www.combank.lk

1. Economic Capsule
December 2019
276th
Issue
Research & Development Unit
Economic Capsule
October 2021
297th Issue

2. C O N T E N T S
BANKING & FINANCE
 ComBank partners LankaClear to become first Bank to accept digital signatures in Sri
Lanka
 ComBank Digital first to link Import & ExportControl Department for online payments
with LankaPay
 Over 100,000 customers aboard Q+ Payment App
ECONOMY & BUSINESS
 SL projected to grow by 3.3% in 2021 amidst pandemic
 The Central Bank of Sri Lanka maintains policy interest rates at their current levels
 External sector performance- Jan-Aug 2021 (USD Mn)
 CB to propose resumption of car imports paid via foreign currency
 Tourist Arrivals – September 2021
 Condominium Market – 2021 2Q
 Sri Lanka’s Manufacturing PMI – Sep 2021
 Sri Lanka’s Services PMI – Sep 2021
 CBSL reconstitutes the Monetary Policy Consultative Committee
 News Snippets
INTERNATIONAL
 IMF cuts its global growth forecast, citing supply
disruptions and the pandemic
 Oil remains near multi-year highs as energy crunch
persists
 China GDP disappoints, third-quarter growth slows to
4.9%
 UK agrees free trade deal with New Zealand
 Afghanistan’s economy could shrink by 30% following
Taliban takeover – IMF

3. Banking & Finance

4. Research & Development Unit
ComBank partners LankaClear to become first
Bank to accept digital signatures in Sri Lanka
The Commercial Bank of Ceylon has
announced it is now accepting digitally
signed documents from business customers
using LankaSign operated by LankaClear, the
only commercially operating Certification
Authority in the country which complies with
the Electronic Transactions Act.
The Bank recently signed a Memorandum of Understanding with LankaClear as the first
step towards embracing digital signatures. Commercial Bank is the first entity in Sri
Lanka’s financial sector to adopt LankaSign digital signatures for document signing.

5. Research & Development Unit
ComBank Digital first to link Import & Export
Control Department for online payments with
LankaPay
The Commercial Bank of Ceylon has become the first Bank in Sri Lanka to link the
Import and Export Control Department (IECD) to a digital platform with LankaPay,
enabling customers to pay their license fees to the department conveniently, without
having to leave their desks.
Online real-time payments to the IECD via ComBank Digital are now possible for the
Bank’s individual as well as business customers and can be accessed on
www.combankdigital.com and its iOS and Android mobile applications. The platform is
secured with industry-level security standards to provide a convenient, swift, and safe
digital banking experience to its customers, wherever they are.

6. Research & Development Unit
Over 100,000 customers aboard Q+ Payment
App
The Q+ Payment App, Sri Lanka’s first QR-
based payment application to be launched
under LANKAQR, has surpassed the 100,000
registered customers milestone, doubling its
customer base in just five months.
The fastest growing QR app in the country, Q+ Payment app has an easy self-
registration process, and is well received by customers owing to the convenience and
security it offers them in cashless payment processing when they pay for purchases by
scanning QR codes via mobile phones or via the in-app bill payment facility.

7. Economy &
Business

8. SL projected to grow by 3.3% in 2021
amidst pandemic
Research & Development Unit
“Sri Lanka has done well to vaccinate more than 50 % of
the total population so far and the Government is now
focusing on targeted measures to prevent further COVID-19
waves, which could dampen the economic recovery.
The pandemic has brought unprecedented disruptions to
education and the learning losses will be a drag on the
country’s human capital gains.
Targeted policies to reverse trends of long-term inequality
and reduce gaps in equity are priority areas to realize
growth prospects.” said Faris Hadad-Zervos, Country
Director of the World Bank for Maldives, Nepal, and Sri
Lanka.
Sri Lanka’s economy is projected to grow by 3.3 % in 2021, but the medium-term
outlook is clouded by pre-existing macroeconomic weaknesses and the economic
scarring from the COVID-19 pandemic, the World Bank said. Sri Lanka’s Central Bank
estimates growth to be higher than the World Bank forecast.
Organization
2021
(F)
2022
(F)
CBSL (Sep 21) 5.0 % 6.0 %
World Bank (Oct 21 Update) 3.3 % 2.1 %
ADB (Sep 21 Update) 3.4 % 3.4 %
IMF (Oct 21 Update) 3.6 % 3.3 %
Sri Lanka’s Growth Outlook
Source: South Asia Economic Focus – World Bank, October 2021

