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Fitch affirms Sri Lanka at ‘BB-’

Keshini — Tue, 30 Apr 2013 15:15:54 +0000

Fitch Ratings has projected Sri Lanka's real GDP growth to average 6.5%-7% in 2013 and 2014, compared with the government's forecasts of 7.5% and 8% in 2013 and 2014 respectively. The Ratings Agency believes the government's forecasted growth could once again lead to overheating risks.
Fitch today confirmed Sri Lanka's 'BB-' sovereign with a stable outlook. Acknowledging the stabilisation of the country’s overall economy last year, Fitch Ratings said persistence with tighter monetary and fiscal policies should help improve Sri Lanka's external liquidity position.

Press Release

Fitch Ratings-Hong Kong-30 April 2013: Fitch Ratings affirmed Sri Lanka's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-'. The Outlooks on the ratings are Stable. The agency has also affirmed the Country Ceiling at 'BB-' and the Short-Term Foreign-Currency IDR at 'B'.

Key Rating Drivers

The affirmation of Sri Lanka's sovereign ratings reflects the following factors:

- Sri Lanka's ratings balance the strength of the country's resilient growth performance, healthy level of human development and strong payment record against the weaknesses of its fiscal and external balance sheets and moderate domestic savings relative to investment needs.

- The Stable Outlooks acknowledge the stabilisation of the overall economy over the past year, following the introduction of a series of monetary, exchange rate and fiscal measures in early 2012, which helped to reverse the deterioration in the balance of payments that took place in 2011.

- Although the current account deficit fell short of the authorities' original target of 3.8% of GDP, it narrowed to 6.6% in 2012 from 7.8% in 2011. Fitch projects that the current account deficit should decline further to about 5.2% in 2013 and 4.5% in 2014 due to a combination of stronger global growth and lower oil imports.

- Persistence with tighter monetary and fiscal policies should help improve Sri Lanka's external liquidity position. Official foreign exchange reserves, excluding gold, rebounded to USD6.9bn (3.7 months of current external payments) at end-January 2013. This is up from a recent low of USD5.5bn at end-February 2012.

- Sri Lanka's external debt refinancing schedule, however, remains quite heavy as an average of USD1.9bn per annum in sovereign debt is projected to mature from 2013 to 2015 (versus USD1.3bn in 2012). This may not only limit Sri Lanka's ability to rebuild foreign exchange reserves to a much higher level, but it also means that the country's external finances will remain vulnerable to any spike in global risk aversion.

- The economy has been resilient as real GDP grew 6.4% in 2012 versus 8.2% in 2011. Fitch projects real GDP growth to average 6.5%-7% in 2013 and 2014, compared with the government's forecasts of 7.5% and 8% in 2013 and 2014 respectively. Fitch believes the government's forecasted growth could once again lead to overheating risks. Consumer price inflation has fallen of late, rising 7.5% year-on-year in March, down from an average of 9.8% in January and February.

- Following the successful completion of an IMF stand-by arrangement in July 2012, Sri Lanka has decided not to seek an extended fund facility. A new IMF programme would have provided some comfort that Sri Lanka would stick with the reform measures implemented in early 2012. However, Fitch does not view a successor programme as essential, provided that the authorities remain vigilant and maintain appropriate policy settings to ensure overheating risks and renewed strains on the balance of payments do not re-emerge.

- Sri Lanka has continued to make limited progress on fiscal consolidation as the budget deficit fell to 6.4% of GDP in 2012 (versus 6.9% in 2011). This was, however, partially achieved through an accumulation of arrears. Sri Lanka's general government debt-to-GDP ratio remained elevated at 79.1% in 2012, which was significantly higher than the 'BB' peer rating group median of 32.6%. Low fiscal revenues weigh on the credit profile. The revenue take of 13.9% of GDP in 2012 was well below the 'BB' range median of 26.6% and was down from 16.7% in 2008.

