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Economic Capsule - January 2018


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Economic Capsule - January 2018

  1. 1. Economic Capsule January 2018 253rd Issue Research & Development Unit Economic Capsule is now on
  2. 2. C O N T E N T S BANKING & FINANCE  World Finance declares Commercial Bank best in Sri Lanka for Digital & Mobile Banking  Commercial Bank launches ‘Bank on Wheels’  Commercial Bank and INSEE Cement launch Sri Lanka’s first dealer loyalty debit card  Commercial Bank launches three more Regional BIZ Clubs  Commercial Bank achieves another first on LankaPay network ECONOMY & BUSINESS  IMF World Economic Outlook - Jan 2018  Monetary Policy Strategy and Policies for 2018 and Beyond: CBSL  Highest Ever FDI in 2017  External Sector Performance – October 2017  Sri Lanka’s Nationwide Inflation Slows Down  IFC, CBSL Partner to Create a National Strategy to Spur Financial Inclusion in SL  Singapore and Sri Lanka Sign FTA  Sri Lanka-Singapore Free Trade Agreement is Credit Positive for both Sovereigns: MOODY’S  Proposed Digital Economy to Uplift GDP by 1-3 % in 2019: McKinsey  Labour Demand in Sri Lanka  Sri Lanka Signs two MOUs with China for Building Complex in Port City, Underground Marine Drive  'World's Richest 1% get 82% of the Wealth', says Oxfam
  3. 3. Condominium Industry in Sri Lanka October, 2014 Research & Development Unit Banking & Finance
  4. 4. World Finance declares Commercial Bank best in Sri Lanka for Digital & Mobile Banking < Research & Development Unit > • Commercial Bank has been recognised as the ‘Best Digital Bank’ in Sri Lanka and has been presented the award for the ‘Best Mobile Banking Application ’by the prestigious London- based ‘World Finance’ magazine celebrating achievement, innovation and brilliance at its annual awards for 2017. These accolades recognise the giant strides the Bank has made in developing and popularising Digital Banking among a significantly large customer base. They are based on an evaluation of the Bank’s strategy to mould the institution to be a next generation Digital Bank, the percentage of the Bank’s Digital Banking customers, the split between its Online Banking and Mobile Banking base, its digital products and services, its plans for future digitisation, its marketing strategy to convert customers to Mobile Banking, and the Bank’s key focus areas for the year ahead.
  5. 5. Commercial Bank launches ‘Bank on Wheels’ < Research & Development Unit > • Commercial Bank has introduced mobile banking in the literal sense with the launch of ‘Bank on Wheels’ – a modified and branded vehicle designed to provide basic over-the-counter banking facilities to customers living outside city limits. • The mobile unit is equipped with a Cash Recycling Machine (CRM) which is an all-in-one deposit and withdrawal machine. It has an in-built banking counter that facilitates opening of bank accounts, accepts loan applications, utility bill and remittance payments. The unit also carries out marketing and customer awareness programmes. • Operating from 9.00 a.m. to 3.00 p.m. on weekdays, the unit will reach identified locations at preplanned times at frequent intervals and will function as a mobile bank for these locations. The scheduled visiting times for the locations on its route will be displayed on the mobile bank for the information of customers.
  6. 6. Commercial Bank and INSEE Cement launch Sri Lanka’s first dealer loyalty debit card < Research & Development Unit > Commercial Bank, Sri Lanka’s market leader in Credit and Debit Card cumulative point-of-sale usage, has broken new ground in hybrid card functionality with the launch of the country’s first dealer loyalty debit card in partnership with Sri Lanka’s foremost cement manufacturer INSEE Cement, formerly known as Holcim Lanka. INSEE Cement, the brand behind the country’s leading retail cement products such as INSEE Sanstha and INSEE Mahaweli Marine, rewards island-wide dealers through the company’s dedicated loyalty program ‘Ilakkaya’. The landmark partnership with Commercial Bank for the launch of the ‘INSEE Illakkaya Loyalty Debit Card’ enables dealers to enjoy all benefits, offers and promotions available to Commercial Bank debit cardholders by redeeming loyalty points earned through the purchasing of INSEE Cement, products and solutions.
