significant challenges in 2019, emanating from movements in the - PowerPoint PPT Presentation

2 The Sri Lankan economy faced significant challenges in 2019, emanating from movements in the global economy as well as domestic developments…

3 Global Monetary Policy Trends US Fed Funds Target Rate Number of Central Banks by policy action 3 67 2 No. of Central Banks 48 46 Per cent 43 34 34 32 29 28 1 17 0 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 2015 2016 2017 2018 2019 Easing Tightening Source: centralbanknews

4 Annual Real GDP Growth and Sectoral Contribution (base year=2010) 9.1 Taxes less subsidies on products Agriculture, Forestry and Fishing 8.4 Industries Services GDP Growth (%) Per cent 5.0 5.0 4.5 3.4 3.4 3.2 2.8 2011 2012 2013 2014 2015 2016 2017 2018 2019 Proj. Source: Department of Census and Statistics

Per cent Headline Inflation based on CCPI (YOY, %) 20 30 25 35 10 15 -5 0 5 Oct-79 Feb-81 Jun-82 Oct-83 Feb-85 Jun-86 Oct-87 Feb-89 Jun-90 Oct-91 Feb-93 Jun-94 Oct-95 Feb-97 Jun-98 Oct-99 Feb-01 Jun-02 Oct-03 Per cent 10 15 0 5 Feb-05 Feb-09 Jun-06 Oct-09 Oct-07 Jun-10 Feb-09 Feb-11 Source: Department of Census and Statistics Jun-10 Oct-11 Jun-12 Oct-11 131 Months Feb-13 Feb-13 Oct-13 Jun-14 Jun-14 Oct-15 Feb-15 Feb-17 Oct-15 Jun-16 Jun-18 Feb-17 Oct-19 Oct-17 Jun-18 Feb-19 Oct-19 5

Rs. billion Per cent 200 100 150 -50 50 10 11 6 8 9 0 4 5 7 Jan-10 Nov-12 Apr-10 Jul-10 May-13 Oct-10 SRR Standing Lending Facility Rate Standing Deposit Facility Rate Jan-11 Apr-11 Nov-13 Jul-11 Monthly change in credit (Absolute terms) Oct-11 Jan-12 May-14 Apr-12 Credit granted by Commercial Banks to the Private Sector Jul-12 Oct-12 Nov-14 Jan-13 Apr-13 The Monetary Policy Cycle May-15 Jul-13 Oct-13 Jan-14 Nov-15 Apr-14 Jul-14 Oct-14 28.5 May-16 Jan-15 Apr-15 Nov-16 Jul-15 Oct-15 Growth of credit (y-o-y) Jan-16 May-17 Apr-16 Jul-16 Oct-16 Nov-17 Jan-17 Apr-17 May-18 Jul-17 (RHS) Oct-17 Source: Central Bank of Sri Lanka Jan-18 Nov-18 15.9 Apr-18 Jul-18 Oct-18 May-19 Jan-19 Apr-19 Nov-19 Jul-19 4.4 Oct-19 -10 0 10 20 30 40 Per cent 6

7 Movement of Selected Market Interest Rates 16 14 12 Per cent 10 8 6 4 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Monthly AWPR AWDR AWFDR AWLR 364-day Treasury bill Standing Deposit Facility Rate Standing Lending Facility Rate AWCMR (Month-end) Source: Central Bank of Sri Lanka

8 2019 Jan-Oct Trade Balance Monthly Tourist Arrivals 300 20 2006 2008 2009 2005 2007 2010 2014 2016 2018 2012 2013 2015 2017 7.0 2011 4.7 2.2 10 250 0.0 (7.5) (9.5) (4.5) No. of Tourists ('000) 0 -10 200 Y-o-Y Change -2.0 (28.3) (27.2) -20 -2.5 (22.5) 150 -30 -4.0 -3.1 (46.9) -3.4 -3.7 US$ bn -40 -4.8 100 -6.0 (57.0) -50 -6.0 -60 (70.8) 50 -8.0 -7.2 -7.6 -70 -8.3 -8.4 -8.9 0 -80 -10.0 -9.7 -9.4 -9.6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -10.3 -12.0 2019 Growth (Right Axis) Current Account Balance Foreign Direct Investments 0.0 2,500 2,136 -0.5 -0.2 1,910 2,000 -1.0 -0.7 -0.7 1,635 US$ mn -1.5 -1.1 1,437 -1.5 -1.4 1,500 1,382 -2.0 -2.0 -1.9 -1.7 1,160 1,078 1,066 US$ bn -2.5 889 -2.3 1,000 772 -2.5 734 -3.0 604 601 516 -2.8 -3.5 500 175 82 197 229 223 272 -4.0 -3.9 -4.0 -4.5 - -4.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Nov -5.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Sep Source: Central Bank of Sri Lanka, SLTDA, BOI, Sri Lanka Customs

9 LKR Appreciation (+)/Depreciation (-) against the US$ (%) 3.1 0.6 -0.2 -2.0 -2.6 -2.7 -3.8 -9.0 -10.4 -16.4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Central Bank of Sri Lanka

