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Economic

Singapore firm to draw up Chinese investment zone plan in Sri Lanka

(Reuters) - Sri Lanka’s cabinet has approved a proposal for Singapore-based urban planning consultancy Surbana Jurong Pvt Ltd, owned by state investor Temasek Holdings Ltd, to draw up a plan for a Chinese investment zone in the country’s southern port city of Hambantota, a government spokesman said on Wednesday.

The move comes after a delay of more than 18 months in starting the Chinese investment zone around Hambantota port, which is on a long-term lease to Chinese state company.

China has invested billions of dollars building ports, roads and power stations in the island nation just off the southern toe of India as part of its Belt and Road Initiative to increase its trade and other connections across Asia and beyond.

But concerns have grown that such investments could drive the country of 21 million people deeper into debt and undermine its sovereignty, prompting greater scrutiny of deals with China.

Residents clashed with police who used tear gas and water cannon to disperse hundreds of stone-throwing demonstrators protesting against the planned investment zone around Hambantota, when it was launched in January 2017.

The government later said it would look for land in adjoining districts for the 15,000 acre (60.7 square km) zone originally planned, but the deal was delayed by local protests.

Cabinet spokesman Gayantha Karunatileka said “Sri Lanka-China supplies and industries zone” will be established in three stages in Hambantota and the adjoining district of Monaragala.

“It has been proposed simultaneous urban development in Hambantota,” Karunatileka told reporters in Colombo.

An official document showed the government had reduced the size of the zone, managed by the China Harbour Engineering Corporation (CHEC), to 12,500 acres (50.6 square km).

It also showed CHEC had already appointed Surbana Jurong to draw up the plans for the first two phases of the zone which will include social infrastructure such as housing and schools.

Surbana Jurong has already completed two master plans for Sri Lankan government.

Chinese debt-financed infrastructure interest in Sri Lanka has made some countries, including India and the United States, concerned due to Sri Lanka’s proximity to shipping lanes through which much of the world’s trade passes en route to China and Japan. The countries also have raised concerns over the possible presence of Chinese military in Sri Lanka.

The Chinese embassy in Colombo has rejected the claims of a military presence on the island.

Sri Lanka’s foreign debt rose nearly 17 percent to 4.72 trillion rupees ($30 billion) last year, a fifth of that coming from loans from China to finance the construction programme.

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IFC to extend USD 50 million to NDB for agri-finance projects

The International Finance Corporation (IFC), a member of the World Bank Group, is looking to provide a loan of up to $50 million (LKR 7.9 billion) to Sri Lanka’s National Development Bank (NDB) to support financial access to agriculture-related micro, small and medium enterprises, according to IFC filing. 

The loan will be in Sri Lanka rupees to facilitate local currency financing. 

“The proposed project will involve advisory support to PFIs (participating financial institutions) to develop capacity to lend to agri-finance projects, a segment currently under-served by the banks and largely neglected. It will also demonstrate to other Sri Lankan financial institutions that commercial lending to agriculture related MSMEs is both a profitable and sustainable business proposition,” as per the disclosure. 

NDB expects to provide access to finance to agriculture-related MSMEs in Sri Lanka over the next five years. Other contributions will include climate resilience via climate smart agriculture, sustainable agri-finance to help address food security, job creation, and overall economic growth. 

IFC had earlier extended USD 75 million in the form of long-tenor financing to NDB. In the previous year, IFC extended a USD 24 million loan to NDB to support the bank’s growth plans and long term funding for small businesses. 

In Sri Lanka, nearly 91 per cent corporate entities operate in the SME segment, which is seen as one of key growth drivers for the country’s economy. The remittance space occupies a major part of the commercial banking business, contributing about 8.5 per cent of the country’s GDP. 

The country has been receiving support from the World Bank to support SMEs. Back in 2011, National Development Bank was among the eight financial institutions to participate in the World Bank’s USD 57.4 million project in supporting the government’s efforts to improve SMEs affected by the global financial crisis. 

Banks like Commercial Bank of Ceylon have also received support of USD 65 million from IFC to help improve the operation in the SME sector through the securitization of remittances. “There is a clear role for IFC in providing a large amount of longer-tenor, fixed interest rate local currency funding, not readily available from the market,” as stated by IFC on the latest loan support to NDB. On of the difficulties SMEs face in accessing credit in Sri Lanka is the shortcomings within the SMEs as well as shortcomings in the financial system. The country face a lack of understanding of genuine SME oriented banking practices, as mentioned in an ADB report. However, the Credit Information Bureau of Sri Lanka has already introduced a state-of-the-art ‘Secured Transaction Registry’ to help banks evaluate the repayment capacity of entrepreneurs.

