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Monday March 4th, 2024

Sri Lanka chamber Outlook Report sees recovery in 2024

ECONOMYNEXT – The Ceylon Chamber of Commerce’s Outlook Report 2024 says that Sri Lanka’s economic growth is poised for a modest recovery in 2024.

This year’s report ‘Striving towards a New Growth Path’ reviews the performance of the domestic, global, and regional economies, offering perspectives on key sectors such as tourism, apparel, IT/BPM, FMCG, tea, banking, and renewable energy.

“There are positive signs of 3 percent growth. The reforms may be difficult, but they will produce results if they are well-directed,” Central Bank Governor Dr Nandalal Weerasinghe said at the launch, adding that “we can expect a surplus in the external sector in 2024 if we manage the fiscal balances and create spillover effects”.

“The current issues can be resolved with the implementation of reforms that will benefit the common people,” Duminda Hulangamuwa, Chairman of The Ceylon Chamber said in a statement.

Sanjaya Ariyawansa, Economist, Ceylon Chamber said that the anticipated rebound depends on effective debt restructuring and the implementation of key structural reforms aimed at achieving macroeconomic stability.

The report said that inflation is expected to stabilize at a mid-single-digit level in 2024, following significant disinflation in 2023: “The external sector of the Sri Lankan economy exhibited marked improvement in 2023, with a notable reduction in the merchandise trade deficit and a surge in net service exports, particularly in tourism, along with a remarkable improvement in inflows of workers’ remittances.” (Colombo/Feb12/2024)

The full statement by the Ceylon Chamber of Commerce:

The Ceylon Chamber of Commerce Unveils Outlook 2024 Report

The 9th edition of the annual flagship Outlook Report for 2024 by The Ceylon Chamber of Commerce was recently launched at the Economic Outlook 2024 seminar. Dr. Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka, delivered the keynote address at the launch event.

Compiled by the Economic Intelligence Unit (EIU) of the Ceylon Chamber, the report provides insights into crucial business planning variables such as growth, inflation, interest rates, and exchange rates. The theme for this year’s report is “Striving towards a New Growth Path.” It comprehensively reviews the performance of the domestic, global, and regional economies, offering perspectives on key sectors such as tourism, apparel, IT/BPM, FMCG, tea, banking, and renewable energy.

Delivering the opening remarks, Mr. Duminda Hulangamuwa, Chairman of The Ceylon Chamber emphasized that ‘the current issues can be resolved with the implementation of reforms that will benefit the common people”. Speaking at the event, Dr. Nandalal Weerasinghe affirmed that “there are positive signs of 3% growth. The reforms may be difficult, but they will produce results if they are well-directed’, adding that ‘we can expect a surplus in the external sector in 2024 if we manage the fiscal balances and create spillover effects”.

Presenting the Outlook report, Sanjaya Ariyawansa – Economist, Ceylon Chamber, emphasised that Sri Lanka’s economic growth is poised for a modest recovery in 2024. This follows a challenging period in 2023, marked by economic contraction, only to witness a positive growth of 1.6% in the third quarter. The anticipated rebound depends crucially on effective debt restructuring and the implementation of key structural reforms aimed at achieving macroeconomic stability.

The report further highlighted that inflation is expected to stabilize at a mid-single-digit level in 2024, following significant disinflation in 2023. The external sector of the Sri Lankan economy exhibited marked improvement in 2023, with a notable reduction in the merchandise trade deficit and a surge in net service exports, particularly in tourism, along with a remarkable improvement in inflows of workers’ remittances.

In terms of monetary policy, the Central Bank shifted to a more accommodative stance in 2023 to support economic recovery and manage inflation. Despite facing a significant budget deficit in 2023 with rising interest expenditure, a primary budget surplus was achieved through revenue-based fiscal consolidation.

The global economy is anticipated to slow down in 2024, accompanied by potential geopolitical risks, financial challenges in weaker economies, and persistent inflation pressures. The report also highlighted the potential disruptions to domestic economic recovery, including a slowdown in exports due to global economic slowdown.

