Economic Capsule - February 2021

Economic Capsule
December 2019
276th Issue
Research & Development Unit
Economic Capsule
February 2021
289th Issue

C O N T E N T S
BANKING & FINANCE
 ComBank moves up to No 2 in LMD 100’s principal rankings
 ComBank honoured for dedication to women empowerment
 ComBank wins Green Building – Platinum Award for restored Galle
Fort branch building
ECONOMY & BUSINESS
 Business confidence surges
 Tourist arrivals cross 4,000 mark
 SL Tourism begins search for agency to handle 5-year global digital
blitz
 CBSL repays USD 400mn India swap
 Sri Lanka in talks for USD 4-5bn pipeline of swaps & credits except
IMF: Central Bank
 External Sector Performance- Jan to Dec 2020
ECONOMY & BUSINESS (Cont.)
 EDB Forecasts near USD 16bn total Exports in 2021
 Real estate market set to face undersupply of apartment stock: RIU
 Sri Lanka’s Manufacturing PMI - Jan 2021
 Sri Lanka’s Services PMI – Jan 2021
 News Snippets
INTERNATIONAL
 Bitcoin surges to new record as major firms flock to crypto
 ECB vows to stick to stimulus despite recent rise in inflation
 IMF to resume stalled USD 6bn loan programme to Pakistan
 2020 passenger totals drop 60% as COVID-19 assault on international mobility
continues - International Civil Aviation Organization (ICAO)
 Saudi Arabia plans to increase oil output amid recovery in prices

ComBank moves up to No 2 in LMD 100’s
principal rankings
The Commercial Bank of Ceylon has moved up to second place in the latest ‘LMD 100’,
after a solid performance in 2019-20 saw the Bank achieving the No 2 spot in the two
principal rankings – Turnover and Profit – to reaffirm its position as one of the country’s
strongest business entities.
Commercial Bank is once again the highest-ranked bank in the Top 10 of this prestigious
list of corporate giants. Commercial Bank is ahead of many diversified conglomerates
and has the distinction of being ranked among the Top 10 every year since the ranking
was first published in respect of 1993-94.
The LMD’s primary ranking is based on turnover, but the magazine also ranks companies
by sector as well as by total assets, profit after tax, shareholders’ funds, market
capitalisation, earnings per share, dividends per share and many other performance
indicators.

ComBank honoured for dedication to
women empowerment
The Commercial Bank of Ceylon PLC has been recognised for
its commitment to empower women at the ‘Top 50
Professional and Career Women Awards’ held recently.
The Bank was presented the award for the ‘Best CSR project
on women empowerment by an organisation’ at the
10th edition of the ‘Top 50 Professional and Career Women
Awards, Sri Lanka & Maldives’ - an event organised by
Women in Management (WIM), a leading organisation in Sri
Lanka dedicated to the success of women, together with
International Finance Corporation (IFC), a member of the
World Bank Group, and the Government of Australia via
Australia Aid.

ComBank wins Green Building – Platinum
Award for restored Galle Fort branch
building
The heritage building which is home to the Galle Fort branch
of the Commercial Bank of Ceylon has won a Platinum award
from the Green Building Council of Sri Lanka (GBCSL) for its
eco-friendly features after it was recently restored to its
original grandeur by the Bank.
The Platinum award is the highest rating achievable based on
a set of performance standards used to certify the operations
and maintenance of a building. Key aspects taken into
consideration by the GBCSL to bestow this rating on a commercial or institutional building includes
management, sustainable sites, energy and atmosphere, materials and resources, indoor
environmental quality, innovation and design process, and social and cultural awareness.

Business confidence surges
In a reversal of the downward trend witnessed in recent
months, the LMD-Nielsen Business Confidence Index (BCI)
shot up by 39 basis points to 122 in January.
Leading business magazine LMD notes that this places the
index a notable 12 notches above the average for the last 12
months.
“The world embraced 2021 with much hope and
anticipation of better things to come. While the New Year
celebrations were subdued, anticipation of an improved
2021 was evident.”
Given the clarity that has emerged more recently with the four million vaccines courtesy WHO-Covax to
be received in a month or so and the arrival of a consignment of COVISHIELD (Oxford-AstraZeneca)
doses from India, LMD says: “Should see more light at the end of what’s been a long and dark tunnel,
business confidence will surely reach for higher ground.”