Rating Sensitivities

The main factors that individually, or collectively, could trigger positive rating action:

- A sustained improvement in the macroeconomic outlook that is consistent with healthy economic growth coupled with moderate and stable inflation and external equilibrium

- A significant improvement in the external finances, accompanied by smaller current account deficits and higher levels of non-debt capital inflows (i.e. foreign direct investment)

- A material improvement in Sri Lanka's public finances underpinned by a higher government revenue-to-GDP ratio and conversely a large decline in the general government debt-to-GDP ratio

The main factors that individually, or collectively, could trigger negative rating action:

- An extended period of economic overheating accompanied by a large surge in inflation

- An intensification in external financing risks, particularly a renewed widening in the current account deficit combined with a fall in capital inflows could lead to a significant weakening in the exchange rate or downward pressure on the foreign exchange reserves

- A material deterioration in the public finances, which leads to a large increase in Sri Lanka's general government debt-to-GDP ratio

Key Assumptions

- Fitch assumes there were will be no sustained rise in commodity prices, particularly in crude oil, in line with the agency's Global Economic Outlook. Crude oil is forecast to average USD105 and USD100 per barrel in 2013 and 2014 respectively, compared with USD112 per barrel in 2012

- The political landscape will remain stable and there will be no renewal in the civil conflict that previously lasted 26 years and ended in 2009

- Fitch assumes that the availability of concessional financing by international donors/lenders will remain a continuing feature of the government's financing programme.

Sri Lanka’s economy to grow by 6.5 percent this year, UNESCAP says

Keshini — Fri, 19 Apr 2013 14:14:20 +0000

The United Nations Economic and Social Commission for Asia and the Pacific forecasts Sri Lanka’s economy to grow by 6.5 percent this year, marginally up from 6.2 percent in 2012 but lower than the Central Bank estimate of 7.5 percent. The report released in Beijing China yesterday indicated Inflation which was only 2.7% in February 2012 compared with that in the same month in the previous year rose to 9.9% in July 2012. It added the budget deficit in Sri Lanka though still high has been narrowing in recent years. Xinhua reports that Executive Director of the Institute of Policy Studies Dr. Saman Kelegama during the presentation of the said growth projections by the UNESCAP, IMF and ADB indicate that Sri Lanka needs more time to stabilize the economy and address structural imbalances before steering the economy on a sustainable growth path. Read: Sri Lanka Country briefing note Read report: Economic and Social Survey of Asia and the Pacific 2013

Gold Drop Splits Central Banks as Sri Lanka Sees Opportunity

Keshini — Tue, 16 Apr 2013 14:24:17 +0000

The biggest drop in gold prices since 1983 has divided central banks on whether the metal is cheap enough to increase investment. Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island will “favourably” examine buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves. Reserve Bank of Australia’s assistant governor said bullion has no “intrinsic value.” South Africa’s central bank governor won’t adjust its reserves policy. Central banks hold about 19 percent of all gold ever mined, and last year they boosted their holdings by the most since 1964, according to the London-based World Gold Council. “The question you have to ask is, is the economy back on track?” Gerald Panneton, president and chief executive officer of Detour Gold Corp. (DGC), a Toronto-based producer, said today at a conference in Zurich. “Actually the situation is the same. In the last few days we saw people jumping off the ship as if it’s sinking. There’s nothing wrong with the ship.” Gold for immediate delivery fell to $1,321.95 today, the lowest since January 2011, and was up 2.5 percent at $1,381.30 by 3:04 p.m. in London, cutting its slide this year to 18 percent. That would be the biggest annual decline since 1997. Prices slumped 14 percent in the two days through yesterday, the most since February 1983. Since starting to appreciate in 2001, gold has gained 410 percent compared with an increase of 18 percent in the Standard & Poor’s 500 Index of stocks. Cabraal said in an interview with Bloomberg “An opportunity that provides us with space to purchase a little more quantities and hold in our own reserves would be an interesting one.” - Bloomberg -