Despite the proposed elections in 2024, Mr. Ariyawansa emphasised the government’s continued focus on implementing key structural reforms to support economic recovery. This includes enhancing governance, improving public sector efficiency, and fostering a conducive environment for private sector growth. Such reforms are deemed essential to avoid repeated reliance on external financial support.

Session panelists included Mr. Murtaza Jafferjee, Committee Member, SOE Restructuring Unit; Mr. Supun Weerasinghe, CEO, Dialog Axiata PLC; Mr. Riyaz Sangani, CEO, Vidullanka PLC; Mr. Charitha Subasinghe, President-Retail, John Keells Holdings PLC; and Dr. Roshan Perera, Senior Research Fellow, Advocata Institute.

The panelists shared several viewpoints on the economic outlook for 2024, including measures that need to be taken to ensure stability and progress. Mr. Jafferjee stated that ‘the sooner we reform the SOEs, the sooner we reap the benefits’, with Dr. Perera expressing similar sentiments, stating that ‘structural reforms will complement the tight monetary and fiscal policies.’ Mr. Weerasinghe meanwhile referenced the imperative for the Digital ID, emphasizing the ‘need to resume the Digital ID Project as soon as possible. This is essential for increasing our tax revenue’.

Referencing overall economic growth, Mr. Subasinghe stressed that ‘we need to pursue a growth strategy that is inclusive and equitable. Everyone should benefit from the expansion of the corporate sector.” Mr. Sangani also echoed this viewpoint, emphasizing that ‘the key factor is how we execute the plans. We can expect lower prices when we break the monopoly. This will have a positive impact on many sectors of the economy.’

To purchase the e-copy of the report, please contact Trent (policyeiu@chamber.lk/011 5588868) or Saumya (Saumya@chamber.lk/011 5588883).

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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Sri Lanka loses MICE tourists to Thailand on minimum room rates

ECONOMYNEXT – Sri Lanka has lost Meetings, Incentive Travel and Exhibition travelers to competitors in East Asia and India due to minimum room rates as higher standard rooms were available in other countries at lower prices, industry officials said.

President of the Sri Lanka Association of Inbound Tourist (SLAITO) Nishad Wijetunga said they the industry managed to retain a majority of booking made before the minimum room rates were imposed by the state last year.

“However, there were MICE groups that were supposed to come and cancelled Sri Lanka and went to places like Thailand and other parts of India and we lost,” Wijetunga told EconomyNext.

“We know that large groups of MICE (tourists) are affected.”

India is a key source of MICE tourists to Sri Lanka.

Sri Lanka’s businesses have got used to protectionism and try to push up prices with import taxes to extract more money from customers using the coercive power of the state, with tiles and steel being among the most prominent examples.

RELATED: Stand-alone hotels unviable in Sri Lanka due to high construction, capital costs

High priced tiles and steel in turn makes hotels expensive to build and make the leisure industry less competitive, analysts say.

However, in tourism, unlike in building materials customers are not trapped within the country and are free to move to other markets.

Managing Director of CEC Events and Travels, Imran Hassan, said the industry lost groups to East Asia due to minimum room rate.

In one instance, an operator was in discussions to get a group of 900 passengers.

“And that moved out to Thailand,” Hassan said. “Like that, there are many instances that the minimum room rate was not conducive.”

Thailand in 2023 attracted 28.04 million tourists.

A group that used to come to Sri Lanka annually used to take 40 to 50 five-star hotel rooms. This time Sri Lanka competed by offering lower standard.

“This year, they’re only giving 10 rooms to the five-star hotels,” Hassan explained. “They are staying in smaller hotels because they can’t afford it because it has become so expensive.”

“But overall, we are working with the authorities to correct it.

“We don’t mind demand and supply situation taking the rates up as in the Maldives. But what we are saying is keep an open market.”

RELATED : Sri Lanka should say good bye to minimum room rates: President

President Ranil Wickremesinghe has said Sri Lanka cannot progress with protectionism and the country has to learn to face competition. (Colombo/Mar04/2024)

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