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Economic

CBSL will intervene aggressively to curb rupee volatility - official

Sri Lanka’s central bank will intervene aggressively to curb excess volatility in the rupee exchange rate, Senior Deputy Governor Nandalal Weerasinghe told Reuters on Friday.

“We will not tolerate excess volatility that we have seen in the market during the last couple of days. We will intervene aggressively,” he told Reuters.

(Reuters)

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Port of Colombo ranks as world's leading container growth port

Sri Lanka's Port of Colombo was ranked the world's top port with the highest container growth in the first half of 2018, Sri Lanka's Ports and Shipping Ministry said in a statement on Sunday.

According to international rating agency Alphaliner, the Port of Colombo has recorded a 15.6-percent growth in container handling for the first half of this year, out of the top 30 global ports.

"It is a very significant achievement as it is the first time in history the Port of Colombo has reached the top of a global maritime ranking. With this growth, Port of Colombo has leaped ahead many other Asian ports," the statement said.

The Port of Colombo consists of the Jaya Container Terminal of the state-run Sri Lanka Ports Authority, South Asia Gateway Terminal of the John Keells Holdings and Colombo International Container Terminal of China's CM Ports.

Ports Minister Mahinda Samarasinghe said recently that the three terminals had inked a deal to jointly promote the port.

Under this deal, waiting time for all container vessels arriving at the Port of Colombo will be minimized by allowing vessels to be accommodated at the earliest available terminal.


Source: Xinhua

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Are we about to face a new Asian financial crisis?

Emerging market economies and their currencies have come under severe stress in recent weeks, as rising US interest rates and trade fears prompt investors worldwide to shun their assets and move money to the US. 

A strengthening American economy, a strong US dollar and growing trade tensions have led to a rout in emerging markets over the past several weeks, as investors are increasingly shifting their money to the US.

Asian 1

Inflows of foreign investment into emerging economies shriveled to $2.2 billion (€1.9 billion) in August, the Institute of International Finance (IIF) said in a report. In July, these markets saw portfolio inflows of $13.7 billion (€11.8 billion).

As the US central bank remains on course to normalize monetary policy, by hiking its benchmark interest rates two more times before the end of this year, financial conditions in other parts of the world appear to have tightened.

Some Asian countries have been hit hard by the selloff of emerging market assets, with their currencies plunging in value against the US dollar. The situation has stoked fears that Asia is on the verge of facing another financial crisis like the one seen during 1997-98.

The Indonesian rupiah has slumped to its lowest level since the Asian financial crisis in the late nineties. Since the start of the year, the rupiah has been down by 9.2 percent against the greenback.

But the worst performing Asian currency this year has been the Indian rupee, which has lost about 12 percent against the dollar.

Winners and losers

Not all Asian nations have been negatively affected, however. Thailand's currency, the baht, for instance, has remained resilient in the face of the emerging-market rout. Economists say Thailand's large current account surplus and adequate foreign exchange reserves might have cushioned the country's currency from the current turmoil on the markets.

Thailand's current account surplus is expected to be around 9 percent of GDP this year, on top of the double-digit levels in the past two years. The baht's present performance is in stark contrast to its fate in 1997, when it collapsed over 50 percent during the six-month period after the panic set in.

But unlike Thailand, countries like India and Indonesia suffer from high current account deficits. These deficits occur when the value of the goods and services they import exceeds the value of the goods and services they export. This weakens a nation's currency, making them more vulnerable to global market fluctuations.

"Supporting the rupiah is increasingly becoming the central pre-occupation for Bank Indonesia and the government," Gareth Leather, Senior Asia Economist at London-based Capital Economics, said in a research note.

The Southeast Asian nation's central bank has been aggressively intervening in the forex markets to defend the value of the rupiah. In fact, the bank has spent almost 10 percent of its foreign reserves this year to bolster the currency. Indonesia's reserves fell to about $117.9 billion (€101.4 billion) in August, the lowest since January 2017. The reserves are still enough to finance over six months of imports and service the government's external debt, according to the central bank. Nevertheless, the situation has underscored Indonesia's vulnerable financial position.

