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1. Economic Capsule
July 2022
Research & Development Unit
306thIssue

2. CONTENTS
BANKING & FINANCE
 Commercial Bank ranked among world’s Top 1000 banks for 12th consecutive
year
 ComBank wins coveted double at Asiamoney Banking awards
 Commercial Bank’s pioneering ePassbook goes multilingual
 Commercial Bank launches ‘Arunalu’ Foreign Currency Savings Account for
children
ECONOMY, BUSINESS & DEVELOPMENT
 IMF hopes to soon resume Sri Lanka high-level discussions
 BoP deficit shows signs of deceleration as demand destruction policies take
root
 Renewed foreign interest in rupee treasuries
 Central Bank reiterates warning against usage of virtual currencies
 Realtors witness sharp increase in land purchases by expatriates after rupee
collapse
 SL to establish divisional office of China-led AIIB
 News Snippets
GLOBAL OUTLOOK
 The big default? Countries in the danger zone
 The Dollar is extremely strong, pushing down the world
 International trade settlement in Indian rupee
 US Inflation
 Oil prices
Research & Development Unit

3. Banking &
Finance

4. Commercial Bank ranked among world’sTop 1000 banks
for 12th consecutive year
Research & Development Unit
The globally-respected UK magazine ‘The Banker’ has once again
included the Commercial Bank of Ceylon in its prestigious ‘Top 1000
World Banks’ ranking, making Commercial Bank the only Sri Lankan bank
to be ranked among the elite global giants in banking for 12 consecutive
years.
This ranking of the global who’s who of banking is
based primarily on Tier I capital, a principal
indicator to measure a bank's financial health.
Commercial Bank of Ceylon was ranked at No 930.

5. ComBank wins coveted double at Asiamoney Banking
awards
Research & Development Unit
The Commercial Bank of Ceylon has won two coveted
international awards – ‘Best Bank for Small and Medium
Enterprise (SME) Banking’ and ‘Best Bank for Environmental,
Social and Governance (ESG)’ at the latest awards event of
the respected Asiamoney magazine.
This is the third consecutive year that Commercial Bank has
won a double from this quarterly publication.
The ‘Best Bank for SME Banking’ award recognises Commercial Bank for proactively identifying the timely needs of
SMEs and micro enterprises and providing tailor-made products and services to assist this segment that has in the
past two years been affected first by the pandemic and subsequently by economic shocks and funding issues.
The ‘Best Bank for ESG’ Award was presented in recognition of the Bank’s strategic initiatives in the space of
sustainable financing, financial inclusion and nationally-significant contributions via its CSR Trust.

6. Commercial Bank’s pioneering ePassbook goes
multilingual
Research & Development Unit
The Commercial Bank of Ceylon has announced
that ‘ComBank ePassbook’ – Sri Lanka’s first
digital passbook – is now operable in Sinhala
and Tamil in addition to English, to further
encourage digital banking habits and improve
the customer experience.
The move to make the ComBank ePassbook
trilingual was embarked upon to enable all
customer segments of the bank to go digital and
to improve digital financial inclusivity

7. Commercial Bank launches ‘Arunalu’ Foreign Currency
Savings Account for children
Research & Development Unit
A timely opportunity to save for children in foreign currency has been unveiled by the Commercial
Bank of Ceylon with the launch of the ‘Arunalu’ Foreign Currency Minor’s Savings Account.
Savings can be made in four designated currency denominations for children who are Sri Lankan
citizens resident in Sri Lanka or for children of Sri Lankan emigrants whose birth is registered in Sri
Lanka
An ‘Arunalu Foreign Currency Minor’s Savings Account’ can be opened at any Commercial Bank branch by the
parents, grandparents or legal guardians of children under the age of 15, with a minimum initial deposit of USD 50
or the equivalent in other designated currencies such as Pounds Sterling, Euros or Australian Dollars.
The total accumulated balance in the account can be withdrawn on or after the 18th birthday of the child.
Accepted remittances to this account will include deposits from parents, grandparents and legal guardians alongside
transfers from personal foreign currency accounts (PFCA) of parents, grand parents and legal guardians.
When the minor becomes a major (18 years), the Bank will release the saved amount in Sri Lankan Rupees, and in
foreign currency for genuine, acceptable reasons such as overseas education and healthcare.

