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Economic

Sri Lanka's inflation drops to a two year low of 2.8%

The year-on-year National Consumer Price Index (NCPI) headline inflation has declined to 2.8% in March, lowest since April 2016, from 3.2% in February 2018, the Central Bank said yesterday. The year-on-year National Consumer Price Index (NCPI) headline inflation has declined to 2.8% in March, lowest since April 2016, from 3.2% in February 2018, the Central Bank said yesterday. 

It said the headline Inflation, as measured by the change in the NCPI, which is compiled by the Department of Census and Statistics (DCS), continued to follow the declining trend exhibited since November 2017. 

The NCPI Core inflation, which reflects the underlying inflation in the economy, continued its declining trend observed since September 2017 and decreased to 1.9% in March from 2.0% in February, on year-on-year basis. Annual average NCPI Core inflation declined to 3.6% in March from 4.1% in February.

The monthly decline in food prices in March was supported by the favourable supply conditions attributed to this sharp decline in year-on-year inflation in March. The change in the NCPI measured on an annual average basis decreased from 7.2% in February to 6.7% in March.

When monthly change is considered, the NCPI declined from 123.7 index points in February to 122.8 index points in March, mainly due to the decline in prices of the items in the food category, particularly that of vegetables, big onions, rice and red onions.

The Central Bank also said marginal price increases were observed in alcoholic beverages and tobacco, transport, and miscellaneous goods and services sub-categories.

(Daily FT)

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India still to play role in Lanka's port

India continues to remain in fray to play a role in the strategically located Colombo Port in the Indian Ocean Region, notwithstanding the Sri Lanka’s decision to drop plans to privatise the port’s East Container Terminal (ECT).

In a statement last week, Sri Lankan minister for ports and shipping Mahinda Samarasinghe said the construction of the terminal was being expedited by the Sri Lanka Ports Authority (SLPA), a state-run agency in the island nation. The ECT will be operated by the SLPA "to ensure best services for all mega container vessels calling at the Port of Colombo in near future”, the minister said.

 President Maithripala Sirisena’s government seems to have come under pressure to scrap the plan due to fear that the port’s privatisation could cost a large number of jobs. SLPA was also against privatisation citing this reason, people familiar with the matter told ET.

An India-led consortium, was front-runner for the ECT project, was earlier intimated of the domestic sensitivities arising out of the decision to privatise the project.

 But the Indian consortium would still likely play some role in the project but the details of that have not yet been decided, a person familiar with the matter said.

SLPA claimed that it had resources to handle the ECT expansion project, since China Merchants Port Holding has now taken over running of the lossmaking Hambantota Port. The ECT project involves running of an existing 400-metre deep-water berth, as well its expansion to 1,200 metres, including design, finance, construction, operation and maintenance.

 Colombo wanted a foreign country to partner with SLPA to invest and take over the ECT, and India showed interest in the project.

As much as 75% of trans-shipment from the Colombo port goes to India and Delhi is looking at getting a stake there in the heart of the Indian Ocean Region. Besides Colombo, in eastern part of Sri Lanka, India and Japan would jointly develop the Trincomalee port.

State-run Container Corporation of India formed a consortium with APM Terminals BV, John Keells Holdings and Maersk Line to bid for the Colombo port’s ECT. The total project value was expected to be $550-600 million. The south terminal of the port is already owned and operated by China Merchants Port. Colombo Port is the busiest in Sri Lanka and ranks among the top 35 in the world.

Meanwhile, Indian think tank Gateway House in a report on Beijing’s footprint in South Asia said China had invested or committed to invest more than $150 billion in the economies of Bangladesh, the Maldives, Myanmar, Pakistan, Nepal and Sri Lanka. China is now the largest overseas investor in the Maldives, Myanmar, Pakistan and Sri Lanka, it said.

Chinese penetration is the highest in Myanmar and Pakistan, where Chinese money is bolstering governments that face international isolation due to human rights violations and terrorism, respectively, the report said. But Bangladesh, the most vibrant economy in India’s neighbourhood, is least dependent on China.