"The Indonesian economy is facing some structural weaknesses," Rizal Ramli, an Indonesian politician and economist, told DW, pointing to the country's high deficit and debt figures.

Asian 2The Indonesian rupiah has slumped to its lowest level since the Asian financial crisis in the late nineties 

If the central bank keeps raising interest rates without any support from the government in introducing structural reform measures, it wouldn't be useful in resolving the problem, said Ramli, who served as coordinating minister for maritime affairs under President Joko Widodo administration as well as coordinating minister for economic affairs and minister of finance.

The current way of doing things "will lead to an increase in non-performing loans and credit problems in financial institutions," he stressed.  
Problems even for growing economies

Meanwhile, India's current account deficit this year is going to be worse than that of Indonesia, according to the International Monetary Fund (IMF). The IMF estimates the South Asian nation's deficit to be around 2.6 percent of GDP this fiscal year, up from 1.9 percent last year.

India's fiscal deficit is also one of the worst, with the government reporting a deficit of $62.57 billion (€53.85 billion) for the April-June quarter. The nation's economic growth, though, seems to be robust, with GDP expanding by 8.2 percent in the quarter ending June. It also boasts a large foreign exchange reserve, amounting to some $400 billion as of August.

Despite the depreciation in their values, Asian currencies like the rupee and rupiah sit somewhere in the middle of the list of emerging currencies that have been bashed by the markets. They haven't been as resilient as currencies such as the Thai baht; but they have also not been smacked in the same way like the Turkish lira or the Argentine peso.

To support their currencies and curb inflation, officials in some Asian countries have resorted to raising interest rates. The central banks of the Philippines and India have already raised rates by 100 basis points (1 percent) and 50 basis points respectively this year.
Experts believe Indonesia and the Philippines will likely tighten monetary policy aggressively in the coming months, as they both struggle to get a grip over soaring inflation.  

Dollars and sense

Still, the recent developments in the global currency markets are unlikely to cause another Asian financial crisis, Charlie Lay, emerging markets analyst at Germany's Commerzbank, told DW.

"The landscape in Asia today is a lot different compared to 1997," Lay said. "Companies have less leverage now and are less exposed to dollar-denominated debt," the expert noted, adding that "improved macroeconomic management, a more flexible exchange rate regime and current account surpluses in most Asian economies" mean that they are less vulnerable today than two decades ago.  

Although many countries have made significant progress in modernizing and reforming their financial, labor and product markets, they have fallen short of implementing the deep-rooted structural reforms needed to boost productivity and output growth in the long run.

Furthermore, the deteriorating macroeconomic conditions as a result of increasing protectionist tendencies worldwide could adversely affect them, say observers. That's particularly the case for economies in Southeast and East Asia, which are heavily reliant on global trade flows for their prosperity.

"The best way for Asia to prepare against a further spike in volatility and ructions in the financial markets is to ensure sound economic management, including preventing excessive leverage, ensuring fiscal discipline and allowing exchange rate flexibility," said Lay.

By Srinivas Mazumdaru via DW.com. Additional reporting by Yusuf Pamuncak.

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 Global factors behind rupee fall, no need for knee-jerk reaction: Arun Jaitley

NEW DELHI: Finance Minister Arun Jaitley on Wednesday attributed the fall in rupee to global factors and said there was no need for panic or knee-jerk reactions. 

He further said the Reserve Bank is doing whatever is necessary to deal with the situation. 

The rupee's unabated fall continued for the sixth straight session Wednesday as it hit yet another closing low of 71.75 against the US dollar, tumbling 17 paise. 

The battered rupee has lost 165 paise in the last six trading sessions. 

"If you look at the domestic economic situation and the global situation, there are virtually no domestic reasons which are attributable to this. The reasons are global. 