8. Economy, Business
& Development
News
Research & Development Unit

9. IMF hopes to soon resume Sri Lanka high-level
discussions
Research & Development Unit
The International Monetary Fund (IMF) is still in contact with the officials at technical
levels within the Sri Lankan government and hopes to be able to resume discussions
with higher-level officials, an IMF spokesman said.
“We hope for a resolution of the current situation
that would allow for our resumption of a dialogue
on an IMF-supported program,” IMF spokesman
Gerry Rice said.
Rice said the IMF still has technical counterparties
in Sri Lanka’s Central Bank and the Finance Ministry
and hopes to be able to have high-level discussions
with the authorities to begin discussions on a
programme “as soon as possible”
“Any new loan program for Sri Lanka would
require adequate assurances on debt
sustainability”.
- Gerry Rice

10. Research & Development Unit
*BoP deficit shows signs of deceleration as demand
destruction policies take root
*BOP – The balance of payments (BOP), also known as the balance of international payments, is a statement of all transactions made between entities in one country and the
rest of the world over a defined period, such as a quarter or a year. It summarizes all transactions that a country's individuals, companies, and government bodies complete
with individuals, companies, and government bodies outside the country.
The deficit in the balance of payment
(BoP), which still runs more than double
the level of last year, has shown signs of
deceleration after the imports fell amid
the rising exports, narrowing the deficit in
the trade account.
According to the data available through the first five months, the BoP deficit reached
USD 2,595mn, slightly up from USD 2,569mn in the first four months, reflecting the
demand destruction policies instituted since April onwards are taking hold fast to
crimp the trade deficit, which has been growing until recently.
Source : CBSL

11. Renewed foreign interest in rupee treasuries
Research & Development Unit
The Central Bank has seen some renewed
interest in the investments in rupee
treasuries by foreigners lately, buoyed by
the soaring interest rates.
There have been (some) inquiries.
Although there hasn’t been a significant
improvement in their holdings, there have
been some inflows there,” said Central
Bank Governor.
Source : CBSL
Foreign holdings of the rupee bonds fell off a cliff since January 2015 and never recovered thereafter as investors
who grew extremely jittery about the Sri Lankan economy continued to cut their positions they had in rupee
treasuries.
At its peak in January 2015, foreigners held Rs.453bn worth rupee bonds which at the time was equivalent to USD
3.5bn.

12. Research & Development Unit
Central Bank reiterates warning against usage of virtual
currencies
The Central Bank renewed its warnings issued
against the usage of virtual currencies stressing
that it hasn’t issued any license or authorization to
any entity or company to operate schemes
involving virtual currencies, including crypto
currencies, and has not authorized any initial coin
offerings (ICO), mining operations or virtual
currency exchanges.
The Central Bank further said as per the Directions No. 03 of 2021 under Foreign Exchange Act,
No. 12 of 2017 issued by the Department of Foreign Exchange of CBSL, electronic fund transfer
cards (EFTCs) such as debit cards and credit cards are not permitted to be used for payments
related to virtual currency transactions.
Therefore, VCs are considered as unregulated financial instruments and have no regulatory
oversight or safeguards relating to their usage in Sri Lanka,” a Central Bank statement said.

13. Realtors witness sharp increase in land purchases by
expatriates after rupee collapse
Research & Development Unit
There has been a sharp uptake of properties purchased by the Sri Lankans living abroad since the rupee
crashed in March making local assets far cheaper for foreigners and the expats while the land prices
have also slumped quite significantly after the property bubble created by the record low interest rates
blew up few months ago when the mortgage rates hit an all-time high.
According to realtors, they observe many properties changing hands between the locals and the Sri
Lankans living abroad as the latter found a new and rare opportunity to grab lands here at a
significant discount from their sharply elevated levels at the beginning of the year.
One leading realtor operating one of the largest real estate matchmaking sites said that expats are
now spending only a fraction of what they spent before the rupee collapsed when buying lands.
For instance, those who were investing up to USD200,000 are now spending only half the amount
due to the double whammy which hit the land market in Sri Lanka—one coming from the cheaper
rupee and the other from the overall collapse in the land market.

14. SL to establish divisional office of China-led AIIB
Research & Development Unit
The Cabinet nod was granted to establish a
divisional office of China-led Asian
Infrastructure Investment Bank (AIIB) under
the Ministry of Finance, Economic Stability
and National Policies.
The Beijing-headquartered multilateral
development bank is comprised of non–
residential directors and is divided into 12
divisions consisting of member countries.
Sri Lanka who is an opening member represent the 11th division of the bank where
Indonesia being the main shareholder of that division. Along with Sri Lanka,
Cambodia, Myanmar, Laos, and Eastern Timor are the other member countries of
that division.