Tourist arrivals cross 4,000 mark
Tourist arrivals post reopening of borders crossed the 4,000
mark (as of 19th February), with the Government also
planning to soon roll out the much-awaited global tourism
campaign.
Within just three weeks since airports were opened on 21
January for international travellers and commercial flights,
there have been 4,368 tourists, Sri Lanka Tourism
Chairperson Kimarli Fernando told.
She said they anticipate more tourists in the coming months,
as Sri Lanka Tourism is planning to roll out the much awaited
global campaign within the year.

SLTourism begins search for agency to
handle 5-year global digital blitz
Sri Lanka Tourism has kicked off the search for a reputed and
competent agency to handle a planned five-year global promotion on
digital platforms, to woo more visitors despite COVID-19 challenges.
Effective global promotion has been a long felt need for the tourism
industry since Sri Lanka last had a concerted exercise over six years ago.
The Tourism Ministry Standing Cabinet-appointed Procurement
Committee Chairman has called for bid proposals from agencies for a
‘Digital Marketing Company for Social Media and Other Forms of Online and Digital Marketing’ as well as
for a ‘Campaign Development and Management Unit,’ to facilitate the Global Communication Campaign
2021-2025 of Sri Lanka Tourism on behalf of Sri Lanka Tourism Promotion Bureau (SLTPB).
The objective of the proposed integrated global marketing blitz is to promote Sri Lanka as a tourist
destination and to achieve the national target of the sector.

CBSL repays USD 400mn India swap
CBSL settled a USD 400mn swap from India in
February as per an agreement in July 2020.
Reserve Bank of India (RBI) and the Central
Bank of Sri Lanka (CBSL) had concluded a USD
400mn currency swap agreement on 24 July
2020 under the SAARC Currency Swap
Framework. This swap facility was drawn by
CBSL on 31 July 2020 for an initial period of
three months. A three-month rollover was
provided at CBSL’s request till 1 February
2021.
Further extension would require Sri Lanka having a successfully negotiated staff level agreement for an
International Monetary Fund (IMF) program, which Sri Lanka does not have at present. Therefore, the CBSL settled
the swap facility with RBI as scheduled.
Sri Lanka obtained the USD 400mn swap last year to provide a buffer against pandemic impact to bolster reserves
and assist in debt repayment.

Sri Lanka in talks for USD 4-5bn pipeline
of swaps & credits except IMF: Central
Bank
Sri Lanka is in talks for up to USD 5bn of funding through swaps and loans outside of a
program with the International Monetary Fund, and all debt falling due will be met,
central bank officials said.
CBSL Governor said, required foreign exchange would be sourced from the market and
gaps would be filled with swaps and loans.
“There are a number of negotiations going on, with overseas agencies to raise some of
the required foreign exchange inflows, through swaps and loans. Negotiations with
overseas central banks, overseas banks and other agencies. Multilateral agencies are
included though the IMF is not there in that list – yet”. they said.
Source: Daily FT

External sector performance- Jan to Dec 2020
(USD Mn)
Source: CBSL
Category Jan-Dec 2019 Jan -Dec 2020 Growth %
Merchandise Imports 19,937 16,055 -19.5
•Consumer Goods 3,956.5 3,401.7 -14.0
•Intermediate Goods 11,369.6 9,076.5 -20.2
•Investment Goods 4,602.6 3,563.2 -22.6
•Unclassified 8.3 14.0 68.8
Merchandise Exports 11,940 10,077 -15.6
•Industrial Exports 9,426.3 7,701.7 -18.3
•Agricultural exports 2,461.9 2,336.2 -5.1
•Mineral exports 33.9 25.1 -25.9
•Unclassified 17.9 14.1 -21.4
Trade Balance -7,997 -5,978 25.2
Tourism 3,607 957 -73.5
Worker’s Remittance 6,717 7,104 5.8
Gross FDI 793 548 -30.9
Merchandise exports ended 2020 with an
overall contraction of 15.6% compared with
2019 mainly due to the impact of the COVID19
pandemic in the country, while merchandise
imports continued to decline on a year-on-year
basis by 19.5% supported by the continuation
of restrictions on non-essential imports and
comparatively low global oil prices.
Overall, the trade deficit contracted significantly
by US dollars 2.0bn in 2020 compared to 2019.
Workers’ remittances continued to support the
external sector resilience throughout 2020
posting a 5.8% Year-on-Year growth.