“China’s playbook is clear: It first enters as a military supplier, then cultivates and partners with local elites, provides modern infrastructure with deferred payments, and entrenches itself,” the recently published report said. “Beyond hard infrastructure, China is thinking geo-economics. It is investing in the financial systems of these countries. Beijing has taken stakes in the Dhaka and Karachi stock exchanges and cultivated a yuan trade between China and Pakistan. It is establishing China-based courts for arbitration of BRI disputes. Clearly, Beijing seeks to create new rules, governing business and financial systems in the region — changes that could cement its dominance in India’s neighbourhood,” it said.

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Sri Lanka Tourism targets US$ 4.5 bn revenue for 2018

Sri Lanka Tourism will target a revenue of US$ 4.4 billion, said Ministry of Tourism Development and Christian Religious Affairs, John Amaratunge. Sri Lanka ended 2017 with US$ 3.9 billion revenue.

He said that the industry for this year has already shown a growth of 24% and will move from the current third position to be the top foreign exchange earner for Sri Lanka soon. The Minister also said that they have taken quick steps against harassment and physical assault of tourists in Mirissa recently by locals in the area.

The incident which caused outrage in the tourism industry was made known only through the media as neither the victims nor the establishment concerned or any other person had reported the matter to the police or any other authority. Investigations began only after directions were issued by the Minister of Tourism Development to the Tourist Police to investigate the matter following media reports. “Ever since the incident in Mirissa was first reported on Monday April 9, I have been closely following the progress of the investigations. (SS)

Four suspects were arrested by the Weligama Police on April 13 and two others on the April 15 following the recording of statements from several witnesses.

Minister said that the affected tourists would be once again called for the inquiry and all their travel and other expenses would be sponsored by Sri Lanka Tourism Development Authority.

SLTDA has also launched a separate investigation in to the operation of the establishment.

Minister also requested the Tourism Police to increase’ beats’ in tourism areas which in turn will help to irradiate such incidents.

Source : Daily News

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Reforms have progressed SL but vulnerabilities remain: IMF Staff Mission

Despite weather-related shocks and some delays in implementation, program performance remains broadly on track, said IMF Staff Mission after a recent visit to Sri Lanka.

The IMF staff team led by Manuela Goretti visited Colombo from February 27 – March 9 to hold discussions for the fourth review of Sri Lankan authorities’ economic reform program under the three-year Extended Fund Facility.

The mission projected the real GDP growth to rise to 4.4 percent in 2018, supported by a recovery in agriculture and industry and robust growth in services, reaching 5 percent over the medium term.

They also projected the inflation to revert to around 5 percent by end-2018, as food prices stabilize.

The mission, however, said the economy remains vulnerable to adverse shocks given the still sizable public debt and low external buffers.

“Looking ahead, to support inclusive, sustained growth, the reform momentum needs to continue and policy frameworks and institutions further strengthened,” the IMF said.

“Against this backdrop, the authorities should push ahead with their Vision 2025 strategy to support Sri Lanka’s rapid and inclusive growth through ambitious structural, macroeconomic, and social reforms.”

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Lanka’s economic growth to recover in 2018 - ADB

Sri Lanka’s economic growth is projected to recover in 2018 with the agriculture, apparel and construction sectors expected to expand together, with the implementation of a reform-oriented budget, a new Asian Development Bank (ADB) report said.

The ADO forecasts GDP to grow moderately at 4.2% in 2018 and pick up pace to grow at 4.8% in 2019.

“Beyond the short term drivers, to sustain long term growth, there is an urgent need to implement much needed reforms, as well recognized in Vision 2025 and Budget 2018” said Utsav Kumar, ADB’s Country Economist for Sri Lanka.

“The proposed reforms will provide the underpinnings for attracting private investments and generating export led growth. It is necessary to ensure continuity of the reform agenda and insulate it from the political cycle. Our growth projections assume normal weather, but any inclement weather will affect growth, and may result in higher inflation”

Inflation is expected to decrease from 7.7% in 2017 to 5.2% in 2018 and further to 5% in 2019. Introduction of automatic pricing formulas for oil and electricity in 2018, and greater currency depreciation as foreign reserves are built up to meet debt service requirements are likely to exert inflationary pressures.