9. Research & Development Unit
The Central Bank of Sri Lanka maintains
policy interest rates at their current levels
The Monetary Board of the Central Bank
of Sri Lanka, at its meeting held on
13 October 2021, decided to maintain the
Standing Deposit Facility Rate (SDFR) and
the Standing Lending Facility Rate (SLFR)
of the Central Bank at their current levels
of 5.00% and 6.00%, respectively.
Source: CBSL
The Board arrived at this decision after carefully considering the macroeconomic conditions and
expected developments on the domestic and global fronts.
The Board reiterated its commitment to maintaining inflation at the targeted levels over the medium
term with appropriate measures, while supporting the economy to reach its potential in the period
ahead.

10. Research & Development Unit
External sector performance Jan-Aug 2021
(USD Mn)
Source: CBSL
Category Jan-Aug 2020 Jan -Aug 2021 Growth %
Merchandise Imports 10,257 13,411 30.7
•Consumer Goods 2,300 2,579 12.1
•Intermediate Goods 5,692 7,942 39.5
•Investment Goods 2,253 2,882 27.9
•Unclassified 11 8 -33.8
Merchandise Exports 6,445 7,903 22.6
•Industrial Exports 4,905 6,093 24.2
•Agricultural exports 1,516 1,766 16.5
•Mineral exports 14 31 115.3
•Unclassified 9.3 14 45.5
Trade Balance -3,812 -5,509 -44.5
Tourism 682 33 -95.2
Worker’s Remittance 4,346 4,224 -2.8
Gross FDI 351 398 13.4
Merchandise exports during the first
eight months of 2021 ended with a
growth of 22.6% compared with the
corresponding period of 2020, while
merchandise imports grew by 30.7%
for the first eight months of 2021
amid continuation of restrictions on
non-essential imports.
Overall, the trade deficit expanded
significantly by 44.5% during Jan-Aug
2021 period compared to the
corresponding period in 2020.

11. Research & Development Unit
External sector performance Jan-Aug 2021
(USD Mn) – Cont.
Source: CBSL
Highest growth % in Merchandise Exports
Category Jan-Aug
2020
Jan -Aug
2021
Growth %
Mineral exports 14.3 30.7 115.3
Ceramic products 13.3 24.7 85.9
Gems, diamonds
jewellery
102.6 178.0 73.4
Highest growth % in Merchandise Imports
Category Jan-Aug
2020
Jan -Aug
2021
Growth %
Base Metals 246.6 499.2 102.4
Other Investment
goods
2.0 3.7 90.6
Rubber and articles
thereof
145.8 265.8 82.3
Category Jan-Aug
2020
Jan -Aug
2021
Growth
%
Textile &
garments
2,853.1 3,434.8 20.4
Tea 805.6 882.4 9.5
Rubber products 488.9 681.7 39.4
Highest Contributors Merchandise Exports
Category Jan-Aug
2020
Jan -Aug
2021
Growth
%
Fuel 1,691.2 2,395.9 41.7
Textile & textile
articles
1,457.2 1,943.7 33.4
Machinery &
equipment
1,324.6 1,822.5 37.6
Highest Contributors Merchandise Imports

12. CB to propose resumption of car imports
paid via foreign currency
Research & Development Unit
The Central Bank is expected to
forward a proposal to the
government for consideration,
urging to explore the possibility of
resuming car imports paid via
foreign exchange as vehicle imports
remain suspended for 18 months.
Central Bank Governor, Ajith Nivard Cabraal looked at the merits of the proposal made by some
sections recently to the effect of allowing vehicle imports paid through foreign currency as such a
process, if could be put into place, would enable the people to bring down the vehicles they need
without putting an additional pressure on domestic foreign exchange market.