"I don't think there is any need for the world's fastest growing economy to come out with panic and knee-jerk reactions," he said while replying to questions regarding the fall in rupee. 

Jaitley further said the dollar has strengthened against almost every other currency and added that the rupee has consistently either strengthened or remained in a range. 

"It has not weakened...the rupee is better-off," he said, adding that the rupee has strengthened against other currencies like the British Pound and the Euro. 

The minister further said the government has consistently maintained 4 per cent inflation during the last four years. 

Elaborating his point on global factors affecting the rupee, he said India is a net buyer of crude oil and spike in prices affects the country. 

"That's an external factor. We are not in a trade war business but when countries neighbouring us devalue their currencies, that has a corresponding impact on us. Turkey had some impact on us," he said. 

The minister further said eventually the inherent strength of the Indian economy has to play a very important role and expressed confidence that fluctuation in the currency market will come down. 

"I am sure that the currency management in these areas are done by the Reserve Bank of India and they are certainly doing whatever is necessary for this purpose," he added. 

Meanwhile, crude prices Wednesday extended their losses, sliding towards USD 77 a barrel.

Source: Economic Times

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Central Bank issues clarification on Nomura Holdings' erroneous report 

Several international media sites have recently quoted an analysis by Nomura Holdings Inc., which shows that seven emerging economies including Sri Lanka are at risk of an exchange rate crisis.

The said media sites further quoted the report as saying Sri Lanka’s short term external debt is as high as US dollars 160 billion. As Sri Lanka’s short term external debt is nowhere near this figure, the Central Bank of Sri Lanka requested Nomura to correct the errors in their computations.1

In response, according to Bloomberg, Nomura has “corrected their ‘Damocles’ report to fix Sri Lanka’s short term debt figure to be US dollars 7.5 billion” in an emailed statement to media. Nomura has, however, kept the ‘Damocles score’ for Sri Lanka unchanged.

The Central Bank wishes to point out that the ‘Damocles score’ published by Nomura is a rudimentary attempt to build an index based on eight indicators and threshold values for the selected indicators. The score is then used to show the likelihood of crisis in a country in the period ahead. A score of above 100, according to Nomura, suggests a country is vulnerable to an exchange rate crisis in the next 12 months, while a reading above 150 signals that a crisis could erupt at any time. Nomura has computed Sri Lanka’s score at 175, while assigning lower values to countries that are currently facing severe economic and financial strains. Any methodology that yields outcomes whereby Sri Lanka’s score is substantially worse than countries like Argentina, Turkey, and South Africa does not appear to be sufficiently nuanced to capture market realities and dynamics.

A closer look at Nomura’s ‘Damocles score’ for Sri Lanka shows that it has remained above the 100 continuously since 2012 except for a few months in 2013/14. At times, the ‘score’ has even hit the upper bound of 200. Therefore, it is evident that in the case of Sri Lanka, this rudimentary index cannot be considered an indicator/predictor of crisis. It is because the score does neither consider a particular country’s distance from threshold values nor the country-specific circumstances, that Sri Lanka is listed as a country that is at greater risk of crisis than countries like Argentina and Turkey. 

For example, in the Nomura analysis, the short term external debt to exports ratio includes goods only. Services, including tourism, and remittances are excluded. By not focusing on all current account flows, the ‘score’ exaggerates the country's vulnerability. Moreover, the broad money to foreign reserves ratio does not properly interpret the cause of the increase in the former. The recent increase in broad money was due to an increase in the net foreign assets (NFA) of the banking system, which has, in fact, reduced the country's external vulnerability. The real short-term interest rate indicator for Sri Lanka is also marginally above Nomura’s threshold. This has been caused by a reduction in inflation rather than an increase in interest rates. These examples demonstrate how the binary methodology used by Nomura could be misleading.