10 Budget Deficit (as a % of GDP) 2018 2018 2019 2013 2014 2015 2016 2017 Pro. Jan-Sep Jan-Sep -4.1 -4.9 -5.3 -5.3 -5.4 -5.5 -5.7 -7.6 Government Revenue (% of GDP) Government Expenditure (% of GDP) 16 25 1.9 1.2 0.9 1.4 14 5.4 1.4 4.8 4.8 4.2 1.4 20 12 4.6 4.8 1.0 10 0.7 3.1 15 2.9 8 12.4 12.4 10 6 12.2 11.9 10.5 10.1 15.5 14.7 8.8 14.4 14.5 8.4 4 12.6 12.8 11.2 10.9 5 2 0 0 2013 2014 2015 2016 2017 2018 pro. 2018 2019 2013 2014 2015 2016 2017 2018 2018 2019 Jan - Sep Jan - Sep pro. Jan - Sep Jan - Sep Tax Revenue Non Tax Revenue Recurrent Capital Source: Ministry of Finance, Economic Affairs and Policy Development

11 Sri Lanka delisted from the “Grey List” of Financial Action Task Force (FATF)

12 Road Map 2020 is outlined as follows… Section 1: Introduction Section 2: The Central Bank’s monetary policy strategy and policies for 2020 and beyond Section 3: The Central Bank’s policies related to the financial sector performance and stability in 2020 and beyond Section 4: Policies Related to Ancillary and Agency Functions

13 Monetary Sector Policies for 2020 and beyond

14 The Central Bank of Sri Lanka too moved to an accommodative monetary policy stance in 2019… The Monetary Policy Cycle 11 10 9 Per cent 8 7 6 5 4 Jan-10 Aug-10 Feb-11 Aug-11 Feb-12 Sep-12 Mar-13 Sep-13 Apr-14 Oct-14 Apr-15 Oct-15 May-16 Nov-16 May-17 Nov-17 Jun-18 Dec-18 Jun-19 Jan-20 Standing Deposit Facility Rate Standing Lending Facility Rate SRR Source: Central Bank of Sri Lanka

15 Annual Increase in Credit to the Private Sector 800 40 35 700 30 600 25 500 Rs. billion 20 400 Per cent 15 300 10 200 5 100 0 0 -5 -100 -10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Nov Annual Increase Y-o-Y Growth Source: Central Bank of Sri Lanka

16 Headline Inflation based on CCPI (YOY, %) 10 9 8 7 6 Per cent Inflation 5 around 4-6% 4 3 2 1 0 Feb-09 Nov-09 Aug-10 May-11 Feb-12 Nov-12 Aug-13 May-14 Feb-15 Nov-15 Aug-16 May-17 Feb-18 Nov-18 Aug-19 May-20 Source: Central Bank of Sri Lanka, Department of Census and Statistics

17 Inflation, Food Inflation and World Oil Prices CCPI (Base: 2013=100) 16 90 14 80 12 70 10 60 8 USD/bbl 50 Per cent 6 40 4 30 2 20 0 10 -2 -4 0 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Overall Inflation Food Inflation World Oil Price (Brent) Source: Department of Census and Statistics, Reuters

18 Overall Liquidity and Standing Rate Corridor 150 9.5 100 9.0 50 8.5 0 8.0 Rs. bn Per cent -50 7.5 -100 7.0 -150 6.5 -200 6.0 Jan/19 Jan/19 Feb/19 Feb/19 Mar/19 Apr/19 Apr/19 May/19 May/19 Jun/19 Jun/19 Jul/19 Aug/19 Aug/19 Sep/19 Sep/19 Oct/19 Nov/19 Nov/19 Dec/19 Long Term Auctions Short Term Auctions Overnight Auctions Standing Facility AWCMR Source: Central Bank of Sri Lanka

Per cent 10 14 12 13 15 11 6 8 9 5 7 31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 Spread 30-Sep-13 31-Dec-13 31-Mar-14 Market Interest Rates and Spreads 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15 Weekly AWPR 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 AWCMR 30-Sep-17 31-Dec-17 Source: Central Bank of Sri Lanka 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18 31-Mar-19 30-Jun-19 30-Sep-19 31-Dec-19 19

20 Timeline View of Sri Lanka’s Recent Engagement with IMF 2 nd tranche of 4 th tranche of 6 th tranche of Formal request for an EFF USD 163 mn USD 251.4 mn USD 164.1 mn Nov May Nov Dec June June July May 2019 2016 2016 2016 2017 2018 2017 2019 Approval of the EFF 3 rd tranche of 5 th tranche of 7 th tranche of ( 1 st tranche USD 167.2 mn USD 252 mn USD 165 mn of USD 168 mn)

21 Twin Deficits 2012 2013 2014 2015 2016 2017 2018 -2.1 -2.3 -2.5 -2.6 -3.2 % of GDP -3.4 -5.3 -5.3 -5.4 -5.5 -5.6 -5.7 -5.8 -7.6 Budget Deficit Current Account Deficit Source: Ministry of Finance, Economic Affairs and Policy Development, Central Bank of Sri Lanka

22 Monetary Policy Announcements in 2020 Announcement No. Date of Announcement 1 30 January, Thursday 2 05 March, Thursday 3 09 April, Thursday 4 21 May, Thursday 5 09 July, Thursday 6 20 August, Thursday 7 08 October, Thursday 8 26 November, Thursday

23 Financial sector Policies for 2020 and beyond

24 Overview of the Banking Sector 3,594 Branches Rs. 12.2 trillion 5,400 ATMs Assets Rs. 7.9 trillion 32 Licensed Banks Loans & Advances 13 licensed domestic commercial banks 13 licensed foreign banks 6 licensed specialised banks Rs. 9.0 trillion 7 Large Banks Deposits assets over Rs. 500bn accounted for 75.8% of the Industry Rs. 1.6 trillion 4 Medium Banks Borrowings assets of Rs. 200bn – Rs. 500bn accounted for 13.6% of the Industry 59,186 21 Small Banks Employees assets less than Rs. 200bn accounted for 10.7% of the Industry * As at end October 2019 (Provisional)