Gains in revenue collection are expected to continue with the new Inland Revenue Act coming into effect in April 2018. Budget 2018 targets the deficit to fall to 4.8% as a result of higher tax revenue following reforms.

As exports improve, partly due to the restoration of GSP+, the current account deficit is projected to be 2.7% in 2018 and improving to a projected deficit of 2.5% in 2019.

The ADO states that given the efficiency, fiscal, and distributional implications of an underperforming State-owned Enterprise (SOE) sector in Sri Lanka, continued SOE reform is essential beyond the IMF program. The report notes that for meaningful and sustained SOE reforms, there is a need to build a political consensus and ring-fence the reform process from changes in political order. Sri Lanka can learn from its own experience in SOE reforms from the past.

Meanwhile the report also indicates that the growth picked up across most of the economies in developing Asia, supported by continued high demand for exports and rapidly expanding domestic demand.

ADB forecasts gross domestic product (GDP) growth in Asia and the Pacific to reach 6 % in 2018 and 5.9% in 2019, a slight deceleration from the 6.1% registered in 2017. Excluding the high-income newly industrialized economies, growth is expected to reach 6.5% in 2018 and 6.4% in 2019, from 6.6% in 2017. ADO is ADB’s flagship annual economic publication.

Source : Daily News

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Exports expected to surge 12% says EDB chief

Sri Lanka will record an improved performance in the export sector and the value and volume are expected to increase this year, the Export Development Board (EDB) Chief said.

“Merchandise exports are expected to grow by 12% in 2018 with EU GSP+ and with the growth in NES (National Export Strategy) focused sectors. Meanwhile, services exports are expected to grow significantly during this year in achieving the current total export target of US $ 16,631 million in 2018,” EDB Chairperson and CEO Indira Malwatte said.

The current annual export target for 2018 is the US $ 16,631 million from merchandise and services exports. The EDB is geared to achieve this target in collaboration with public and private sector stakeholders, she said. According to the data released by the Department of Customs and the Central Bank, Sri Lanka’s total exports grew by 10% last year, recording the US $ 15.2 billion in exports, compared to the US $ 13.8 billion in 2016. Among other reasons, the liberalised trade policies of the Government and restoration of the GSP+ facility were key in achieving the double-digit growth recorded in 2017, she said.

“Generally, depreciation of a currency has an effect on stimulating exports which may also be true in the case of Sri Lanka. However, Sri Lankan companies import various items for export processing and these imports could be unfavourably affected by a weaker domestic currency,” Malwatte said.

The strategic vision focused on the National Export Strategy (NES) for Sri Lanka to become an export hub driven by innovation and investment is expected to boost the export sector.

The NES which has the strategic objectives of having a business-enabling, predictable and transparent policy and regulatory framework that supports exports, driving export diversification through innovation and the strengthening of emerging export sectors, strengthening Sri Lankan exporters’ market-entry and compliance capacities and becoming an efficient trade and logistics hub to facilitate exports will have far-reaching benefits for the country, she said. The focus sectors under the NES are information technology and business process management (IT/BPM), wellness tourism, spices and concentrates, boating industry, processed food and beverages, electrical and electronic components. The trade support functions include trade information and promotion, national quality infrastructure, innovation and R&D and logistics.

Source : Sunday Observer

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Sri Lankan stocks fall to 1-week low as political woes weigh

Sri Lankan shares fell on Wednesday to their lowest in one week as political uncertainty hurt sentiment ahead of a no-confidence vote against Prime Minister Ranil Wickremesinghe, brokers said.

The vote could go down to the wire and lead to political instability in the island nation, even if the government manages to scrape a win.

Meanwhile, Sri Lanka’s central bank unexpectedly cut its key lending rate by 25 basis points on Wednesday, as policy makers sought to revitalise an economy growing at its weakest pace in 16 years and facing heightened political uncertainty.

The Colombo stock index ended 0.22 percent down at 6,444.41, its lowest close since March 28.

The index climbed 0.51 percent last week, its first weekly gain in five, but dropped 1.14 percent last month.

“Market is down due to weak buying interest from the local investors as they are waiting for direction after the no-confidence motion,” said Dimantha Mathew, head of research, First Capital Holdings.