13. Tourist arrivals – September 2021
Research & Development Unit
Tourist arrivals showed some increase in September 2021 over the
previous month.
Accordingly, tourist arrivals in September 2021 were recorded at
13,547 compared to 5,040 arrivals in August 2021.
A total of 37,924 tourist arrivals were recorded during the nine
months up to September 2021, compared to 507,311 arrivals in the
corresponding period of 2020.
Top ten source markets to
Sri Lanka, September 2021
Country Arrivals
India 8,528
Pakistan 1,225
Germany 466
U.K 309
Russia 304
Canada 265
Indonesia 245
Bangladesh 235
Spain 182
France 181
SL ranked among Conde Nast 2021’s ‘Best Countries to Travel to’
As Sri Lanka gears up to revive its tourism sector, the island nation has secured a
position as one of ‘The Best Countries to Travel to’ by the Conde Nast 2021 Readers’
Choice Awards.
Sri Lanka, along with other countries, received their ranking with the readers of Condé
Nast Traveller, submitting their votes for tourist destinations they wholeheartedly
recommend. The 2021 survey had over 800,000 respondents.
For the year under review, Sri Lanka bagged a core of 93.96, up from last year’s score
of 91.79.

14. Condominium Market – 2021 2Q
Research & Development Unit
As observed in previous quarters, the most preferred
condominium units were in the single condominium
project category and those of below Rs.25 million.
Meanwhile, a shift in sales proportions towards
higher priced categories could also be observed
during Q2, 2021.
By the end of Q2, 2021, majority of the units (91 %)
in completed condominium projects have been sold.
Meanwhile, in ongoing condominium projects, 58%
and 56% of units have been reserved in single
condominium projects and mixed development
projects, respectively.
*Condominium Property Volume Index
*Condominium Property Volume Index is compiled to capture the variations in market activities by way of number of sales transactions reported for the reference period
Percentage of Sales Price Categories Percentage of Sales Condominium Categories
Source: CBSL
The sales transactions of Condominiums reported
during Q2, 2021 were increased compared to the
corresponding period of the previous year, even
though it has declined compared to Q1, 2021 as
indicated by the Condominium Property Volume
Index.

15. Sri Lanka’s Manufacturing PMI – Sep 2021
Research & Development Unit
Manufacturing PMI bounced back to 54.3 in September 2021,
increasing by 9.2 index points compared to August 2021.
This increase was mainly attributable to the significant improvements
observed in New Orders and Employment sub-indices.
The increase in New Orders, particularly in the manufacture of textile & wearing apparel and food & beverages sectors, have
contributed considerably to the overall improvement in the PMI.
Some respondents in the textile & wearing apparel sector mentioned that they received a large number of export orders in
September with the normalization of the economies in the major export destinations. Employment has also increased, especially
in the manufacture of textile & wearing apparel sector, where new recruitments resumed with the tapering off of the pandemic
situation.

16. Sri Lanka’s Services PMI – Sep 2021
Research & Development Unit
Services PMI entered the growth territory reporting an index value
of 52.2 in September 2021 following the dip observed in August
2021. This was underpinned by the increases in New Businesses,
Backlogs of Work and Expectations for Activity sub-indices.
The Index
PMI is calculated as a ‘Diffusion Index’, where it takes values between 0 and 100.
PMI = 50 - sector remained neutral on month-on-month basis
PMI > 50 - sector is generally expanding on month-on-month basis
PMI < 50 - sector is generally declining on month-on-month basis

17. CBSL reconstitutes the Monetary Policy
Consultative Committee
Research & Development Unit
The Monetary Policy Consultative
Committee (MPCC) of the Central Bank
of Sri Lanka has been reconstituted with
effect from 5 October 2021.
The reconstituted MPCC comprises 12
eminent personalities from the private
sector and academia and is chaired by
Mr. Sunil Lankathilake, Former Deputy
Governor of the Central Bank of
Sri Lanka and a Member of the
Securities and Exchange Commission of
Sri Lanka.
Source: CBSL

