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

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

2

1 2 3 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 Per cent

US Fed Funds Target Rate

Global Monetary Policy Trends

34 46 34 32 67 48 29 28 43 17 2015 2016 2017 2018 2019

• No. of Central Banks

Number of Central Banks by policy action

Easing Tightening

Source: centralbanknews

3

8.4 9.1 3.4 5.0 5.0 4.5 3.4 3.2 2.8 2011 2012 2013 2014 2015 2016 2017 2018 2019 Proj. Per cent

Annual Real GDP Growth and Sectoral Contribution (base year=2010)

Taxes less subsidies on products Agriculture, Forestry and Fishing Industries Services GDP Growth (%)

Source: Department of Census and Statistics

4

• 5

5 10 15 20 25 30 35 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 Feb-05 Jun-06 Oct-07 Feb-09 Jun-10 Oct-11 Feb-13 Jun-14 Oct-15 Feb-17 Jun-18 Oct-19 Per cent

Headline Inflation based on CCPI (YOY, %)

131 Months 5 10 15

Feb-09 Oct-09 Jun-10 Feb-11 Oct-11 Jun-12 Feb-13 Oct-13 Jun-14 Feb-15 Oct-15 Jun-16 Feb-17 Oct-17 Jun-18 Feb-19 Oct-19

Per cent

Source: Department of Census and Statistics

5

28.5 15.9 4.4

• 10

10 20 30 40

• 50

50 100 150 200 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 Per cent

• Rs. billion

Credit granted by Commercial Banks to the Private Sector

Monthly change in credit (Absolute terms) Growth of credit (y-o-y)

4 5 6 7 8 9 10 11 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19

Per cent

The Monetary Policy Cycle

Standing Deposit Facility Rate Standing Lending Facility Rate SRR

(RHS)

Source: Central Bank of Sri Lanka

6

Source: Central Bank of Sri Lanka

7

4 6 8 10 12 14 16 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

Per cent

Movement of Selected Market Interest Rates

Monthly AWPR AWDR AWFDR AWLR 364-day Treasury bill Standing Deposit Facility Rate Standing Lending Facility Rate AWCMR (Month-end)

• 0.7
• 1.5 -1.4
• 3.9
• 0.2
• 1.1
• 4.6
• 4.0
• 2.5
• 2.0 -1.9 -1.7
• 2.3
• 2.8
• 0.7
• 5.0
• 4.5
• 4.0
• 3.5
• 3.0
• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Sep US$ bn

Current Account Balance

175 82 197 229 223 272 604 734 889 601 516 1,066 1,382 1,437 1,635 1,160 1,078 1,910 2,136 772

• 500

1,000 1,500 2,000 2,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Nov

US$ mn

Foreign Direct Investments

2.2 7.0 4.7 (7.5) (70.8) (57.0) (46.9) (28.3) (27.2) (22.5) (9.5) (4.5)

• 80
• 70
• 60
• 50
• 40
• 30
• 20
• 10

10 20 50 100 150 200 250 300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Y-o-Y Change

• No. of Tourists ('000)

Monthly Tourist Arrivals

2019 Growth (Right Axis) Source: Central Bank of Sri Lanka, SLTDA, BOI, Sri Lanka Customs

8

• 2.5
• 3.4 -3.7
• 6.0
• 3.1
• 4.8
• 9.7 -9.4
• 7.6
• 8.3 -8.4 -8.9
• 9.6
• 10.3
• 7.2
• 12.0
• 10.0
• 8.0
• 6.0
• 4.0
• 2.0

0.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Oct US$ bn

Trade Balance

3.1

• 2.6
• 10.4
• 2.7
• 0.2
• 9.0
• 3.8
• 2.0
• 16.4

0.6 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

LKR Appreciation (+)/Depreciation (-) against the US$ (%)

Source: Central Bank of Sri Lanka

9

Budget Deficit (as a % of GDP)

• 5.4
• 5.7
• 7.6
• 5.3
• 5.5
• 5.3
• 4.1
• 4.9

2013 2014 2015 2016 2017 2018 Pro. 2018 Jan-Sep 2019 Jan-Sep Source: Ministry of Finance, Economic Affairs and Policy Development

10

12.6 12.8 15.5 14.7 14.4 14.5 10.9 11.2

4.8 4.6 5.4 4.8 4.8 4.2 3.1 2.9

5 10 15 20 25 2013 2014 2015 2016 2017 2018 pro. 2018 Jan - Sep 2019 Jan - Sep

Government Expenditure (% of GDP)