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Sri Lanka showing renewed interest in Oil and Gas exploration

Interest in oil and gas exploration in Sri Lanka is showing signs of rebounding, according to oil and gas analysts at BMI Research.

“After years of muted exploration activity amid a global oil price downturn, appetite for oil and gas exploration in Sri Lanka is gradually returning, alongside stronger prices and improving market fundamentals,” the analysts said.

“In May 2018, Sri Lanka's Petroleum Resources Development Secretariat announced the signing of several 2D and 3D seismic acquisition deals with Total and Schlumberger to assess the commercial potential of its offshore blocks along the east coast and in the Mannar basin,” the analysts added. 

“Any commercial discoveries would take Sri Lanka a step closer to commencing its first oil and gas production,” they continued.

BMI said Sri Lanka’s desire to produce its own oil and gas “largely” stems from the need to improve energy security and manage a “hefty” fuel import bill.

“The country spent $3.5 billion on crude oil and refined fuels imports in 2017, an increase of 40 percent year-on-year, and equivalent to 4 percent of the GDP,” the analysts said.

Government efforts to attract more upstream investment have been “stymied” to date by a combination of low oil prices, regulatory issues, limited availability of seismic data and competition from other upstream markets in the region, according to BMI.

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Petrol, diesel prices continue to rise in India amidst surging global oil prices

Global crude oil prices are rising, and so do the petrol and diesel prices in India. After a relief of 19 days, fuel prices have again started moving up in line with international crude oil prices, as oil marketing companies have decided to pass on the burden to consumers after a freeze of 19 days, which started from April 24. According to the website of Indian Oil Corporation, petrol price in Delhi is at INR 75.10 (LKR 175) per litre on Wednesday and INR 82.94 (LKR 193) per litre in Mumbai. Diesel prices in Delhi have accordingly moved upwards at INR 66.57 (LKR 155) per litre and INR 70.88 per litre in Mumbai.

Similarly, petrol prices are at INR 77.79 (LKR 181) per litre in Kolkata and INR 77.93 (LKR 182) per litre in Chennai. Diesel prices are at 69.11 (LKR 169) in Kolkata and INR 70.25 (LKR 164) in Chennai.

Meanwhile, the increased demand and restricted supply have caused global oil prices to soar with Brent crude oil reaching USD 79 (INR 5364) per barrel which is the highest since November 2014. 

After the plans for the US to pull out of the Iran nuclear deal became known, oil prices surged over the uncertainty of what would happen to Iran's oil industry if the US reimposed sanctions, limiting Iran's production.

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Sri Lanka tourist arrivals surpasses one million in first 5 months

Sri Lanka's tourist arrivals rose 6.2 percent in May this year compared to the same period last year, surpassing one million arrivals in the first five months of 2018, the data released by the Sri Lanka Tourism Development Authority (SLTDA) showed.
 
The month recorded 129,466 tourists arriving in the country compared to the 121,891arrived in May 2017.
 
As at 31st May, 1,017,819 tourists had visited Sri Lanka for this year. It is a 14.7 percent growth over last year when 887,093 tourists had visited the country during the same period.

Excerpts from : Colombo Page

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FTA with S’pore legal Ministry says

Refuting allegations levelled on the Free Trade Agreement (FTA) with Singapore for not following proper procedures among others, a highly placed International Trade Ministry official said the FTA was approved by the Cabinet and was cleared by the Attorney General’s Department.

According to legal sources, Cabinet approval was sufficient prior to signing the FTA. However, the advice required that Sri Lanka should have completed domestic legal requirements which included the passing of the Anti-dumping and Countervailing Act. Passing this Bill ensured that certain fortifications were laid before going into the FTA, and this has been a reason for the delay in signing the FTA, the official explained.

Meanwhile, the Ministry has also assured that through the latest FTA, individuals from India, Malaysia or any other country will not be able to gain employment in Sri Lanka. 

According to the Ministry, only citizens of Singapore will be able to be a service provider in Sri Lanka, barring those from other countries. Even a Singapore national will only be able to do so for five years the Ministry clarified. 