Sri Lanka’s Economy to Recover in 2013-2014, ADB says

Keshini — Thu, 11 Apr 2013 13:16:48 +0000

The Asian Development Bank says Sri Lanka’s economic growth is expected to recover gradually to 6.8% in 2013 and to 7.2% in 2014. ADB’s flagship annual economic publication Asian Development Outlook 2013 stated Sri Lanka’s performance in 2012 reflected a strong showing in industry, which grew by 10.3%, driven by a doubling of growth in construction. The report indicated earnings from garments fell due to slackened economic conditions in the US and European Union and the loss of the Generalized System of Preferences Plus facility. Inflation is expected to improve marginally in 2013 to 7.5% due to declines projected for global commodity and oil prices and exchange rate stabilization. The ADB added that as further energy price adjustments are expected to address the current operating losses of the Ceylon Electricity Board, the monetary policy stance will most likely remain as set in end 2012 to limit inflation expectations. Sri Lanka's Economy to Recover in 2013-2014 - ADB Report

India grants greater market access for SL products

Keshini — Tue, 02 Apr 2013 14:44:07 +0000

The Indian High Commission in Colombo said in a statement, the Government of India has removed the condition of sourcing of fabric from India for 5 million pieces, which would increase the total quota for duty free export of Sri Lankan apparels to India to 8 million pieces. India's notification allowing 8 million pieces of Sri Lankan garments to be exported duty-free to India follows a request made by the Government of Sri Lanka. In addition, under the revised South Asian Free Trade Area duty concessions for non-LDC countries, Sri Lankan textile and apparel exports to India would attract a duty of five percent, as against the earlier 11 percent. Press Release 1. During the visit of Hon. Anand Sharma, Minister of Commerce, Industry & Textiles, Government of India to Sri Lanka from 3-5 August, 2012 the Government of Sri Lanka had made a request that, in respect of the export of Sri Lankan garments to India under the India-Sri Lanka Free Trade Agreement, the condition of sourcing of fabric from India for 5 million pieces be removed so that the total quota for duty free apparel exports from Sri Lanka to India becomes 8 million pieces, without any condition on fabric sourcing. 2. As committed by Hon. Anand Sharma, the Government of India has approved the Sri Lankan request for removal of the fabric sourcing condition, thereby bring to 8 million pieces the number of garments that can be exported from Sri Lanka to India duty-free, under the terms of the bilateral Free Trade Agreement. The relevant notification in this regard was formally handed over to the Director General, Department of Commerce, Government of Sri Lanka, yesterday (26 March) by the High Commission of India. 3. Further, the Government of India also notified SAFTA duty concessions on 6 September 2012. Under this revised SAFTA duty regime notified by India for non-LDC countries, Sri Lankan textiles exports would attract a duty of 5%, as against the earlier 11%. This is another step that will facilitate greater Sri Lankan exports of readymade garments to the Indian market. 4. On 27 February 2013, the High Commission of India had informed the Ministry of Commerce and Industry, Government of Sri Lanka, regarding the decision of the Government of India to extend the validity period of Sanitary Import Permits (SIPs) for export of meat products to India. The extension was accorded in response to a request made by the Sri Lankan Industry and the Department of Commerce of Sri Lanka. As per the new notification by the Department of Animal Husbandry, Dairying and Fisheries, Government of India, the permits will now be issued for imports of processed livestock products into India for a period of one year. The validity period earlier was six months. 5. It may be recalled that during the 8th India-Sri Lanka Joint Commission meeting held on 22 January 2013 at New Delhi, both countries had agreed to cooperate closely to forge closer economic and trade linkages and take steps to double the bilateral trade to reach US $ 10 billion in next three years. The two sides also agreed to consider working towards increasing Sri Lanka´s export capacity. By providing greater market access to Sri Lankan readymade garments and implementing trade facilitation measures such as extending the validity of sanitary import permits, the Government of India´s commitment to facilitating Sri Lankan exports and enhancing bilateral trade is clear. 6. Sri Lanka´s export to India has increased substantially since the coming into force of the India-Sri Lanka FTA, reaching USD 720.89 million in the year 2011-12, according to statistics compiled by the Department of Commerce, Government of India. For the period April-December 2012, Sri Lanka´s export to India were USD 528.76 million.