15. Research & Development Unit
News Snippets
Israel’s Arkia considering to operate flights to Sri Lanka
Israel’s second largest airline, Arkia is looking at expanding its operations
to Sri Lanka and Thailand, following Saudi Arabia’s plan to allow
unfettered access to its airspace to Israeli airlines. The move by Saudi
Arabia would allow Israeli airlines to save fuel costs and reduce flight
times to Asian destinations.
Sri Lanka had welcomed over 4,600 Israeli tourists up to May.
Summary of External Sector performance
Jan-May
2021
USD BN
Jan –May
2022
USD BN
Change
(%)
Merchandise
Exports
4.69 5.27 12.2
Textile and
Garment
2.07 2.41 16.2
Tea 0.53 0.46 -12.5
Merchandise
Imports
8.36 8.80 5.3
Fuel Imports 1.72 2.38 38.5
Trade balance -3.67 -3.53 3.8
Source : CBSL
Russia invites Sri Lanka to recognize Mir payment system to boost Russian tourist arrivals
As Russia continues to be cut off from globally popular electronic payment systems, it invites Sri Lanka to recognize its Mir
electronic payment system to boost Russian tourist arrivals to the island nation. Connecting Sri Lanka to the financial remittance
system of Bank of Russia and introducing Mir payment system to the island would allow establishing direct financial
communication and currency exchange, cutting transactional losses, and making the process of bank transfers secure and stable.
The implementation of these mechanisms in Sri Lanka would have a positive impact on the tourism industry,” Attaché of the
Russian Embassy in Colombo said.
Sri Lanka seeks USD 4bn from China
Sri Lanka is continuing negotiations with China to obtain as much as USD
4bn and is confident Beijing will agree “at some point”, Bloomberg News
reported.

16. Global
Update
Research & Development Unit

17. The big default? Countries in the danger zone
Research & Development Unit
Traditional debt crisis signs of crashing currencies, 1,000 basis point (1 basis point = 0.01%) *bond spreads and
burned foreign reserves point to a record number of developing nations now in trouble.
Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least another
dozen are in the danger zone as rising borrowing costs, inflation and debt all stoke fears of economic collapse.
* Bond spread refers to the difference in the yield on two different bonds or
two classes of bonds. Investors use the spread as in indication of the relative
pricing or valuation of a bond. Higher spreads indicate a higher default risk
Argentina
The sovereign default world record
holder looks likely to add to its tally.
The peso now trades at a near 50%
discount in the black market,
reserves are critically low and bonds
trade at just 20 cents in the dollar -
less than half of what they were after
the country's 2020 debt
restructuring.
The government doesn't have any
substantial debt to service until 2024,
but it ramps up after that and
concerns have crept in that powerful
vice president Cristina Fernandez de
Kirchner may push to renege on the
International Monetary Fund
Ukraine
Russia's invasion means
Ukraine will almost certainly
have to restructure its USD
20Bn plus of debt, heavyweight
investors such as Morgan
Stanley and Amundi warn. on
the International Monetary
Fund.
The crunch comes in
September when USD1.2Bn of
bond payments are due. Aid
money and reserves mean Kyiv
could potentially pay. But with
state-run Naftogaz this week
asking for a two-year debt
freeze, investors suspect the
government will follow suit.
Tunisia
Africa has a cluster of countries going to
the IMF but Tunisia looks one of the most
at risk.
A near 10% budget deficit, one of the
highest public sector wage bills in the
world and there are concerns that
securing, or a least sticking to, an IMF
programme may be tough due to
President Kais Saied's push to strengthen
his grip on power and the country's
powerful, incalcitrant labour union.
Tunisian bond spreads - the premium
investors demand to buy the debt rather
than U.S. bonds - have risen to over 2,800
basis points and along with Ukraine and El
Salvador, Tunisia is on Morgan Stanley's
top three list of likely defaulters. "A deal
with the International Monetary Fund
becomes imperative," Tunisia's central
bank chief Marouan Abassi has said
Ghana
Furious borrowing has seen Ghana's debt-to-
GDP ratio soar to almost 85%. Its currency,
the cedi, has lost nearly a quarter of its value
this year and it was already spending over half
of tax revenues on debt interest payments.
Inflation is also getting close to
30%.
Kenya
Kenya spends roughly 30% of revenues on
interest payments. Its bonds have lost almost
half their value and it currently has no access
to capital markets - a problem with a USD 2Bn
dollar bond coming due in 2024.
On Kenya, Egypt, Tunisia and Ghana, Moody's
David Rogovic said: "These countries are the
most vulnerable just because of the amount
of debt coming due relative to reserves, and
the fiscal challenges in terms of stabilising
debt burdens