Some excerpts from : Sunday Observer

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Sri Lanka signs deal with Schlumberger subsidiary for USD 50 million seismic study

Reuters - Sri Lanka on Wednesday signed an agreement with a subsidiary of U.S. firm Schlumberger for a $50 million seismic study off the country’s east coast to evaluate any prospective oil resources, a senior government official said.

Sri Lanka signed the agreement with Eastern Echo DMCC, a subsidiary of Schlumberger, to carry out seismic data acquisition surveys, advance data processing and interpretation work or modeling of petroleum systems.

“The main objective of entering into this agreement is to acquire more petroleum data using modern acquisition and processing techniques,” Arjuna Ranatunga, Minister of Petroleum Resources Development told reporters after signing the agreement in the Sri Lankan capital Colombo.

Ranatunga also said that the company would invest at least $50 million for several data acquisition projects, including 2D and 3D seismic, in selected offshore areas around Sri Lanka and would recover the investment from sales proceeds to multiple investors.

This agreement follows comments on May 4 from the Director general at Petroleum Resources Development Secretariat (PRDS) Vajira Dassanayake, who said Sri Lanka would sign agreements with French oil company Total and Eastern Echo DMCC for a seismic study off its east coast.Sri Lanka first signed a deal with Total in 2016 to conduct a study off the eastern coast but this did not take place.

Total had earlier signed a two-year agreement with PRDS to survey around 50,000 sq km off the east coast from the air, at a cost of $25 million to acquire data on unexplored areas.

Dassanayake earlier in May said Total would invest $3 million to $10 million for the seismic study, while Eastern Echo DMCC would carry out the marine survey.

Officials from Total and Schlumberger did not immediately respond to requests for comment.

Sri Lanka produces no oil and is dependent on imports for all of its fuel requirements, despite trying to reinvigorate oil and gas exploration after its 25-year civil war with Tamil separatists ended nine years ago.

Importing oil cost the island $3.2 billion in 2017.

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Sri Lanka holds benchmark rates as consumer prices ease

Sri Lanka’s central bank kept monetary policy on hold after a deceleration in inflation allowed room for a pause.Sri Lanka’s central bank kept monetary policy on hold after a deceleration in inflation allowed room for a pause.

Governor Indrajit Coomaraswamy held the standing lending facility rate at 8.50 percent and the standing deposit facility rate at 7.25 percent, the Central Bank of Sri Lanka said in a statement in Colombo on Friday. The move to hold the deposit rate was predicted by six out of seven economists surveyed by Bloomberg, while one forecast a 25 basis point increase. All seven expected the central bank to hold the lending rate.

Favorable domestic supply conditions helped headline inflation decelerate to low single digit levels, the central bank said in a statement.

Inflation is projected to remain within the 4-6 percent target range over the medium term and a moderate economic recovery is seen due to improved global and domestic conditions, it said.

Sri Lanka’s economy is expected to expand 4 percent and inflation is seen below 5 percent in 2018, even as the island nation remains vulnerable to adverse shocks due to sizable public debt, large refinancing needs, and low external buffers, the International Monetary Fund said last month.

Coomaraswamy, who described the central bank’s policy outlook as neutral on April 20, cut lending rate by 25 basis points in the previous policy, the first easing in three years, to boost an economy that expanded at the slowest pace since 2001.

(Bloomberg)

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Ranel Wijesinha appointed as SEC Chairman

Ranel Tissa Wijesinha was appointed as the Chairman of the Securities and Exchange Commission of Sri Lanka (SEC) with effect from today (24), by the Minister of Finance, the Ministry of Finance said. 

Wijesinha serves as an Independent International Consultant to the Asian Development Bank and has over 31 years of national and international professional work experience in accounting, auditing and consulting. He also served as Director, Business Development of the John Keells Holdings Group and as Manager of Deloitte, Bahamas. He was a Partner and Head of Consulting and Financial Advisory Services of PricewaterhouseCoopers, Sri Lanka  as well as serving as an Independent International Management Consultant to multilateral and bi-lateral development banks and institutions providing advisory services to overseas Governments. 

The following persons were appointed to the Board of Directors of the SEC.

Chandrakumar Ramachandra


Jayantha Fernando
Arjuna Herath
Rajeev Amarasuriya and
Manjula Hiranya de Silva4

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ADB set to increase lending to Sri Lanka 

The Asian Development Bank (ADB) lending for Sri Lanka is set for a significant increase up to USD 600-800 million this year according to ADB’s Director General for South Asia Hun Kim. 

