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Foreign Sentiment Signals Confidence in Sri Lanka’s Economic Performance and Potential

In recent days, serious concerns have been expressed regarding the performance of the Sri Lankan economy.

In this context, it is instructive to gauge the level of external support for the Sri Lankan economy from international capital markets. This would be an independent barometer of the health of the Sri Lankan economy as international capital markets are hard-nosed in their assessments.

The Annual Report of the Central Bank of Sri Lanka for the Year 2017

In terms of Section 35 of the Monetary Law Act No. 58 of 1949, the sixty eighth Annual Report of the Monetary Board of the Central Bank of Sri Lanka was presented to Hon. Mangala Samaraweera, the Minister of Finance and Mass Media, by Dr. Indrajit Coomaraswamy, the Governor of the Central Bank of Sri Lanka.

A summary of the performance of the Sri Lankan economy in 2017 as reflected in the Annual Report is given below:

Clarification on Treasury Bond Service Payments

The Central Bank of Sri Lanka (CBSL) has observed media reports erroneously highlighting lack of funds to pay-off Treasury bonds before their date of maturity.

CBSL notes that there is no accuracy in above media reports and highlights the unblemished debt service payment record of the government in servicing both domestic and foreign debt. The payment of interest and principal at maturity on due dates (timely payment) and not before the due date is followed to the rule by CBSL in discharging its agency function of managing public debt on behalf of the government.

Inflation in March 2018

Headline Inflation, as measured by the change in the National Consumer Price Index (NCPI, 2013=100), which is compiled by the Department of Census and Statistics (DCS), continued to follow the declining trend exhibited since November 2017. As such, the year-on-year NCPI headline inflation decreased to 2.8 per cent in March 2018, lowest since April 2016, from 3.2 per cent in February 2018. The monthly decline in Food prices in March 2018 supported by the favourable supply conditions attributed to this sharp decline in year-on-year inflation in March 2018. The change in the NCPI measured on an annual average basis decreased from 7.2 per cent in February 2018 to 6.7 per cent in March 2018.

IMF Reaches Staff-Level Agreement on the Fourth Review of Sri Lanka’s Extended Fund Facility

After constructive discussions with the authorities in Colombo and during the Spring Meetings in Washington DC, Manuela Goretti, the IMF mission chief for Sri Lanka, issued the following statement: 

“The IMF team reached a staff-level agreement with the Sri Lankan authorities on the fourth review under an economic reform program supported by a three-year Extended Fund Facility (EFF) arrangement. All the end-December quantitative performance criteria under the program were met, as the authorities have successfully advanced fiscal consolidation and strengthened international reserves. Due to a weather-related spike in food prices, inflation exceeded the upper limit for the inner band for December, but has since fallen back within the inner band. The authorities are taking actions to implement all the pending structural benchmarks for this review, despite some delays.”

SL Purchasing Managers’ Index - March 2018

The Manufacturing Sector PMI reached a 12-month high and signalled a strong upturn in manufacturing activities by recording 65.6 index points in March from 55.6 index points in February 2018 and was in line with the pattern observed in previous years. The increase of PMI in March was largely attributable to increasing orders in line with the seasonal demand as reflected by increase in New Orders and Production sub-indices. Stock of Purchases and Employment sub-indices also increased during the month. Further, lengthening of the Suppliers’ Delivery Time sub-index also contributed positively to the overall increase. However, most respondents, especially in the Textiles and Apparel sector, highlighted difficulties in finding both skilled and unskilled workers. Overall, all the sub-indices of PMI recorded values above the neutral 50.0 threshold signalling an overall expansion in manufacturing activities during the month. Moreover, the Expectation for activities remains positive for the next three months.  

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