  7. 7. Commercial Bank launches three more Regional BIZ Clubs < Research & Development Unit > Commercial Bank, the major lender to small and medium enterprises (SMEs) in Sri Lanka, recently conducted three regional launch events in the Uva – Sabaragamuwa, Southern and South Western regions of the country to launch COMBANK BIZ Clubs for SME customers of the Bank. Club members are offered membership according to their specific requirements and are entitled to a special personalised Visa Debit Card and a range of benefits in addition to the discounts and offers enjoyed by the Bank’s Credit Cardholders, such as discounts on hotel reservations, interest- free packages for overseas travel, shopping discounts and Max Loyalty Rewards. They are also entitled to free financial advisory services, online banking facilities including Salary Remittance facilities for their employees free of charge, priority service at branches and the submission of credit proposals without project reports.
  8. 8. Commercial Bank achieves another first on LankaPay network < Research & Development Unit > • Commercial Bank is also the first bank in Sri Lanka to activate its entire EMV chip card base (Debit and Credit cards) to perform secured EMV transactions through the LankaPay ATM network, making it possible for the Bank’s own cardholders to securely perform transactions using other bank ATMs connected through the LankaPay network. Commercial Bank has announced that it has enabled its entire ATM network to acquire and process ATM transactions through the EMV (Europay, Mastercard and Visa) integrated circuit, becoming the first ATM Network to be fully EMV compliant in Sri Lanka. EMV is a secured platform to perform ATM and Point-of-Sale (POS) transactions where transaction authentication is performed through the integrated chip, preventing counterfeiting of card data residing in the chip.
  9. 9. Condominium Industry in Sri Lanka October, 2014 Research & Development Unit Economy & Business
  10. 10. < Research & Development Unit > IMF World Economic Outlook - Jan 2018 Brighter Prospects, Optimistic Markets, Challenges Ahead
  11. 11. Monetary Policy Strategy and Policies for 2018 and Beyond: CBSL • Inflation: Under the proposed Flexible Inflation Targeting (FIT) framework, the Central Bank will aim to preserve price stability of the economy by targeting an inflation range of 4-6 %. • Exchange Rate: There has been a build-up of non-debt creating international reserves during 2017, with minimal impact on the exchange rate. Going forward, foreign exchange intervention policies will be adopted, which are consistent with a flexible exchange rate regime and supportive of improving foreign exchange market functionality. Maintaining a competitive exchange rate will be an important objective of the Central Bank. • Non-debt creating financial flows: The Board of Investment (BOI) has estimated FDI to have reached USD 1.5bn in 2017, which will be a key milestone and could possibly be a turning point in FDI inflows. The commencement of the Hambantota Industrial Zone and the continuation of the Colombo Port City project are expected to bring significant FDI flows from 2018 onwards. Cont... < Research & Development Unit >
  12. 12. < Research & Development Unit > Monetary Policy Strategy and Policies for 2018 and Beyond: CBSL (cont…) • Fiscal Consolidation: The government expects to strengthen fiscal consolidation by revising the Fiscal Management (Responsibility) Act to include binding fiscal targets. Liability Management Act of the government as a prudent strategy. It allows the government to manage public debt in a more flexible manner. Under this framework, the public debt manager would create a buffer fund to minimise the rollover risk of debt stock eliminating the necessity for the Central Bank to provide financial assistance to the government at the beginning of each year as per the current provisions of the Monetary Law Act (MLA). • Developments for the banking sector: Initiatives are underway by the Central Bank to assign ratings to banks based on a combination of quantitative and qualitative indicators that will assess their efficiency and sustainability. Finalise the bank examination methodology based on the Bank Sustainability Risk Index (BSRI) to facilitate the transition from an annual ‘on-site’ examination approach to a ‘risk-based’ supervision approach. Further, the CBSL intends to incorporate BSRI to examination reports of all licensed banks and assign a supervisory rating grade for banks with effect from 2019, on a staggered basis. Source: CBSL - Road Map 2018
  13. 13. Highest ever FDI in 2017 < Research & Development Unit > • Foreign Direct Investment (FDI) into Sri Lanka doubled to an all-time high of USD 1.63 bn in 2017 from the USD 802 mn in 2016, as well as beat the previous best of USD 1.61 bn achieved in 2014. • Among the highest growth sectors were  Export-oriented Manufacturing (+27%)  Services which includes Tourism and IT (+50%)  Infrastructure (+190%) • The highest FDI came from China, followed by Hong Kong, India and Singapore. Source: BOI