The average annual ADB lending for Sri Lanka in the last three years has been USD 300 million.

Speaking to South Asian Journalists at the 51st ADB Board of Governors' Annual Meeting 2018 at the ADB Headquarters in Mandaluyong City in Manila yesterday, Hun Kim said Sri Lanka is one of the countries benefiting from the capital increase of the ADB.

"The ADB's lending for Sri Lanka this year will be USD 600-800 million, which is very big for the size of 20 million population of the country. Sri Lanka is one country we think should really grow. Three years ago, we were all talking about Sri Lanka emerging as 'new star of South Asia' because it has all the necessary ingredients. It is not happening because there are not enough foreign investments and the exports are going down," the Director General said while stressing that the Sri Lankan Government must have a longer term vision to be in the new engine of growth and to develop its economic growth.

"But that would not be possible in traditional ways. That is why the ADB is working on an Economic Corridor, Special Economic Zones and port-based development. With them, the country can find some new engine of growth. Long term investments must be focused on, but that can only come when Government has a vision for the future more than five years. When everybody is focusing on elections it would be difficult," he added.

He also observed political instability, especially after the recent Local Government Election results, have contributed to economic setbacks in the country. "Sri Lanka is supposed to do a lot better and it is a country with capacity. The next couple of years may be difficult for Sri Lanka. Sri Lanka is a far organized country and it has very strong bureaucracy and civil society. If politics is stable all these countries in South Asia can perform.

They have committed people. However, South Asian politics is always a problem. With good politics it will really make a change," he commented. He pointed out that Sri Lanka, being a country with high living standards and education levels, needs to focus on longer term plan to maintain those standards.

"Sri Lanka is a country where people live very well. Sri Lanka needs to continue to move up. Without a long term plan, it will struggle in the years to come to maintain the high quality of living standards," he said.

Excerpts from : Colombo Page

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50% Tax on Fuel in India, Highest Among South Asian Countries

India’s soaring fuel prices despite relatively stable crude rates is a direct result of more than 50 percent tax levied on petrol and diesel. After the Centre introduced daily revision of fuel rates from June 16 last year to absorb sudden shocks, retail rates have gone up by Rs 11.09 per litre as on May 21 in New Delhi in less than a year.

As on May 21, while the refineries produced petrol at Rs 37.19 a litre, state and central government together made Rs 35.76 for every litre of petrol sold. 

According to the price buildup mechanism used by Indian Oil Corp. Ltd, the price of petrol charged to dealers as on May 21 was Rs 37.19 a litre. The rate finally swells to double its value when 25.44 percent excise duty, 4.72 percent dealer commission and 21.26 percent VAT gets added. The final retail price of Rs 76.57 a litre is a sum of 51.44 percent tax addition.

Petrol price in New Delhi is used for all calculations. However, rates in Mumbai and most other state capitals are predominantly higher as these taxes do not fall under Goods and Services Tax (GST) and are subject to revision by state governments. Retail price of petrol in Mumbai on May 21 reached an all-time high of Rs 84.40 per litre.

The same tax rate when compared to other developed economies and South-Asian countries emerges as one of the highest. The US levies a tax of 17 percent in its fuel while India’s immediate neighbour Pakistan taxes petrol at 23.5 percent. 

India’s high tax rate also comes in sharp contrast to Bangladesh, Sri Lanka and European countries. Sharing Eastern borders with India, Bangladesh levies 25 percent corporate tax along with 15 percent on fuel while the average tax rate on petrol in the European nations approximates to 21 percent.

Retail prices of petrol, when compared to its neighbours, topped the charts. Save China, which has an average petrol rate of Rs 80.83, India has the highest petrol price in all of South East Asia. Pakistan charges Rs 51.64 a litre for petrol with Bangladesh selling a litre of petrol at Rs 71.54 and and Sri Lanka at Rs 63.91.

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Sri Lanka records a 3.1% growth in workforce: CBSL 

Sri Lanka's workforce has grown by 3.1 percent in 2017 in comparison to the previous year (2016), the Central Bank said. The workforce in 2016 which was 8.3 million has grown to more than 8.5 million in 2017.

The working age for Sri Lanka is defined as age 15 years and above and the workforce is defined as the economically active population who are in working age.

Accordingly, the country's employment/participation rate has grown by 3.3 percent while the unemployment rate has decreased.

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