Economic Capsule - April 2016

1. Economic Capsule
April 2016
Research & Development Unit
232nd Issue

2. C O N T E N T S
BANKING AND FINANCE 
 Commercial Bank wins top Global Brand Excellence Award
 Commercial Bank signs agreement with Bank Muscat Oman for instant money transfers
ECONOMY & BUSINESS 
 Sri Lanka: Medium Term Macroeconomic Framework – CBSL
 Sri Lanka Among Six High Leverage Risk Countries: Moody’s
 Repatriation of Payments Received for Goods Exported from Sri Lanka
 Sri Lanka Will Benefit from European Union’s Termination of Ban on Imported Fish: Moody’s
 Possible Strategic Steps for Sri Lanka’s Apparel Sector: WB
 Sri Lankan IT Industry Leverages Niche Appeal: Oxford Business Group
Global Economic Update
 Euro zone economy above pre-crisis peak as growth surges past U.S., Britain
 U.S. economy stalls in first quarter as activity weakens broadly
 Chinese economy shows signs of debt-fueled recovery
 Trade growth to remain subdued in 2016 as uncertainties weigh on global demand

3. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Banking & Finance

4. 4< Research & Development Unit >
Commercial Bank wins top Global Brand
Excellence Award
 With this prestigious award, Commercial Bank has reaffirmed its status as one of the strongest
brands in Sri Lanka and the Asia Pacific region. The award won by the Bank was the only one
presented in that category.
 The award for ‘Marketing Campaign of the Year’ was won for the Bank’s attractive thematic
corporate campaign which engages multiple target segments and is based on the Bank’s role of
focusing on and empowering the aspirations of customers under the proposition ‘The Bank for
Your Success.’
Commercial Bank was presented the award for
‘Marketing Campaign of the Year’ at the 2016 CMO
Asia Awards for Excellence in Branding and Marketing
in Kuala Lumpur, Malaysia.

5. 5< Research & Development Unit >
Commercial Bank signs agreement with Bank
Muscat Oman for instant money transfers
 The mobile app makes it possible for users to send cash remittances to recipients
in Sri Lanka or transfer money to accounts at Commercial Bank 24/7. They may
also transfer funds to accounts at other banks in Sri Lanka via Commercial Bank.
The Commercial Bank of Ceylon recently
formalised its tie-up with the Bank Muscat
Oman to facilitate remittances to Sri Lanka
via the latter’s new feature-rich mobile
banking app, with the signing of an
agreement in Muscat.

6. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Economy & Business

7. 7< Research & Development Unit >
Sri Lanka: Medium Term Macroeconomic
Framework - CBSL
Source: CBSL Annual Report 2015

8. 8< Research & Development Unit >
IMF Reaches Staff Level Agreement with
Sri Lanka on Three-Year US$ 1.5 Bn EFF
The Sri Lankan authorities and the IMF have reached a staff-level
agreement on a 36-month (3 year) Extended Fund Facility (EFF) for
185 % of Sri Lanka’s quota in the IMF (about SDR 1.1 bn or US$ 1.5 bn).
 This agreement will be subject to completion of
prior actions and approval by the IMF’s Executive
Board, which is expected to consider Sri Lanka’s
request in early June.
 Formal approval of the EFF is expected to catalyze
an additional US$ 650 mn in other multilateral and
bilateral loans, bringing total support to about US$
2.2 bn (over and above existing financing
arrangements).
Cont..

9. 9< Research & Development Unit >
IMF Reaches Staff Level Agreement with Sri
Lanka on Three-Year US$ 1.5 Bn EFF (cont..)
 The authorities’ program supported by the IMF focuses on a comprehensive set of
reforms to Sri Lanka’s tax system eliminating exemptions, holidays, and special rates to
broaden the tax base and create a tax system that is simple, efficient, and more
equitable.
 The government will seek to raise the tax-to-GDP ratio to near 15 % by 2020 by
implementation of a new Inland Revenue Act, reform of the VAT and the customs code.
 These efforts on tax policy will be complemented by capacity building and reform in
revenue administration—making full use of automated systems and information
technology to bolster tax collection while also clamping down on corruption and
discretionary tax treatment.
 Together with more efficient management of government expenditure, the program will
support a steady reduction of the overall fiscal deficit to 3.5 % of GDP by 2020
equivalent to a shift from primary (excluding interest costs) fiscal deficits to primary
surpluses that will underpin a much-needed reduction of public debt. Source: IMF

10. 10< Research & Development Unit >
Sri Lanka Among Six High Leverage Risk
Countries: Moody’s
 Sri Lanka has been categorised among six high
leverage risk countries by Moody’s along with
China, Japan, Mongolia, Hong Kong and
Macao as high public, private sector leverage
poses credit risks across the Asia Pacific
region.
 With regard to Sri Lanka, Moody’s said
Sri Lanka has a very high debt burden
compared to its rating peers.
 General government debt stood at around
76.0% of GDP in 2015, up from 71.6% five
years earlier, and well above the 48.6%
median for B-rated sovereigns. Cont..