18. The big default? Countries in the danger zone (Cont.)
Source : Reuters, IMF
Research & Development Unit
Egypt
Egypt has a near 95% debt-to-GDP
ratio and has seen one of the
biggest exoduses of international
cash this year - some USD 11Bn
according to JPMorgan.
Fund firm FIM Partners estimates
Egypt has USD100bn of hard
currency debt to pay over the next
five years, including a meaty
USD3.3Bn bond in 2024.
Egypt devalued the pound 15% and
asked the IMF for help in March but
bond spreads are now over 1,200
basis points and credit default
swaps (CDS) - an investor tool to
hedge risk - price in a 55% chance it
fails on a payment.
El Salvador
Making bitcoin legal tender all
but closed the door to IMF
hopes. Trust has fallen to the
point where an USD 800Mn
bond maturing in six months
trades at a 30% discount and
longer-term ones at a 70%
discount.
Ethiopia
Ethiopia plans to be one of the first countries to get
debt relief under the G20 Common Framework
program. Progress has been held up by the
country's ongoing civil war though in the meantime
it continues to service its sole USD 1Bn international
bond
Pakistan
Pakistan struck a crucial IMF deal this
week. read more The breakthrough
could not be more timely, with high
energy import prices pushing the
country to the brink of a balance of
payments crisis.
Foreign currency reserves have fallen
to as low as USD 9.8Bn, hardly
enough for five weeks of imports.
The Pakistani rupee has weakened to
record lows. The new government
needs to cut spending rapidly now as
it spends 40% of its revenues on
interest payments.
Belarus
Western sanctions wrestled
Russia into default last month
and Belarus now facing the
same tough treatment having
stood with Moscow in the
Ukraine campaign.
Ecuador
The Latin American country only defaulted two
years ago but it has been rocked back into crisis by
violent protests and an attempt to oust President
Guillermo Lasso
It has lots of debt and with the government
subsidizing fuel and food JPMorgan has ratcheted
up its public sector fiscal deficit forecast to 2.4% of
GDP this year and 2.1% next year. Bond spreads
have topped 1,500 bps.
Nigeria
Bond spreads are just over 1,000 bps but Nigeria's next USD 500Mn bond payment in a year's time should easily be covered by reserves which have been steadily improving
since June. It does though spend almost 30% of government revenues paying interest on its debt.

19. The Dollar is extremely strong, pushing down the world
The value of the U.S. dollar is the strongest it has been in a
generation, devaluing currencies around the world and unsettling the
outlook for the global economy as it upends everything from the cost
of a vacation abroad to the profitability of multinational companies.
The dollar lubricates the global economy. It is one side of about 90
percent of all foreign exchange transactions, accounting for USD 6tn
in activity every day before the pandemic, from tourists using their
credit cards to companies making major international investments.
Research & Development Unit

20. The Dollar is extremely strong, pushing down the world
(Cont.)
Reasons
Research & Development Unit
• As the world’s most important currency, the dollar often rises in times of turmoil, in part
because investors consider it to be relatively safe and stable.
• Interest rate hikes made by the Federal Reserve has attracted many global investors to pour
more money in dollar bonds. This has made the dollar stronger.
Source : Reuters
The dollar, however, has not beaten every currency this year. The rise in energy and food
prices, which accelerated after Russia’s invasion of Ukraine, has been a boon for the currencies
of countries like Angola, a major oil producer; Uruguay, a major food exporter; and Brazil,
which sells a lot of energy and agricultural commodities.

21. International trade settlement in Indian rupee
The Reserve Bank of India (RBI) has put in place a mechanism to facilitate international
trade in rupees (INR), with immediate effect. However, banks acting as authorized
dealers for such transactions would have to take prior approval from the regulator to
facilitate this.
“In order to promote growth of global trade with emphasis on exports from India and
to support the increasing interest of global trading community in INR, it has been
decided to put in place an additional arrangement for invoicing, payment, and
settlement of exports / imports in INR,” the RBI said in a notification.
The RBI’s move to set up International Trade Settlement mechanism in INR would
facilitate trade with countries under sanction like Iran and Russia.
Research & Development Unit
Source CNBC

22. US Inflation
The US consumer price index, a broad
measure of everyday goods and
services related to the cost of living,
soared 9.1% from a year ago. That
marked the fastest pace for inflation
going back to November 1981.
Excluding volatile food and energy
prices, so-called core CPI increased
5.9%, compared with the 5.7%
estimate. Core inflation peaked at 6.5%
in March and has been nudging down
since.
The inflation reading could push the
Federal Reserve into an even more
aggressive position.
Research & Development Unit
Source CNBC

23. Oil prices
Oil prices rose about 1%, with global
benchmark Brent settling at a two-week
high in volatile trade on 19 July.
Brent futures rose USD 1.08, or 1.0%, to
settle at USD 107.35 a barrel. U.S. West
Texas Intermediate (WTI) crude rose USD
1.62, or 1.6%, to settle at USD 104.22.
Oil prices had been increasing since last
year, spiking to highs after Russia
launched an unprovoked war on Ukraine.
But since the end of May, Brent has fallen
from over USD 120 per barrel to around
USD 109, or around 10% lower.
Research & Development Unit
Source CNBC

24. 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.
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