Recurrent Capital 10.5 10.1 12.4 12.2 12.4 11.9 8.8 8.4 1.4 1.4 0.9 1.9 1.2 1.4 1.0 0.7 2 4 6 8 10 12 14 16 2013 2014 2015 2016 2017 2018 pro. 2018 Jan - Sep 2019 Jan - Sep

Government Revenue (% of GDP)

Tax Revenue Non Tax Revenue

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

11

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

12

Monetary Sector Policies for 2020 and beyond

13

The Central Bank of Sri Lanka too moved to an accommodative monetary policy stance in 2019…

Source: Central Bank of Sri Lanka

14

4 5 6 7 8 9 10 11 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 Per cent

The Monetary Policy Cycle

Standing Deposit Facility Rate Standing Lending Facility Rate SRR

Source: Central Bank of Sri Lanka

15

• 10
• 5

5 10 15 20 25 30 35 40

• 100

100 200 300 400 500 600 700 800 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Nov Per cent

• Rs. billion

Annual Increase in Credit to the Private Sector

Annual Increase Y-o-Y Growth

1 2 3 4 5 6 7 8 9 10 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 Per cent

Headline Inflation based on CCPI (YOY, %)

Inflation around 4-6%

Source: Central Bank of Sri Lanka, Department of Census and Statistics

16

10 20 30 40 50 60 70 80 90

• 4
• 2

2 4 6 8 10 12 14 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 USD/bbl Per cent

Inflation, Food Inflation and World Oil Prices

CCPI (Base: 2013=100) Overall Inflation Food Inflation World Oil Price (Brent)

Source: Department of Census and Statistics, Reuters

17

6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5

• 200
• 150
• 100
• 50

50 100 150 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 Per cent

• Rs. bn

Overall Liquidity and Standing Rate Corridor

Long Term Auctions Short Term Auctions Overnight Auctions Standing Facility AWCMR

Source: Central Bank of Sri Lanka

18

Source: Central Bank of Sri Lanka

19

5 6 7 8 9 10 11 12 13 14 15

31-Dec-11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15 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 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18 31-Mar-19 30-Jun-19 30-Sep-19 31-Dec-19

Per cent

Market Interest Rates and Spreads

Spread Weekly AWPR AWCMR

Timeline View of Sri Lanka’s Recent Engagement with IMF

Formal request for an EFF Approval of the EFF (1st tranche

• f USD 168 mn)

May 2016 June 2016 Nov 2016

2nd tranche of

USD 163 mn

July 2017

3rd tranche of

USD 167.2 mn

Dec 2017

4th tranche of

USD 251.4 mn

5th tranche of

USD 252 mn

June 2018 May 2019

6th tranche of

USD 164.1 mn

Nov 2019

7th tranche of

USD 165 mn

20

• 5.6
• 5.4
• 5.7
• 7.6
• 5.3
• 5.5
• 5.3
• 5.8
• 3.4
• 2.5
• 2.3
• 2.1
• 2.6
• 3.2

2012 2013 2014 2015 2016 2017 2018 % of GDP

Twin Deficits

Budget Deficit Current Account Deficit

21

Source: Ministry of Finance, Economic Affairs and Policy Development, Central Bank of Sri Lanka

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

Monetary Policy Announcements in 2020

22

Financial sector Policies for 2020 and beyond

23

Overview of the Banking Sector

59,186

Employees

3,594 Branches 5,400 ATMs

• Rs. 12.2 trillion

Assets

32 Licensed Banks

13 licensed domestic commercial banks 13 licensed foreign banks 6 licensed specialised banks

7 Large Banks

assets over Rs. 500bn accounted for 75.8% of the Industry

4 Medium Banks

assets of Rs. 200bn – Rs. 500bn accounted for 13.6% of the Industry

21 Small Banks

assets less than Rs. 200bn accounted for 10.7% of the Industry

• Rs. 7.9 trillion

Loans & Advances

• Rs. 9.0 trillion

Deposits

• Rs. 1.6 trillion

Borrowings

24

* As at end October 2019 (Provisional)

Eligibility Criteria for Employment

• f Expatriate

Officers in Licensed Banks Publication of Annual and Quarterly Financial Statements and Other Disclosures Enhancing the Efficiency

• f Transmitting Recent

Policy Decisions to Market Lending Rates Concessions to the Tourism Industry Harmonising Banking Regulations on Capital Adequacy and Leverage Ratio and SLFRS 9