  14. 14. External Sector Performance – October 2017 • Export earnings increased by 14.1 % (y-o-y) to USD 976 mn in October 2017. • This was largely due to higher earnings from textiles and garments (7.9%), tea (26.1%), spices (47.9%), food, beverages and tobacco (48.2%), rubber products (15.4%) and petroleum products (28.4%). • Cumulative export earnings increased by 8.8% to USD 9,400 mn during the first ten months of 2017. ExportPerformance Cont... < Research & Development Unit > Source: CBSL
  15. 15. External Sector Performance – October 2017 (cont…)ImportPerformance • Import expenditure increased marginally by 0.2 % (y-o-y) to USD 1,727 mn in October 2017. • This low growth was mainly led by lower imports in sugar (-75.3%), crude oil (-44.5%), and machinery and equipment (-12.7%). • Cumulative import expenditure increased by 8.7% to USD 16,991 mn during the first ten months of 2017. • During the first ten months of 2017, cumulative trade deficit increased to USD 7,591 mn from USD 6,994 mn during the corresponding period of 2016. Cont... < Research & Development Unit >Source: CBSL
  16. 16. External Sector Performance – October 2017 (cont…) < Research & Development Unit > • Workers’ Remittances - Jan-Oct 2017: declined by 7.9% (y-o-y) to USD 5,518.2 mn • Tourist Arrivals and Earnings - Jan -Nov 2017: Arrivals increased by 2.5% (y-o-y) to 1,871,871, while earnings were estimated at USD 3,211.5 mn • Exchange Rate - The rupee depreciated by 1.9% against US dollar during the year up to 27 December 2017 • Gross official reserves were estimated to have recorded around USD 7.8 bn by end 2017
  17. 17. Sri Lanka’s Nationwide Inflation Slows Down < Research & Development Unit > • Inflation, as measured by the change in the National Consumer Price Index (NCPI) (2013=100), decreased to 7.3 % in December 2017 from 8.4 % in November 2017, on year-on-year basis. • This decrease is due to the high base which prevailed in December 2016. • The change in the NCPI measured on an annual average basis increased from 7.5 % in November 2017 to 7.7 % in December 2017 • The NCPI Core inflation, which reflects the underlying inflation in the economy, continued to follow the declining trend exhibited since the early months of the year. • As such, the NCPI Core inflation decreased to 2.7 % in December 2017 from 2.8 % in November 2017 on year-on- year basis. Annual average NCPI Core inflation declined to 4.9 % in December 2017 from 5.2 % in November 2017. Source: CBSL
  18. 18. < Research & Development Unit > IFC, CBSL Partner to Create a National Strategy to Spur Financial Inclusion in SL • IFC, a member of the World Bank Group, is partnering with the Central Bank of Sri Lanka (CBSL) to develop the country’s first National Financial Inclusion Strategy (NFIS) to promote a more effective and efficient process to improve financial inclusion across Sri Lanka. • IFC, over the course of the project, will provide technical assistance to CBSL to develop the NFIS, via an extensive development process involving consultations with members of the public sector, private sector, civil society organizations, and academia. • The development of the strategy will be led by CBSL with the support of the Ministry of National Policies and Economic Affairs, Ministry of Finance & Mass Media, IFC and all financial sector stakeholders. • “Financial inclusion is a priority for the World Bank Group for achieving universal financial access by 2020,” said Amena Arif, IFC Country Manager for Sri Lanka and Maldives.
  19. 19. < Research & Development Unit > Singapore and Sri Lanka Sign FTA This is the first bilateral trade agreement that Sri Lanka has forged in over 10 years. It is also the first comprehensive agreement for Sri Lanka, which means it’s the first agreement that goes beyond goods, and includes services, investment, economic cooperation, etc. Key Features  Wider than the proposed China and India agreement – goes beyond to cover telecommunications, financial services, ecommerce, and government procurement. Singapore has recognized that the e- commerce chapter in this FTA is quite a progressive one.  Sri Lanka is not a member of the Government Procurement (GP) WTO agreement, but as a step towards reform, for the first time SL has included a GP chapter in this agreement. It covers international competitive bidding (excluding national bidding). It also embodies procedural fairness and transparency in procurement.  Goods - on goods (and the tariff liberalisation programme – TLP), Singapore is already has 99% of tariff lines zero-rated. But the agreement recognises that SL has to go step by step. So, SL has agreed to liberalise 80% of tariff lines - 50% of lines immediately to zero (around 3600 lines), 15% over the 1st to 6th year in equal installments, and 15% over the 6th-12th year. Cont...