Trade deficit narrows in January despite export decline

Keshini — Tue, 02 Apr 2013 14:38:34 +0000

The trade deficit continued to narrow and recorded a 24 per cent year-on-year decline in January 2013. The Central Bank said the policy measures implemented early in 2012 to discourage non-essential imports have continued to ease pressure on the trade deficit and therefore on the current account balance Expenditure on imports declined by 21.3 per cent. Imports of refined petroleum declined by 58.4 per cent, in January 2013, and the CBSL on its website said import expenditure on investment goods also declined as imports of transport equipment and machinery and equipment declined. As demand for exports remained fettered by the slow recovery of major export destinations, such as the EU and the USA, the decline in export earnings continued into 2013. Tourist arrivals in January 2013 increased by 13.4 per cent from last year, while earnings from tourism grew at a healthy rate of 20.5 per cent.

Difficult for Sri Lanka to export apparels to the EU from 2014

Keshini — Thu, 07 Feb 2013 12:37:41 +0000

The Institute of Policy Studies in a report says Sri Lanka will find it difficult to export apparels to the European Union from 2014 onwards as it may lose its market share to other competitor countries like Bangladesh, Cambodia, India, Pakistan and Vietnam. In 2010 and 2011, Sri Lankan share in EU garment market witnessed a marginal decline compared to 2009, and it is expected to decline further, as the EU GSP Plus concessions have eroded. Hence, in view of competitor countries gaining tariff concessions, it would be a challenge for Sri Lanka to secure its market share in the EU after 2014. Sri Lankan apparels have also steadily lost their market share in the US from about 2.3 percent in 2005 to just 1.8 percent in 2011.

Central Bank leaves repurchase rates stable

Keshini — Thu, 17 Jan 2013 04:36:33 +0000

The Central Bank has kept its reverse repurchase rate at 9.5 percent and the repurchase rate at 7.5 percent, saying the current monetary policy stance is appropriate. Issuing a statement the Central Bank said it expects inflation to moderate from March 2013 and reach mid-single digit levels thereafter. It added the external sector projections target a higher Balance of Payment surplus in 2013 with expectations of an improved trade balance, increased earnings from service exports, higher workers’ remittances, increased inflows to the Government and capital markets, and in the form of foreign direct investments. Official Press Release of the Central Bank of Sri Lanka.

Monetary Policy Review – January 2013

Broad money growth continued to moderate owing to the slowdown in credit extended to the private sector, which has been decelerating steadily since implementing several policy measures in early 2012. Private sector credit growth declined to 20.7 per cent by November from the peak growth of 35.2 per cent recorded in March 2012. Net credit obtained by the Government, which increased up to November, declined substantially during the month of December as a result of conscious efforts by the Government to meet the fiscal targets. Credit obtained by public corporations however, continued to grow, exerting some pressure on broad money growth. In the external sector, with the sharp deceleration of the growth in expenditure on imports, the cumulative trade deficit for the first eleven months of 2012 declined by 2.1 per cent from the corresponding period in 2011. With increased net earnings from trade in services, workers’ remittances, and investment inflows, the Balance of Payments (BOP) recorded a surplus in 2012, which was reflected in the increase in the Gross Official Reserves of the country. Meanwhile, the external sector projections target a higher BOP surplus in 2013 with expectations of an improved trade balance, increased earnings from service exports, higher workers’ remittances, increased inflows to the Government and capital markets, and in the form of foreign direct investments. As a result of the significant foreign inflows already being witnessed, the rupee, which appreciated by 5.3 per cent against the US dollar during the second half of 2012, appreciated further by 0.6 per cent by 15 January 2013. Inflation, which continued to increase from February to July 2012 largely due to the adjustments of administered prices, eased in December declining to 9.2 per cent on a year-on-year basis from 9.5 per cent in November. Effective demand management policies that were in place in 2012 are likely to have moderated aggregate demand sufficiently, reining in future inflation and inflation expectations. As a result, inflation is projected to moderate from March 2013 and reach mid-single digit levels thereafter. Meanwhile, credit extended to the private sector by commercial banks is targeted to grow at a rate of around 18.5 per cent in 2013, and towards this end, credit disbursements by banks will be closely monitored to ensure that this expansion takes place at the desired pace. At the same time, since such rate of credit expansion is considered adequate to deliver an economic growth of 7.5 per cent in 2013 without giving rise to any unfavourable demand driven inflationary pressures, the risk of future inflation increasing is expected to be minimal. Based on the above, the Monetary Board at its meeting held on 16 January 2013 was of the view that current monetary policy stance is appropriate, and accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank of Sri Lanka will remain unchanged at 7.50 per cent and 9.50 per cent, respectively. The date for the release of the next regular statement on monetary policy will be announced in due course.