11. 11< Research & Development Unit >
Sri Lanka Among Six High Leverage Risk
Countries: Moody’s (cont..)
 Interest payments consume nearly a third
of government revenues much higher
than rating peers.
 More than 40% of Government debt is
denominated in foreign currency. This
exposes the Government to a larger
repayment burden in the event of a
depreciation in the local currency, as
happened in late 2015.
 Reliance on bilateral and multilateral
lenders reduces but doesn’t eliminate
vulnerability to international market
volatility, as financing strains posed by
falls in capital inflows in recent months
have shown.

12. 12< Research & Development Unit >
Repatriation of Payments Received for
Goods Exported from Sri Lanka
As part of current policy measures taken to improve the foreign exchange inflows to
the country, the Ministry of Finance has issued the Gazette Notification
(Extraordinary) No: 1960/66 dated 01 April 2016 containing the following.
i. Repealing the exemption granted in respect of payment for goods exported from
Sri Lanka in the Extraordinary Gazette Notification No. 759/15 dated 26 March 1993.
ii. Requiring repatriation of any such payment retained abroad as at 01 April 2016 to
Sri Lanka not later than 01 May 2016.
iii. Requiring any such payment received on or after 01 April 2016 to be repatriated to
Sri Lanka within 90 days from the date of exportation of goods.
These proceeds may be credited to any Foreign Currency Account maintained in the
name of the exporter in the Domestic Banking Unit of a Licensed Commercial Bank (LCB)
or sold to a LCB. Source: CBSL

13. 1
3
< Research & Development Unit >
Sri Lanka Will Benefit from European Union’s
Termination of Ban on Imported Fish: Moody’s
Cont..
The European Commission has announced that it had removed Sri Lanka
from the list of non-cooperative countries in the fight against illegal fishing,
effectively lifting a ban on fish imported from Sri Lanka by the EU.
 Sri Lanka’s resumption of exporting fish to the EU will boost exports, foreign exchange
revenues, employment and income, all credit-positive effects at a time when GDP growth is
moderate and balance-of-payment pressures have intensified.
 More generally, the ability of Sri Lankan authorities to implement legislation and measures
aimed at preventing and sanctioning illegal fishing is a credit-positive indication of the
sovereign’s institutional capacity to execute change to address key impediments to growth and
external stability.
 The EU’s step also bodes well for further measures fostering higher exports from Sri Lanka to
the region. In particular, Sri Lanka is negotiating a return to the EU’s Generalised Scheme of
Preferences plus (GSP+), which would eliminate all tariffs on Sri Lanka’s exports at their entry
in the EU.

14. 1
4
< Research & Development Unit >
Sri Lanka Will Benefit from European Union’s
Termination of Ban on Imported Fish: Moody’s (cont..)
The EU ban on fish exports
negatively affected Sri Lanka’s
economy and balance of
payments.
Before the ban, 40% of Sri Lanka’s
fish exports were shipped to the
EU. In 2015, with the ban in place,
fish exports declined 35.5% to
$163.1 mn (see exhibit).
As a result, fish exports amounted
to around 1% of total exports,
down from 1.5% in 2014.
Other main export markets for Sri
Lanka’s fish exports are the US and
Japan.

15. 1
5
< Research & Development Unit >
Possible Strategic Steps for
Sri Lanka’s Apparel Sector: WB
Cont..

16. 16< Research & Development Unit >
Possible Strategic Steps for
Sri Lanka’s Apparel Sector: WB (cont..)
Cont..
Full Report - Stitches to Riches?- Apparel Employment, Trade, and Economic Development in South Asia – World Bank Group

17. 17< Research & Development Unit >
Sri Lankan IT Industry Leverages Niche
Appeal: Oxford Business Group
Consistently ranked as a top global destination for business
process outsourcing (BPO) and IT, Sri Lanka’s tech services
industry has grown substantially in recent years, with high
expectations and ambitious targets going forward.
 Recent years have seen significant growth in Sri Lanka’s ICT revenues, particularly
exports, given its limited domestic market.
 From $128m in revenue in 2007, figures rose to $325m in 2009, $440m in 2011 and
$719m in 2013, representing 6.47% of total exports. With official figures slightly
delayed and reliant on periodic industry surveys, estimates for 2014 were around
$820m with projections for 2015 topping $1bn.
Challenges remain, notably in supplying the advanced IT graduates necessary to spur
future growth; however, with fundamental infrastructure largely in place, Sri Lanka
should continue to expand its role in a burgeoning global market.