Nomura’s error in relation to Sri Lanka’s short term external debt figure itself shows that the said report has not undergone a thorough review before publication. Indeed, the rigourousness of any analysis based on the predictive power of an index, which cannot differentiate between short term debt of US dollars 7.5 billion and US dollars 160 billion, in an economy with a GDP of around US dollars 90 billion and gross official reserves of around US dollars 8.6 billion, is questionable.

Therefore, the investors and the general public are advised to form their own informed opinion with regard to Sri Lanka’s macroeconomic conditions and potential.

1:Sri Lanka’s short term external debt and liabilities, based on the general definition that uses original maturity, are currently estimated at around US dollars 7.7 billion, while these liabilities are estimated at around US dollars 14.3 billion under the broadest definition that includes long term debt falling due in the next one year period and the total foreign holding of rupee denominated long term Government bonds.

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SL economy on track, higher growth can be achieved - ADB

Sri Lanka has the potential to go beyond an economic growth rate of 4 or 4.2 percent as its reform program is on track and the economy is supported by a strong private sector led growth, Asian Development Bank (ADB) Vice President Wencai Zhang told journalists during a media briefing on the Bank’s new long term corporate blueprint, ‘Strategy 2030’ for Asia and the Pacific region, in Colombo last week.
 
Zhang said four percent is still low. Sri Lanka has the potential. Notching four percent is not at all enough as the country could achieve a higher growth percentage due to many initiatives such as ‘Enterprise Sri Lanka’ launched by the government along with development moves to accelerate economic growth through an inclusive approach which will help trickle down the benefits of growth to all segments of society.
 
“However, Sri Lanka needs to look firmly at drivers of growth through private projects, investments and a vibrant export sector. Focusing on structural reforms and improving the ease of doing business from the current ranking will help the country to get to a better position in economic growth,” the ADB Vice President said. The Asian donor reaffirmed its strong commitment to support Sri Lanka’s continued development drive in keeping with its ‘Strategy 2030’ when its top officials met Prime Minister and other senior ministry officials in Colombo last week.
 
The bank expects to sign a total of US$ one billion in financing for nine projects in Sri Lanka this year and over the next three years ADB’s commitment will be $ three billion supporting development in areas such as ports, roads, secondary and higher education, electricity transmission and distribution, fisheries, irrigation, wastewater management, drinking water, sanitation and small and medium enterprises.
 
‘Strategy 2030’ which was approved by the ADB Board of Directors mid this year goes beyond ending poverty to promote prosperity, inclusiveness, resilience and sustainability in the Asia and the Pacific region.
 
“I am impressed by the vocational training education to youth in the country particularly in the South which I witnessed during my visit to the region during the week,’ Zhan said.
 
He also said he was pleased with training programs in the Uva and several other provinces.
 
However, the Bank’s delegation which was on a short visit to the country last week noted that prior to lending funds for new projects in Sri Lanka it evaluates the previous programs.
“ Sri Lanka honours its obligations for loans borrowed and overall the program implementation in Sri Lanka has been successful,” ADB Country Director Sri Widowati said.
 
When asked about the Bank’s role with the Chinese Belt and Road Initiative (BRI) Zhang said the Bank is always ready if need arises to support the BRI through co financing along with other multilateral and bilateral agencies.
Zhang said ADB will strengthen its country-focused approach to Sri Lanka, promote the use of innovative technologies, and deliver integrated interventions that combine expertise across a range of sectors and themes and through a mix of public and private sector operations.
 
According to the Bank Sri Lanka’s GDP (Gross Domestic Product) is expected to grow by 4.2 percent this year and 4.8 percent in 2019, inflation rate at 5.2 percent this year and 5 percent next year and per capita GDP to be at 3.2 percent in 2018 and 3.8 percent in 2019.
 
In its comparative economic forecast for Asia the Bank growth in India this year is expected to be at 7.3 percent, Bhutan at 7.1 percent, Bangladesh 7.0 percent, Maldives 6.7 percent, Pakistan 5.6 percent, Nepal 4.2 percent and Afghanistan 2.5 percent.
As at 31 July this year the Bank’s active project portfolio in Sri Lanka stands at 35 projects with a net loan amount of $3.9 billion.
 