18. Research & Development Unit
CB relaxes import controls but
introduces mandatory conversion of
export proceeds
The Central Bank (CB) on 01 Oct relaxed retrograde import
controls, enforced last month, but introduced mandatory
export proceeds conversion.
News Snippets
Fertilizer for tea in 6-8 weeks
Sri Lanka’s tea industry will receive the much needed fertilizer in 6-8 weeks once the
government finalizes which source will be used to provide the Nitrogen content.
The Department of Agriculture has been considering the use of Nano Nitrogen
fertilizer said to be a world’s first liquid fertilizer manufactured using nanotechnology
produced by the Indian Farmers Fertilizer Cooperative (IFFCO). This has obtained
approval for use by paddy farmers as it is said to have passed all required tests.
Central Bank to increase single shareholder limit of banks
Increasing the single shareholder limit of banks is being actively considered by
the Central Bank (CB), keeping in line with the 6-month road map for ensuring
macroeconomic and financial system stability.
“Share ownership rules will be reviewed this year, as stated in the road map, by
the new Governor, Nivard Cabraal,” a CB official told.
According to Central Bank (CB) regulations, one party or parties acting in
concert can own up to 10% of a bank. This can be extended up to 15 % with CB’s
special approval.
The plan is to increase each limit by 5% more, according to the official. So, the
10% limit will go up to 15% with this special approval increasing up to 20%.
IFC issues 1st Sri Lankan Rupee-
Denominated Bond
IFC, the World Bank-affiliate, in a major step towards
supporting the private sector in Sri Lanka amid a
significant economic downturn, has issued its first-
ever rupee-denominated bond in the country.
The bond – called the ‘Serendib Bond’ – is a significant
milestone towards ensuring that the private-sector
has access to long-term offshore financing in local
currency—while hedging foreign exchange risks—at a
critical time, IFC said in an announcement.

19. International

20. IMF cuts its global growth forecast, citing supply
disruptions and the pandemic
Source: CNBC
Research & Development Unit
The International Monetary Fund is now less optimistic about the global economy for 2021, but still sees
reasonable growth over the medium term.
In its World Economic Outlook, published, the Fund said it expects global gross domestic product to grow by
5.9% this year — 0.1 percentage point lower than its July estimate. For next year, the IMF has kept its global
growth projection at 4.9%.

21. Research & Development Unit
Oil remains near multi-year highs as energy
crunch persists
Oil prices fell on Thursday 21 October as some
investors scooped up profits from the recent
rally, though solid demand in the United States
and a switch to fuel oil from coal and gas amid
surging prices capped losses.
However oil prices have been climbing the last
two months. Since the start of September,
Brent has risen by about 19%, while WTI has
gained around 21%.
Source: Bloomberg/Reuters
Supply-demand balances show that the market is experiencing a supply deficit, which is spurring deep
inventory draws and driving prices upwards," said a senior oil markets analyst.

22. China GDP disappoints, third-quarter growth
slows to 4.9%
Source: CNBC
Research & Development Unit
China’s third-quarter GDP grew a disappointing
4.9% as industrial activity rose less than expected
in September.
Many factories had to stop production in late
September as a surge in the price of coal and a
shortage of electricity prompted local authorities
to abruptly cut off power.
The central government has since emphasized it
will boost coal supply and ensure the availability of
electricity.
Latest data release also showed businesses were less
keen to put money into future projects.

23. UK agrees to free trade deal with New Zealand
Source: CNBC
Research & Development Unit
The UK has agreed to a free trade deal with
New Zealand which it says will benefit
consumers and businesses.
Prime Minister Boris Johnson said the deal
will cut costs for exporters and open up New
Zealand's job market to UK professionals.
The government hopes it is a step towards
joining a trade club with the likes of Canada
and Japan.
However, the New Zealand deal itself is unlikely to boost UK growth, according to the government's
own estimates.

24. Afghanistan’s economy could shrink by 30%
followingTaliban takeover - IMF
Research & Development Unit
Afghanistan’s gross domestic product could see a contraction of up to 30% following the
Taliban takeover, the IMF said in its latest regional economic report.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, said the country’s
situation was deteriorating, even before Kabul fell.
The report also noted that non-humanitarian aid has been halted, foreign assets mostly frozen
and Afghan banks have been crippled by cash shortages after the Taliban returned to power.
“These shocks could cause a 20–30 percent output contraction, with falling imports, a
depreciating Afghani, and accelerating inflation,” the report said. “The resulting drop in living
standards threatens to push millions into poverty and could lead to a humanitarian crisis.” He
said.
Source: CNBC

25. 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.
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