in first half of 2012


Current Transfers•In year 2011 Current transfers increased by USD 983 Million which totaled USD 4,643 million. During the first six months of 2012 it has recorded USD 2655 million where workers remittances continued to be the leader.

•Govt has entered in to collective agreements on Labour migration with several countries & also 5 year tax exemption for migrants investments n capital goods to increase the inflows of current transfers

•Increase in labour mig. Under professional cat. , expansion of formal channels for remitting money and increased no. of exchange house networks set up by the commercial banks were he main factors contributed towards the increase in inflows under workers’ remittances

Current Transders Current Transders Current Transders Current Transders

In 2011 current account deficit was USD 4615 Million which is a increase of USD 3,540 million compared to year 2010. how ever for 1at six month of 2012 deficit was recorded as USD 2,052 million .

year 2012 first half deficit was mainly due to increase deficit led by higher expenditure on Intermediate and investment goods & the widening deficit in income account

The current account deficit is expected to be reduced to around 5.1% of GDP in 2012 from 7.8% of GDP in 2011

Current Account Balance


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Account

Capital Account Financial Account

Capital Account


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Capital Account

The gross official reserves of the countryreached a historically high level of US dollars8.2 billion by mid-August 2011 and declinedThereafter –Central Bank SL


J Curve effect

The effect of a currency devaluation on the Balance of payments Current Account

Time

Time

Deficit

Surplus


J Curve effectTime

Deficit

Surplus

Floating Depreciate currency value.Makes imports become more expensive andExports become more cheaper to buy.The Price become inelastic in DemandBOP C/A Deficit become worst.

Over a time, Citizen will react to the Devaluation.They find alternatives to imports, Curtail Expenses,Demand for imports become more elastic in the Long RunThe C/A , then should improve over time.


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Economic Impact on BOP

Economic IndicatorLand of Opportunities for foreing investment

Who took the Burdon

We rely on worker remittance yet not Properly recognized.

Social unrest, family , long term socio Economic unrest.


Thank You!

Balance Of Payment – Group 2

Balance of paymnet

Economy & Finance

Transcript of Balance of paymnet