  20. 20. < Research & Development Unit > Singapore and Sri Lanka Sign FTA (cont..) Key Features (cont..)  Items that remains in SL’s negative list are those that are sensitive on revenue and other domestic grounds: Petroleum and related products; Tobacco and related products; Alcohol and spirits. − Important to note that out of the current approx. US$ 1,000 mn imports from Singapore, 50-60% are petroleum products.  The real focus of this FTA is on investment from Singapore in services and manufacturing – potential for diversification of exports through the trade investment nexus and new JV opportunities for Sri Lankan companies.  Investment - The investment chapter will give a strong signal to prospective Singaporean investors – it gives protection to investors, predictability, and transparency. Protection, national treatment - many provisions to attract investors. The agreement provides a binding commitment and framework which we didn’t have earlier.  Services – Both countries did not commit to independent movement of professionals (under Mode 4) in this FTA; so only Modes 1 to 3. SL has undertaken liberalisation in some important areas for business - testing labs (this will help SL firms that now have to send samples etc to S’pore); sports and recreation; maritime; environmental services (pollution, waste water, energy efficiency, noise abatement, etc). In services, only Singaporean nationals are recognised.  Meanwhile, Singapore has gone well beyond SL in services sectors – GATS plus. Just as SL has not done, Singapore has not offered Mode 4 independent professionals movement either, but Sri Lankans can benefit from the services liberalisation by Singapore as Mode 4 business visitors and intra corporate transferees.Source: Office of the Minister of Development Strategies and International Trade
  21. 21. < Research & Development Unit > Sri Lanka-Singapore Free Trade Agreement is Credit Positive for Both Sovereigns: MOODY’S • Moody’s expect the Sri Lanka-Singapore Free Trade Agreement (SLSFTA) will enhance the cross-border trade of goods and services and promote foreign direct investment (FDI) between the two countries, a credit positive for both. • The SLSFTA will have a larger effect on Sri Lanka’s credit quality because the potential increase in current account inflows and inward investments would help reduce its elevated external vulnerability. • Sri Lanka will eliminate tariffs on 80% of products over 15 years. Singapore’s Ministry of Trade and Industry estimates that the agreement will result in approximately SGD10 mn in annual tariff savings. • Because Singapore does not impose import duties on 99% of tariff lines, the agreement’s trade benefits for Sri Lanka will materialize through the opening of access to the broader Association of Southeast Asian Nations (ASEAN) market and other large economies given Singapore’s existing preferential trade arrangements with Australia, Japan, Korea and other countries in Southeast Asia. Cont...
  22. 22. < Research & Development Unit > • In 2017, Sri Lanka was Singapore’s 37th -largest trading partner, while Singapore was Sri Lanka’s 8th - largest trading partner; total bilateral trade amounted to about 0.5% of Singapore’s GDP and 2.5% of Sri Lanka’s GDP. • The extent to which the SLSFTA reduces Sri Lanka’s external vulnerability will depend on its effectiveness at bolstering services and investment flows. • Sri Lanka’s current account has a structural deficit because a large merchandise trade deficit more than offsets a surplus in services and remittance inflows. Moreover, FDI inflows only partially finance the current account shortfall, resulting in a persistent basic balance (FDI inflows plus current account balance) deficit Cont... Sri Lanka-Singapore Free Trade Agreement is Credit Positive for Both Sovereigns: MOODY’S (cont…)
  23. 23. < Research & Development Unit > • The SLSFTA is likely to boost Sri Lanka’s services receipts, particularly in tourism. Using travel and passenger transport by air as a proxy, tourism accounts for about three-quarters of the services surplus. Although Singapore comprised less than 1% of Sri Lanka’s total tourist arrivals in 2017, the SLSFTA may allow Sri Lanka to leverage Singapore’s transportation hub to attract more tourists. • Additionally, there are provisions on the cross-border transfers of information by electronic means and data flows, which could aid Sri Lanka’s burgeoning IT services sector. • The agreement also will promote direct investment in Sri Lanka by Singaporean companies. According to the Sri Lankan government, FDI from Singapore totaled USD 658 mn (less than 1% of GDP) during 2006-17 in sectors such as food manufacturing and real estate. • By easing regulation in the services sector, the SLSFTA will broaden the scope of investment to other areas such as infrastructure, logistics, education and healthcare. Source: Moody’s Credit Outlook - 29 January 2018 Sri Lanka-Singapore Free Trade Agreement is Credit Positive for Both Sovereigns: MOODY’S (cont…)
