Economic Capsule - September 2016

Economic Capsule
September 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 Yameen
Abdul 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.

in Sri Lanka
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
ranking
Sri 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 Indira
Malwatte.

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

in 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

in Sri Lanka
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 >

Economic Capsule - September 2016

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