18. 18< Research & Development Unit >
Sri Lankan IT Industry Leverages Niche Appeal:
Oxford Business Group (cont..)
 The industry aims for a total of $5bn in revenue by 2022, with 200,000 direct jobs and 1000
new start-ups
 Stakeholders highlight that the development of Sri Lanka’s IT sector remains quite
differentiated from that of neighbouring India, specifically, Sri Lanka shows unique expertise
around building intellectual property and software engineering, at a higher value-added
segment of the market. In India it has historically been a numbers game, with a wide range of
services offered at a low price point, according to Mack Gill, CEO of MillenniumIT.
 Apart from products and services, there is also an emphasis on different sized clients. Jeevan
Gnanam, CEO of Orion City, the island’s only private IT park, told OBG that Sri Lanka has a true
leg up on India in the small and medium-sized enterprises (SMEs) market.
 The country is an increasingly favourable destination for outsourcing. In early 2016 AT Kearney
ranked Sri Lanka 14th on its Global Services Location Index, which gauges the commercial
attractiveness for offshoring of some 55 countries. Sri Lanka moved up two places year-on-
year, ranking highest in financial attractiveness and slightly lower in the availability of skilled
professionals and overall business environment.
Full Article - Sri Lankan IT industry leverages niche appeal

19. Condominium Industry
in Sri Lanka
October, 2014
Global Economic Update

20. 20< Research & Development Unit >
Euro zone economy above pre-crisis
peak as growth surges past U.S., Britain
• Overcoming years of poor health and crisis, the euro
zone economy grew at its fastest pace in five years in
the first quarter, 2016 driven by unlikely stars such as
France and Spain.
• It now stands larger that in did at its peak before the
financial crisis, albeit having taken eight years to
recover. The bloc also slipped back into deflation in
April.
• Blowing past both the U.S. and British economies, the
latter weighed down by uncertainty over possibly
leaving the Europe Union, euro zone growth doubled
from the previous quarter, beating even the most
optimistic expectations on healthy household
consumption and a rebound in investments.
• Growth among the 19 countries sharing the euro
jumped 0.6 % on the quarter, well past expectations
for 0.4 % and ahead of Britain's 0.4 %.
U.S. economy stalls in first quarter
as activity weakens broadly
• U.S. economic growth braked sharply in the first
quarter 2016 to its slowest pace in two years as
consumer spending softened and a strong dollar
continued to undercut exports, but a pick-up in
activity is anticipated given a buoyant labor
market.
• Gross domestic product increased at a 0.5 %
annual rate, the weakest since the first quarter
of 2014.
• Growth was also held back by businesses
stepping up efforts to reduce unwanted
merchandise clogging up warehouses.

21. 21< Research & Development Unit >
Trade growth to remain subdued in 2016 as
uncertainties weigh on global demand
• Growth in the volume of world trade is expected to remain
sluggish in 2016 at 2.8%, unchanged from the 2.8% increase
registered in 2015.
• Imports of developed countries should moderate this year
while demand for imported goods in developing Asian
economies should pick up.
• Global trade growth should rise to 3.6% in 2017, according to
WTO economists.
• Exports of developed economies lagged behind developing
countries in 2015, with 2.6% volume growth in the former and
3.3% in the latter.
• Developed economies imports surged last year while
developing countries stagnated, with growth of 4.5% in the
former and 0.2% in the latter.
• A sharp trade slowdown affected all regions in 2015Q2 but was
mostly reversed by the end of the year.
Chinese economy shows
signs of debt-fueled
recovery
• China posted its slowest economic
growth since 2009 but a surge of new
debt appears to be fueling a recovery in
factory activity, investment and
household spending in the world's
second largest economy.
• Official data showed China's gross
domestic product grew at an annual rate
of 6.7 % in the first quarter of 2016,
easing slightly from 6.8 % in the fourth
quarter as expected.
• However, other indicators released
showed new loans, retail sales,
industrial output and fixed asset
investment were all better than
forecast.

22. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC
The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information,
it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence
of using such information for whatever purpose. < Research & Development Unit >