During its stay the delegation visited ADB funded projects, including a Technical College in Mirijjawila, Southern Province, which offers vocational training courses in various skills including information communication technology, welding, carpentry, automobile mechanics, and landscaping.
 
Set up in 1966 the Bank comprises 67 members, 48 from the region. ADB’s operations last year totaled $32.2 billion, including $11.9 billion in co financing. 
Source : Sunday Observer

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India commits US$ 3 billion for Sri Lanka people-oriented development projects

India’s overall commitment of assistance to Sri Lanka for people-oriented development partnership projects stands at a total of around US$ 3 billion, out of which US$ 550 million is pure grant assistance.

Indian government is implementing housing programmes in the North and East for the benefit of the people affected by the ethnic conflict.

In a special ceremony held at Batticaloa District on Friday, High Commissioner of India. Taranjit Singh Sandhu dedicated houses built under the Indian Housing Project in Batticaloa for possession by beneficiaries.

Government of India has committed a total of 4000 houses in the Eastern Province. This is in addition to 42000 houses built under grants by Government of India in the North and 14000 currently constructing also under grants in the Upcountry.

High Commissioner also visited the Trade Facilitation Center by first ever cooperative society of war affected women in the eastern province in Kallady. Self Employed Women’s Association (SEWA) –an Indian based community based organization, with the grant assistance of Rs 197 million from the Government of India has executed the project.

The objective is to empower war affected women by building their capacities in vocations, leadership, entrepreneurial and management skills by setting up Trade Facilitation Center and Community Learning Centre in Batticaloa and Ampara.

This project helps them to provide skills and value chain support to provide livelihood opportunities.

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Indian Rupee weakens further against US dollar

The Indian rupee along with emerging Asian currencies weakened against the US dollar on Friday as prospects for a quick resolution of the US-China trade war faded after two days of talks ended with little progress. 

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So far this year, the rupee has weakened 8.9%, while foreign investors have sold $493.40 million and $5.57 billion in equity and debt markets, respectively. Photo: Reuters

Traders are waiting for a speech by Federal Reserve Chairman Jerome Powell later in the day. At 9.10am, the rupee was trading at 70.23 a dollar, down 0.15%, from its Thursday’s close of 70.11. The home currency opened at 70.20 a dollar and touched a low of 70.23.

Asian currencies were trading weaker as the South Korean Won was down 0.2%, China Renminbi 0.16%, Indonesian Rupiah 0.16%, Japanese Yen 0.12%, Malaysian Ringgit 0.11%, Taiwan Dollar 0.11% and Philippines Peso 0.08%. However, China Offshore was up 0.17%.

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Sri Lanka’s manufacturing and service sectors gain momentum

Sri Lanka’s manufacturing Sector marked an Increase in August 2018 compared to performance in the previous month, Central Bank sources said.  

The expansion observed in manufacturing activities in August was mainly driven by expansion in production led by the increase in new orders, especially in manufacturing of textiles, wearing apparel, leather and other related products.

Further, employment also increased at a higher rate with the recruitment of employees especially for food and beverages sector led by the positive outlook for improving activities within this sector.

However, stock of purchases show some slowdown, especially in manufacturing of other non-metallic mineral products. Nevertheless, stock of purchases in the manufacturing of textiles, wearing apparel, leather and other related products increased.

However the Services sector continued to expand, albeit at a slower pace, in August 2018 supported by growth in New Businesses, Business Activity and Employment, Central Bank  announced.  

The growth in New Businesses was mainly observed in financial services and insurance sectors. Respondents cited establishment of digital banking units and improvements to service delivery channels as contributory factors to this growth.

Business Activity expanded mainly in accommodation food & beverage sector due to improvement in both local and foreign tourism.