“The biggest deterrent is the political uncertainty. The rate cut did not have an impact today.”

The turnover stood at 1.2 billion rupees ($7.7 million), same as this year’s daily average of around 1.2 billion rupees.

Foreign investors sold shares worth net 152.9 million rupees on Wednesday, extending the year-to-date net foreign outflow to 1.29 billion rupees worth equities.

Shares in Distillers Sri Lanka Plc fell 16.7 percent and Ceylon Cold Stores Plc ended 2.1 percent down. ($1 = 155.8500 Sri Lankan rupees)

Source : Reuters

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Textiles to lead Lanka’s export revival in 2018 - OBG Group

Sri Lanka’s apparel and textile export segment is likely to experience the highest rate of growth and would be the key driver towards Sri Lanka’s 2020 export earnings target of $ 20 billion.

A survey by Oxford Business Group (OBG) Business Barometer with CEOs who took part in a face-to-face survey predicted that the garments industry would be the growth engine for exports in the year ahead, followed by tea and spices at a distant second with 14%. Textiles and tea are the backbone of Sri Lanka’s tradable sector, respectively comprising 47% and 12% of total exports in 2016.

Asia Regional Editor, OBG, Patrick Cooke, says that under President Maithripala Sirisena’s National Export Strategy, ICT, wellness tourism, spice concentrates, boat building, processed food and beverages, and electronics,machinery were identified as the six priority areas for diversifying the country’s export base.

“While diversification will certainly contribute to meeting the government’s bold targets, it is clear that local business leaders expect traditional industries to underpin growth for the foreseeable future.”

Export industries received a welcome boost in May 2017, when the EU reinstated Sri Lanka’s Gener¬alised Scheme of Preferences Plus (GSP+) status, which had previously been rescinded over human rights concerns in 2010. GSP+ status removes the majority of import duties on Sri Lankan goods entering the European single market, and likely drove the 13.8% year-on-year increase in garment exports to the EU in November 2017.

Even though the immediate future looks bright for the garments segment, Sri Lanka would be wise to devise adaptation strategies for technological advancements in manufacturing processes. Developments in innovative areas such as 3D printing and robotics are likely to erode some of the country’s current competitive advantages in the years to come, as without the need for lower labour costs, clothing giants may start to move production facilities closer to their main consumer markets.

Commenting on the future outlook for Sri Lanka the report says that Lanka should look towards successfully transitioning into a productive knowledge-based economy while still honoring debt commitments. The sustained pursuit of an open trade policy to attract value-added industries with accompanying skills transfer, as well as efforts to enable small and medium-sized enterprises to integrate into global and regional supply chains, will aid this endeavour. Being situated between the Middle East and Asia, with close proximity to the emerging economic superpower of India, the opportunities presented by the nation’s strategic geographic position should not be overlooked either.

“At the same time, the country may benefit from opening the higher education system to private and international investment, though this will entail overcoming domestic opposition. This could help prevent the brightest minds from pursuing academic studies overseas and would introduce new approaches to creative thinking and entrepreneurship, which may ultimately lead to the creation of more high-value jobs at home.”

Effectively countering the persisting brain drain will also require a coherent strategy to address the slide in female participation in the labour force, in turn enabling Sri Lanka to harness the full potential of its society.

Source : Daily News

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Sri Lanka inflation slows to 4.2% in March 2018

Sri Lanka's inflation in the 12-months to March 2018 slowed to 4.2 percent from 4.5 percent a month earlier, with prices falling 0.4 percent during the month, data from the state statistics office showed.

The Colombo Consumer Price Index fell to 121.4 points in March 2018 down from 121.9 points in February. The index had fallen absolutely for three straight months since peaking at 122.9 points in December.

Sri Lanka's central bank has tightened monetary policy and has avoided printing money, in 2017 after creating a bout of inflation by printing money to collapse the currency between 2015 and 2016.

Sri Lanka's 12-month inflation peaked at 7.8 percent in October 2018 and has since started to decline.

Source : Economy Next

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Sri Lanka maize output to rise 32% in 2018 Maha as rains return

Sri Lanka has raised a maize production forecast for the main Maha cultivation season in 2018 to 243,888 metric tonnes with 79 percent of the targeted are being cultivated by January as rains returned.