Governor assures price pressures will be contained in 2013

Keshini — Wed, 02 Jan 2013 09:42:25 +0000

Sri Lanka’s central bank assures it will strive to contain price pressures while bolstering economic growth this year. Unveiling the Road Map for Monetary and Financial Sector Policies for 2013, Governor of the CBSL Ajith Nivaad Cabraal said they seek inflation in the mid-single digits, and the government’s infrastructure drive will help boost expansion to 7.5 percent in 2013 from an estimated 6.5 percent in 2012. The Central Bank raised interest rates in February and April last year and let the rupee weaken, part of a policy overhaul to damp import demand. Citing that the cycle of tightening was one of the shortest in Sri Lanka, Cabraal said they are committed to a low inflation regime. Sri Lanka is easing limits on forward-market transactions, Cabraal said, adding the central bank would step in to prevent sharp exchange-rate movements.

December inflation slowed down to 9.2%

Keshini — Tue, 01 Jan 2013 12:18:24 +0000

Sri Lanka’s December inflation slowed down to 9.2% from 9.5% recorded during the previous month. However the rate is a massive spike year-on-year with the inflation rate according to the Colombo Consumer Price Index rising from 4.9% recorded a year ago. The country’s annual average inflation during the year 2012 is figured at 7.6%, from 6.7% recorded during the previous year. Sri Lanka's Central Bank is expected to publish its monetary policy roadmap for 2012 tomorrow setting out new targets. In last year's monetary policy road map, Sri Lanka targeted year-end inflation of around 5 to 6 percent.

CBSL revises 2012 economic growth to 6.5%

Keshini — Wed, 19 Dec 2012 14:15:50 +0000

The Central bank has revised the islands 2012 economic growth target to 6.5 percent today from an earlier 6.8 percent due to its tight monetary and fiscal policies. In an interview with Reuters the Deputy Central Bank Governor Nandalal Weerasinghe said there will be slower than expected growth in the third quarter, which would be close to 5 percent or less. Weerasinghe, added the growth has been revised to 6.5 percent from the earlier 6.8 percent for the entire year. The government has already revised down the growth target twice in 2012 from the original 8 percent after achieving a record 8.3 percent economic expansion last year.

Central Bank reduces rates as inflation climbs

Keshini — Wed, 12 Dec 2012 12:08:23 +0000

The Central Bank of Sri Lanka has reduced its policy rates by 25 basis points. In its Monetary Policy review for the month of December CBSL said accordingly, the Repurchase rate and the Reverse Repurchase rate will be 7.50 per cent and 9.50 per cent, respectively, with immediate effect. The National Regulator also said inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index increased to 9.5 per cent in November 2012 from 8.9 per cent in the previous month. Projections for economic growth during the year have also revised downward to 6.8 per cent from double digit figures anticipated at the beginning of the year.

Central Bank clarifies property acquisition in New York

Keshini — Thu, 29 Nov 2012 10:48:08 +0000

The Central Bank of Sri Lanka has confirmed the Bank reported the acquisition of a property in New York, in accordance with the prevailing International and Sri Lanka Accounting Standards. United National Party MP Eran Wickramaratne on Monday informed parliament that the purchase has been omitted in the Bank's annual report. Responding to the accusation the Central Bank said the property was acquired in accordance with established legal framework and procurement procedures. Issuing a statement the CBSL said the Cabinet of Ministers too, has been informed of the acquisition in line with advice from the Attorney General.

SL per capita, growth support positive rating, Moody’s says

Keshini — Sat, 17 Nov 2012 10:48:12 +0000

The rating agency Moody's has said in its latest credit analysis that Sri Lankan economy's current B1 sovereign rating has been based on its high per capita and growth. The analysis said Sri Lanka's per capita income of USD 2800 is the wealthiest among its South Asian neighbours and highlighted the island had benefited from integration into the global economy. It added the end to the war with the LTTE in 2009 has helped growth to move up to over 8 per cent. The analysis added the rehabilitation and reintegration of the northern and eastern provinces ensuring stable macroeconomic environment conducive for attracting domestic and foreign investments will be the key.