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Sri Lanka secures USD 1 billion loan from China

Sri Lanka's central bank on Friday announced it had secured a $1 billion Chinese loan as the island, a key link in Beijing's ambitious Belt and Road initiative, develops closer relations with Asia's largest economy.

Central bank Governor Indrajit Coomaraswamy said that first half of the loan will be released later this month and the balance will be received in October.

"During consultations (with the Chinese over the loan) it was clear that they see us as a key strategic partner as far as the (Belt and Road) initiative is concerned, given our location," Coomaraswamy told reporters in Colombo.

The eight-year loan by China Development Bank carries a 5.25 percent interest rate with a three year grace period.

Coomaraswamy said that the terms of Chinese loan were better than other international lenders and the country hopes to secure additional $200 to $250 million from China's domestic financial market by issuing "Panda bonds".
Last month, China vowed to keep providing financial help, including loans, to Sri Lanka despite warnings about the island nation's mounting debt.
Sri Lanka last year granted a 99-year lease on a strategic port to Beijing over its inability to repay Chinese loans for the $1.4 billion project.  
The port in Colombo straddles the world's busiest east-west shipping route and also gives a strategic foothold to China in a region long dominated by India.
China had said its loan portfolio in Sri Lanka was $5.5 billion as of last month, just over a tenth of Colombo's total $51.82 billion external debt.
"China will continue to provide selfless support, including much-needed funds for the development of Sri Lanka," the Chinese embassy in Colombo said last month.
China's Belt and Road infrastructure project seeks to revive ancient trade routes through a massive rail and maritime network via $1 trillion in investments across Asia and Europe.

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Sri Lanka & Oman Central Bank Chiefs' discuss ways of improving investment climate through banking channels

Dr. Indrajit Coomaraswami, Governor of the Central Bank of Sri Lanka (CBSL), and his accompanying delegation met with Tahir Salim Al Amri, Executive President of the Central Bank of Oman (CBO), at the CBO headquarters on Sunday.

The two sides reviewed the close bilateral relations between the two countries and also discussed ways to enhance further joint cooperation by increasing the frequency of knowledge sharing initiatives and exchange of expertise between the two countries. 

The officials also discussed ways of improving investment climate through banking channels which are poised to contribute in increasing trade and investment flow, bringing significant benefits to both the countries. 

During the meeting, CBSL officials provided a quick overview of Sri Lanka’s macroeconomic developments, its sovereign loan market, the banking sector and the prevalent favourable investment climate in the country. 

The delegation which is on an official visit to Sultanate as part of a joint trade and cooperation exercise between the two friendly countries of Sri Lanka and Oman, will also meet CEOs of local banks in Oman.

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Cabinet approval for Sri Lanka's National Export Strategy

A comprehensive and carefully structured five-year National Export Strategy (NES) aimed at increasing exports and generating enhanced revenue for Sri Lanka’s SMEs and exporters was approved by the Cabinet.

Sri Lanka’s economic growth, which is dependent on exports, requires continued structural changes aimed at greater diversification, innovation, productivity increases. 

The National Export Strategy (NES) was developed by private and public stakeholders through extensive consultations which commenced from the First National Symposium held in April 2017 at Temple Trees, under the patronage of Prime Minister Ranil Wickremesinghe. 

All export sectors including the mature sectors will benefit from the strengthening of trade support functions. These TSFs include National Quality Infrastructure, Innovation and R&D, Logistics and Trade Promotion. The NES for Sri Lanka was designed by the Ministry of Development Strategies and International Trade and the Sri Lanka Export Development Board (EDB) in consultation with private and public stakeholders. 

Minister of Development Strategies and International Trade Malik Samarawickrama stated that the focus of the Government is to shift the economic growth model from one that was heavily dependent on debt fueled public infrastructure spending to growth driven by more public enterprises, exports and foreign direct investment. 

Furthermore, the National Export Strategy will also complement other national initiatives such as the Enterprise Sri Lanka programme.

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