Major Policy Measures adopted during 2019

25

Eligibility Criteria for the Selection of Auditors Strengthened New Framework for Dealing with Domestic Systemically Important Banks Strengthening Regulatory and Supervisory Framework of Licensed Banks

Inter-regulatory Co-operation & Collaboration

Consolidation

• f Small

State-owned Banks

Strengthened Communication with Banks, External Auditors & Other Stakeholders

Major Policy Measures adopted during 2019

26

Maximum Interest Rates

• n Rupee

Denominated Deposits

Non-interest based Incentive Schemes for Mobilising Deposits Market Conduct and Practices for Treasury Operations of Licensed Banks

Forthcoming Policy Measures for 2020 and beyond

Enacting New Banking Act Implementation

• f Regulatory

Requirements on Recovery Plans

• f Licensed

Banks Reviewing Banking Act Directions Strengthening Technology Risk Resilience

27

Enhanced Minimum Capital Requirement

Direction on ‘Maximum Interest Rates on Deposits and Debt Instruments’ to LFCs Directions to LMFCs on Deposits and on Maximum Rate of Interest on Loans Circular on ‘Concessions granted to Tourism Industry’ Finance Business Regulation on prioritising claims in a inding up

• f a finance company

Consultation Paper on ‘Introducing Ownership Limits to LFCs’ Loan to Value (LTV) Direction revised

NBFIs– Major Policy Measures adopted during 2019

28

• Resolution of existing distressed and high-risk companies while

initiating legal action against wrongdoers

• Strengthening the regulatory framework

– Amend the Finance Business Act – Introduce ownership limits for LFCs – Review existing Corporate Governance Direction – Promote consolidation of financial institutions – Disclose names of LFCs which have regulatory concerns

NBFIs– Forthcoming Policy Measures for 2020 and beyond

29

Policies to strengthen the Payment and Settlements System infrastructure

• Common Point-of -Sales Switch

(CPS) started live operations

• The National Payments Council

(NPC) finalised its Road Map for 2020-2022

• A Working Committee

appointed to study the Blockchain Technology

• The National Quick Response

(QR) code, "LankaQR”, initiated

• FinTech Regulatory Sandbox to

be implemented

Further promoting digital payment mechanisms to establish a less-cash society and reduce cash management costs

30

• 1. Effective

Regulatory Framework

• 2. Comprehensive

Surveillance Framework

• 3. Sound Supervisory

Framework

• 4. Robust

Financial Infrastructure

• 5. Effective

Safety Nets & Crisis Management Framework

• 6. Effective

Market Discipline

Framework for Financial System Stability

• Conduct household sector

survey on creditworthiness

• Strengthen the existing

macroprudential framework

• Improve the financial

system stability surveillance mechanism

• Improve data collection and

analysis of Insurance Sector

• Extend the conduct of

stress testing towards the corporate sector

31

Policies Related to Ancillary and Agency Functions

32

Central Bank marks its 70th anniversary

33

86.2 71.6 71.1 68.7 70.8 71.3 77.7 78.3 76.9 82.9 20 40 60 80 100

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 %

• Rs. bn

Outstanding Central Government Debt

Outstanding Domestic Debt (LHS) Outstanding Foreign Debt (LHS) Debt to GDP (%)

34

Source: Ministry of Finance, Economic Affairs and Policy Development

Source: Central Bank of Sri Lanka 50 100 150 200 250 2014 2015 2016 2017 2018 2019 (Prov.)

• Rs. bn

Net Profit

500 1,000 1,500 2,000 2,500 3,000 2014 2015 2016 2017 2018 2019 (Prov.)

• Rs. bn

Net Value of the Fund

Management of the EPF

35

Introducing an International Transactions Reporting System (ITRS), a comprehensive monitoring system

• f cross border transactions and

foreign currency transactions through the banking system

36

Financial Intelligence – Forthcoming policy measures in 2020

Individual AML/CFT policies in line with the National AML/CFT Policy National Risk Assessment (NRA) on Money Laundering & Terrorist Financing “goAML” online reporting and analysing system Amendment of the Companies Act on ultimate Beneficial Ownership Guidelines for Lawyers, Notaries, Accountants, Trusts and Company Service Providers

37

• National Financial Inclusion Strategy (NFIS)

to be implemented

• Action to be taken to promote existing and

potential businesses, particularly MSMEs, promoting inclusive and balanced growth while facilitating measures to increase their scale of operations

38

39