“Sri Lanka needs effective management to retain ‘B1′ rating”, Moody says

Keshini — Fri, 16 Nov 2012 11:09:57 +0000

Sri Lanka needs effective economic management to retain a positive outlook on its 'B1' rating according to Moody's Investors Services. In a credit analysis which also raised concerns over declining rule of law the ratings agency said economic growth rose to 8.0 percent in 2010 and 8.3 percent in 2012. In the report Moody’s said however that some aspects of the 'peace dividend' appear to be waning - namely, the reductions in inflation and in government funding costs. Therefore, Moody’s said sustaining strong growth and price stability will entail steady and effective macroeconomic management and further improvement in the investment environment.

S&P SL 20 replaces Milanka

Keshini — Thu, 15 Nov 2012 09:46:35 +0000

The Colombo Stock Exchange says the Standard & Poor SL 20 index will replace the Milanka Price Index. Issuing a statement the CSE said the move will come to effect on the 1st January 2013. International financial data and investment service provider Standard & Poor’s launched the new Sri Lanka index on the 26th of June this year. The new index ranks stocks according to its market capitalisation, subject to a single stock cap of 15 percent, which is employed to enhance portfolio diversification. Alka Banerjee, Vice President Global Equity and Strategy Indices said the index was created to help investors gauge the performance of the Sri Lankan equity market. The S&P Sri Lanka 20 classifies stocks according to the Global Industry Classification Standard, which is widely used by market participants worldwide. To be included in the index, a stock must have a minimum 500 million rupees market capitalisation on a 6-month average, with a daily traded value of 1.0 million rupees. All stocks have to be domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The annual rebalancing takes place on the third Friday of December. Quarterly rebalancing to adjust for smaller share changes; semi annual rebalancing can be undertaken if required.

Facebook posts loss of $59m

Tamara — Wed, 24 Oct 2012 07:15:29 +0000

Facebook has posted a loss of $59m despite seeing revenues rise 32% during the third quarter. The world's most popular online social network revealed that its income rose to $1.26bn, between July and September. The revenues exceeded expectations, but Facebook's performance remains in the red, following a loss of $157m in the previous quarter. Facebook's shares have lost about 50% since its stock market listing in May.

Sri Lanka named among countries with most improved ease of doing business

Keshini — Tue, 23 Oct 2012 11:12:43 +0000

Sri Lanka has been recognised as one of the 10 countries to have the most improved ease of doing business across several areas of regulation. The 'Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises' report issued by the World Bank and International Finance Corporation indicated Sri Lanka's rankings has improved from 89 to 81. The report assesses regulations affecting domestic firms in 185 economies and ranks the economies in 10 areas of business regulation, such as starting a business, resolving insolvency and trading across borders.

“Common Wealth Business Council will benefit Sri Lanka”, Director General

Keshini — Fri, 12 Oct 2012 03:41:13 +0000

Director General of Common Wealth Business Council Mohan Kaul says Sri Lanka's economy will benefit from the Commonwealth Business Forum. Speaking during the event held to mark the launch of the forum he said this is an invaluable opportunity for Sri Lanka. 0800 Yohan Kawul 12th

Reuters poll suggests CBSL will keep rates steady for a fifth straight month

Keshini — Mon, 17 Sep 2012 12:21:55 +0000

The Central Bank of Sri Lanka is expected to keep interest rates steady for a fifth straight month tomorrow despite high inflation to help bolster economic growth, which has been cooling due to an extended drought. Twelve out of 13 analysts polled by Reuters expect the repurchase and reverse repurchase rates to be left unchanged at 7.75 percent and 9.75 percent, respectively. Both rates are at their highest in more than two years. The central bank has already raised the key policy rates twice since February, allowed a flexible exchange rate, and limited this year's credit growth to prevent twin deficits in trade and balance-of-payments.