External sector performance- Jan to Dec 2020
(Cont.)
Source: CBSL
Even amidst volatile periods, particularly driven by speculative
market behavior, the overall depreciation of the rupee was
limited to 2.6% against the US dollar in 2020. The Central Bank
was able to absorb USD 283mn, on a net basis, from the
domestic foreign exchange market in 2020.
Meanwhile, reflecting cross-currency movements, the Sri Lankan
rupee depreciated heavily against the euro and Australian Dollar.
Notable depreciation was observed against the Japanese yen and
the Sterling Pound in 2020.
Currency 2019 2020
USD +0.6% -2.6%
Euro +2.6% -11.2%
Sterling Pound -2.8% -6.2%
Japanese Yen -1.0% -7.5%
Australian Dollar +1.3% -11.4%
Indian Rupee +2.6% 0.0%
Movement of the Sri Lankan rupee against selected currencies + LKR Appreciation
- LKR Depreciation

EDB forecasts near USD 16bn total exports in
2021
The Sri Lanka Export Development Board (EDB) is forecasting a performance of
USD 15.68bn in merchandise and service shipments in 2021.
EDB in 2021 expects USD 12bn from merchandise exports and USD 3.6bn from
services exports.
EDB Chairman told that of the exports forecast, EDB expects USD 5.4bn to come
from apparel, USD 1.5bn from tea, USD 998mn from rubber and USD 809mn from
coconut.
He said spices and concentrates, processed food and beverages, seafood and
aquaculture, coconut-based products, rubber-based products, electrical and
electronic components, ICT/ BPM are some of the growth sectors of exports in
2021.
Source: Daily FT

Real estate market set to face undersupply of
apartment stock: RIU
The annual real estate report
by the Research Intelligence
Unit (RIU) shows that the
industry had performed with
tenacity and resilience during
the past year, given the
economy’s extraordinary
challenges.
The report concluded that
within the next two to three
years, Sri Lanka would face an
undersupply of apartments
and other real estate assets
due to a combination of
variables which would
essentially navigate it towards
establishing a sellers’ market.
Source: Daily FT

Real estate market set to face undersupply of
apartment stock: RIU (cont.)
In 2020, low-interest rates stimulated the
market to enhance the absorption rates
of the prevailing stock of apartments in
Colombo.
Source: Daily FT

Sri Lanka’s Manufacturing PMI - Jan 2021
Manufacturing PMI remained expanded in January 2021
recording an index value of 60.2 owing to the expansion in New
Orders and Production. The increase of Stock of Purchases sub-
index also contributed to the overall expansion of the PMI.
New Orders and Production sub-indices remained at healthy levels especially in manufacture of food & beverages sector following the festive season. However,
some respondents in this sector highlighted that lower than expected demand due to the COVID-19 situation affected the business activities. The Employment
expanded at a higher rate during this period with new recruitments. However, some manufacturers highlighted that they had to struggle to complete their
production on time due to the lack of employee availability mainly with the pandemic related health concerns.
Although the New Orders and Production expanded at a slower pace, the Stock of purchases expanded at a higher rate due to depleting of stocks previously
held and intended accumulation of stocks for future requirements, anticipating supply disruptions, due to upcoming Chinese New Year holidays. Further, the
Suppliers’ Delivery Time sub-index lengthened at a higher pace during the month. Many respondents mentioned that their shipments were delayed due to
issues related to port /shipping. Expectations for manufacturing activities in the next three months improved further with the expectation for the normalization
of economic activities within the country as well as in major export markets.

Sri Lanka’s Services PMI – Jan 2021
Starting the year with a positive note, services sector PMI recorded a
value of 56.2 in January 2021. This indicates a further recovery in the
services sector, which was affected by the second wave of COVID-19
pandemic. This increase was underpinned by the expansions observed
in new businesses, business activities and expectations for activity.
The Index
PMI is calculated as a ‘Diffusion Index’, where it takes values between 0 and 100.
PMI = 50 - sector remained neutral on month-on-month basis
PMI > 50 - sector is generally expanding on month-on-month basis
PMI < 50 - sector is generally declining on month-on-month basis
The World Outlook: Global services PMI declined to 51.6 in January 2021 from
51.8 in December 2020, signaling slowdown in expansion of global service
activities. Services PMIs of USA, China and India indicated that their services
sectors expanded in January 2021 compared to the previous month, while that of
Japan and UK indicated a deterioration