The department of agriculture said 69,500 hectares of maize had been sowed up to January 2018, up from only 45,245 in December, when only 153,978 metric tonnes of maize was expected.

The 2018 production target is up 32 percent from last year's 163,000 tonnes.

With the usually small Yala minor season output also down last year, poultry feed producers were hit when they were forced by maize at high prices from third parties who had import licenses. The Yala production was only 38,484 metric tonnes.

Direct import licenses with quotas had been given to key feed millers now.

Sri Lanka has protected maize cultivation with import duties and it is not a traded product as a result, and production costs are also higher.

Source : Economy Next

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JLL Lanka releases 2018 real estate predictions for Sri Lanka

Global real estate consultancy Jones Lang La Salle (JLL) recently announced the company's predictions for Sri Lanka's commercial office and retail markets in 2018, identifying opportunities related to the increased investments in the country and broad challenges in the face of policy inconsistency and a tighter fiscal environment.

JLL is a professional services and investment management firm offering specialized real estate services to clients in more than 80 countries worldwide. The Fortune 500 Company operates from 280 corporate offices with a global workforce of 70,000 providing management and real estate outsourcing services for a property portfolio of 4 billion square feet.

"We remain optimistic about the commercial sector real estate space," noted JLL, Lanka, Managing Director Steven Mayes. "However, we are advising our clients to remain cautious about retail and residential markets, both of which face challenges going forward."

The commercial sector continues to gather pace buoyed by strong demand, especially in the international grade A space which is currently undersupplied in Colombo 1, 2 and 3. The residential sector, especially high end condominiums, faces over supply challenges, with the recent re-imposition of 15% VAT on condominium sales, denting sentiment further. Retail markets too demonstrate less sustainability, in the medium to longer term, due to the considerable number of ongoing mall development projects.

The existing stock of office space in the grade 'A' sector in Colombo is just over 1.5 million square feet. When considered in the context of anticipated total demand for Grade 'A' in 2018, at around 5 million square feet, it is very apparent that there is a shortage of about 200% in supply. Absorption of most Grade 'B' spaces have also seen an uptick, as occupiers run out of Grade A options and are forced to compromise with alternatives.

While an uptick in demand is expected for spaces in Colombo from IT and related sectors stemming from 2018 budget provisions for the sector, it would be prudent to note that IT companies typically prefer out of town locations and lower cost options to fit with their business model.

The newly signed Free Trade Agreements with India and Singapore are also positives for the economy and the maintenance of robust demand for commercial office space. Infrastructure development focused on connectivity between Colombo and Kandy could potentially increase tourism activity, further infrastructure developments, logistics activity, and generate more general business, which will bring in more demand for office space in both cities.

Prospects for the retail sector look encouraging over 2018/19, but beyond this lies potential excess supply issues. While the ongoing mall developments will experience the 'first-mover' advantage, those that follow may experience demand related issues due to a lack of brands to occupy space.

The longer-term success of this sector is heavily dependent upon government policy, especially with import tariff rates and infrastructure spending, on roads and public transport, as traffic congestion is a major impediment to retail growth. In current retail outlets demand for space still outstrips supply, but the gap will narrow after 2019, with other malls coming on stream in central and secondary business districts and residential zones.

Source : Colombo Page

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SL to launch a new economic development programme from next week

The National Economic Council has decided to introduce a programme that will bring in swift management changes with a view to strengthening the national economy. The programme is expected to be launched next week, the Presidential Media Division said.

The decision was taken when the National Economic Council, chaired by President Maithripala Sirisena, met at the Presidential Secretariat today (20).

The discussion focused on short, medium and long-term strategies that are vital to the transformation and development of the economy.

The National Economic Council, which convened for the eight time, was established by President Sirisena last year to strengthen the national economy by formalizing the economic management in the country.

Prime Minister Ranil Wickremesinghe and Ministers Mangala Samaraweera, Sarath Amunugama, Nimal Siripala de Silva, John Seneviratne, Sajith Premadasa, Rauff Hakeem, Malik Samarawickrama, Faizer Mustapha and Navin Dissanayake were also present at the discussion.

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