  24. 24. < Research & Development Unit > Proposed Digital Economy to Uplift GDP by 1-3 % in 2019: McKinsey • McKinsey & Company, a worldwide management consulting firm has confirmed that the proposed digital economy for Sri Lanka could uplift country’s GDP by 1 to 3 % in 2019. • This initiative will enable Sri Lanka to scientifically identify appropriate opportunities for promoting digital economy and the key enablers to promote it, as well as initiate three flagship programs that would promote that strategy.  I phase - will focus on the diagnostics to develop an understanding of Sri Lanka’s readiness to move into the digital economy.  II phase - will concentrate on designing three flagship programs to kick-start the digital economy and ten projects to establish key enablers to support it.  Final phase - will focus on launching the identified programs and projects. • This initiative is to strategize the promotion of the digital economy through the lens of three economic development thrust sectors, namely, agriculture sector, tourism sector and the manufacturing sector. • It is expected that each of the sectors identified will develop at least one flagship program to support this initial stage of the country’s digital economy strategy.
  25. 25. < Research & Development Unit > Labour Demand in Sri Lanka In addition to that Security Guards Other Manufacturing Labourers Shop Sales Assistants Advertising and Marketing Professionals Commercial and Sales Representatives Cleaners and Helpers in Offices Hotels and Other Establishments Manufacturing Supervisors General Office Clerks  Stall and Market Salespersons Were found to be highly demanded jobs in the country. According to the findings of the Labour Demand Survey - 2017, the number existing vacancies in the country by June 2017 was estimated as 497,302. Among them Sewing Machine Operator is the occupation, which has the largest demand. Source: DCS •Target Population: Establishments / enterprises with more than 3 no. of person engaged. Since it was not possible to capture public sector labor demand, it was not covered in this survey. •Sample Size: 3,500 Establishments •Sample Frame: Economic Census 2013 – Listing stage data base •Province: All the 9 provinces •Sample Allocation : Agriculture*, Industry, Construction, Trade, Services, Tourism (Sub-sector under Services sector) *All the plantation companies were selected to represent Agriculture sector
  26. 26. < Research & Development Unit > Sri Lanka Signs two MOUs with China for Building Complex in Port City, Underground Marine Drive • Extending the tripartite agreement signed between the Ministry of Megapolis and Western Development, Urban Development Authority and CHEC Port City Colombo, two MOUs were signed in Beijing for funding of the Colombo International Finance City (CIFC) Building Complex on the reclaimed land of the Colombo Port City Development Project and the Underground Marine Drive Tunnel - with the Cabinet giving its approval in principle - connecting the airport highway and Marine Drive in Kollupitiya. • Further, the Ministry conveyed their decision that the connection cannot disturb the view from the Old Parliament building and cannot disturb the use of Galle Face Green by the public and the present view of the Ocean from Galle Face Hotel which is a listed heritage building. • With the construction of the underground tunnel connection, Galle Face Green will be further extended towards the sea as a public facility
  27. 27. < Research & Development Unit > 'World's Richest 1% get 82% of the Wealth', says Oxfam • The gap between the super rich and the rest of the world widened in 2017 as wealth continued to be owned by a small minority, according to Oxfam. • Some 82% of money generated in 2017 went to the richest 1% of the global population while the poorest half saw no increase at all. • It blamed tax evasion, firms' influence on policy, erosion of workers' rights, and cost cutting for the widening gap. • Oxfam's report is based on data from Forbes and the annual Credit Suisse Global Wealth databook, which gives the distribution of global wealth going back to 2000. • The survey uses the value of an individual's assets, mainly property and land, minus debts, to determine what he or she "owns". The data excludes wages or income. Source: BBC
  28. 28. 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 > …