Sri Lanka eyes re-negotiating trade deals
amid import controls
Sri Lanka has given the nod for the Ministry of
Trade to examine ways of re-negotiating existing
free trade agreements and enter into new ones,
the government said, as the country remains mired
in import controls after money printing.
Sri Lanka eyes 250,000MT maize production
forThriposha, other animal feed
Sri Lanka will lease 2,750 acres of underutilised land
to potential investors for a period of one year to
produce 250,000 metric tons of maize that will be
used in the production of Thriposha and other
animal foods, the Government Department of
Information (GDI) said
News Snippets
Sri Lanka andVietnam eye preferential trade deal,
agri fisheries links
Sri Lanka and Vietnam had agreed to work on a free
trade deal and advance co-operation in fisheries and
agriculture at a meeting between the island’s foreign
minister and the South East Asian nation’s envoy to
Colombo.
Pandemic a positive impact on FMCG business
A recent study done by the global research agency
Kantar reveals that FMCG products consumption in Sri
Lanka which was at a downward trend in the last three
years has taken a totally a new direction during the
pandemic times. 2020 -2Q saw a spike of 24% on volume
and a 17% volume increase in Q3 and Q4.

Bitcoin surges to new record as major firms flock
to crypto
Bitcoin surged to an all-time high of USD 49,951 (15th
February), just inches away from the USD 50,000 level. The
digital coin has gotten a boost from large firms like Tesla
and Mastercard warming to crypto.
Bitcoin’s price more than quadrupled in 2020 and is up
more than 60% since the start of this year.
Tesla revealed it had bought USD 1.5bn worth of bitcoin in
a filing last week and said it would soon accept payments
in the digital coin. Mastercard said that it would support
certain crypto currencies later this year, while BNY Mellon
announced the following day it would open up its custody
services to digital assets.
Source: CNBC

ECB vows to stick to stimulus despite recent rise
in inflation
Source: FT.com
European Central Bank policymakers committed to
keep “a steady hand” on stimulus measures,
according to the minutes of their meeting last month,
when they promised to disregard any short-term
jumps in inflation or nominal interest rates.
Inflation in the eurozone shot up at the fastest rate
for more than a decade in January, while
expectations of a major US fiscal stimulus have
pushed longer-term bond yields up in the US and
Europe in recent days.
But the ECB’s governing council said “a temporary boost to inflation should not be mistaken for a
sustained increase, which was still likely to emerge only slowly”.

Source: FT.com
IMF to resume stalled USD 6bn loan programme
to Pakistan
The IMF and Pakistan have announced the resumption of a stalled USD 6bn loan programme, raising
expectations that the south Asian country will return to global bond markets as it struggles to revive its
Covid-hit economy.
In a statement, the fund said that a newly agreed package of measures under a three-year loan signed in
2019 sought to “ensure debt sustainability and advance structural reforms”.
The agreement had been expected in October last year but was delayed, according to Pakistani officials,
mainly over prime minister Imran Khan’s refusal to accept belt tightening measures at the peak of the
coronavirus pandemic.

Source: ICAO
2020 passenger totals drop 60% as COVID-19
assault on international mobility continues -
International Civil Aviation Organization (ICAO)
With its latest economic impact
analysis of COVID-19 now
completed, the UN agency for civil
aviation has confirmed that
international passenger traffic
suffered a dramatic 60 per cent drop
over 2020, bringing air travel totals
back to 2003 levels.
ICAO reports that as seat capacity
fell by 50% last year, passenger
totals dropped by 60% with just
1.8bn passengers taking to the air during the first year of the pandemic, compared to 4.5bn in 2019. Its
numbers also point to airline financial losses of USD 370bn resulting from the COVID-19 impacts, with
airports and air navigation services providers (ANSPs) losing a further 115bn and 13bn, respectively.

Source: Wall Street Journal/CBSL
Saudi Arabia plans to increase oil output amid
recovery in prices
Saudi Arabia plans to increase oil output in the
coming months, reversing a recent production
cut, the Wall Street Journal reported on, citing
advisers to the country.
The world’s largest oil exporter surprised oil
markets last month when it said it would
unilaterally slash 1mn barrels a day of crude
production in February and March in an effort
to raise prices.

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 >

Economic Capsule - February 2021

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