Economic Capsule - October 2015

Economic Capsule
October 2015
Research & Development Unit
226th
Issue

C O N T E N T S
BANKING AND FINANCE 
 Commercial Bank Adjudged ‘Bank of the Year’ 2015 by International Banker
 Commercial Bank Ranked 2nd in Business Today’s Top 25 PLCs
 Commercial Bank Launches Green Development Loans
 CBC Branch Openings
ECONOMY & BUSINESS 
 PM Announces New Policy Reforms
 Sri Lanka Moves Up in Doing Business 2016 Rankings
 Sri Lanka Issues USD 1.5 Bn Sovereign Bond
 Provincial Gross Domestic Product – 2014
 External Sector Performance – August 2015
 Inflation
INTERNATIONAL NEWS 
 The 2015 Nobel Prize for Economics
 China's Economic Growth Slows to 6.9%
INDUSTRY UPDATE
 Sri Lanka Consumer Durables Demand to Remain Healthy in 2016: Fitch
ANALYSIS & FORECAST
 Budget Deficit Exceeds 2015 Target in July
 Reasons for Depreciation of LKR

Condominium Industry
in Sri Lanka
October, 2014
Banking & Finance

Commercial Bank Adjudged ‘Bank of the
Year’ 2015 by International Banker
4< Research & Development Unit >
 The award is the first from International Banker to a
bank in Sri Lanka.
 The International Banker award recognises the
strength of Commercial Bank as reflected in the
Bank’s stellar financial performance, its contribution
to the country’s Small and Medium Enterprise (SME)
sector, the Bank’s contribution to the economy of
Sri Lanka and how it has overcome the challenges in
the market place.
The Commercial Bank of Ceylon has been adjudged
Sri Lanka’s ‘Commercial Bank of the Year 2015’
by the UK-based International Banker.

Commercial Bank Ranked 2nd in
Business Today’s Top 25 PLCs
 This is the eighth year that Commercial Bank has been ranked among the top five
listed companies in the country by Business Today, and the third consecutive year that
it has been ranked second in this prestigious list.
 Financial criteria considered for the ranking include share turnover, revenue, profit
after tax, return on equity, Earnings per Share, market capitalisation and value
addition.
The Commercial Bank of Ceylon
PLC has been ranked second in
Business Today’s ‘Top 25’ public
listed corporate entities in
Sri Lanka in 2014-15
on the basis of financial
performance.

Commercial Bank Launches Green
Development Loans
 Commercial Bank announced the launch of Green
Development Loans, throwing its weight behind efforts
by businesses in Sri Lanka to make their operations
more eco-friendly.
 Loans of up to Rs 25 mn are now available at concessionary interest for small and medium
enterprises (SMEs) and entrepreneurs that wish to invest in energy saving, energy efficiency or off-
grid renewable energy projects including investments in solar power.
 Commercial Bank Green Development Loans will also be available to organisations that need to
comply with national environmental standards by improving their waste management systems or
by installing waste water treatment plants, air pollution control systems, solid waste
recycling/treatment plants or sound pollution control systems.
 Repayable in seven years with a grace period of one year, these loans will be offered at
concessionary interest rates.

CBC Branch Openings
Commercial Bank opened a Minicom branch in
Badulla, in addition to its existing branch in the
capital of Sri Lanka’s Uva Province.
MinicombranchinBadulla
Supermarket Banking Counters at
Bandarawatte and Wennappuwa
Commercial Bank opened two supermarket banking counters in
Bandarawatte, Kaduwela (Laugfs Supermarket) and Wennappuwa (Arpico
Supermarket).
Wennappuwa Opening by Mrs Dharshini Perera,
Commercial Bank’s Senior Regional Manager (Colombo
North)
Bandarawatte , Kaduwela opening by Mr Ivan
Fernando, Bank’s Senior Regional Manager (Greater
Colombo)
Badulla Minicom Branch Opening by Commercial Bank’s Deputy General Manager –
Personal Banking Mr Chandana Gunasekara.
Cont..

CBC Branch Openings (cont..)
New Branch at Arrivals Terminal of the Bandaranaike
International Airport (BIA) Katunayake
The branch, which will operate 24 hours a day, will offer as its principal services the
encashment of foreign currency notes and travellers cheques and remittance facilities. It is
supported by a Commercial Bank Automated Teller Machine (ATM) at the Arrivals Lounge.
Bank’s Chief Operating Officer/Executive Director Mr S. Renganathan conducts the first
transaction at the new branch

in Sri Lanka
October, 2014
Economy & Business

PM Announces New Policy Reforms
Areas of Concern - Medium Term
1. Generation of one million job opportunities.
2. Enhancing income levels.
3. Development of rural economies
4. Ensuring land ownership to rural and estate sectors, the middle class
and government employees
5. Creating a wide and a strong middle class
Cont..

H I G H L I G H T S
Development Goals
 Reduce the budget deficit to 3.5% of the GDP by 2020.
 Increase the ratio of direct and indirect income tax generation in the medium term from 20%: 80%
to 40%: 60%
 Removal and reduction of all tax concessions
 Removal of the once-and-for-all taxation process
 Provide tax free concessions for all earning outside Sri Lanka for Sri Lankans and only ensure taxes
are for income earned within the country.
 Enhance the allocations made for education and health
 Investment forum that will be strictly based on addressing the Government’s priorities.
Establishing of a methodology that can successfully evaluate projects while paying adequate
attention to state-private partnerships
 Ensuring that a regional balance is maintained while addressing development mechanisms Cont..

H I G H L I G H T S (cont..)
Third generation economic reforms that would herald in a new era
 Create the background needed to enter the global value system
− Encourage our small and large scale farmers and entrepreneurs to participate in the global
economy
− Encourage competitive international organisations to invest in Sri Lanka
− Bring about the digitisation of the economy
 Focus more on foreign direct investment
 Highest possible benchmark in the grading of business organisations
Empower 3 mn citizens to become land and house owners
 Ownership to those who have lived on state owned - land & rented houses for over a decade
 A small land & a house for the estate workers who have been living in line rooms for over 10 years.
 Construction of housing schemes for the middle class in urban and semi-urban areas & a low
interest based loan scheme to purchase these housing.
 Construction of 500,000 new houses that will completely solve the housing needs in rural, semi-
urban and urban areas within the next five years. Cont..

State-Owned Enterprises
 Establishment of a State Holding Corporation Limited, an organisation that will provide state
entrepreneurship, built along the lines of the famous Temasek Company of Singapore, which
successfully manages state enterprises.
 It will have the capability and the ability to take decisions based on sound financial principles and
market economies, as in the private sector.
Public Wealth Trust, EPF/ETF, Employment Council & new Agencies
 Public Wealth Trust through which the shares in state enterprises will be passed on to the people.
 Sell the shares of state ventures such as hotels and Lanka Hospitals, which do not match the core
competencies of state owner enterprises.
 A Special Purpose Vehicle for the purpose of attending to infrastructural development initiatives.
 Restructuring of - Board of Investment, Export Development Board and the Tourism Authority –
within the next 03 years.
 Agency for Development, - managing all economic activity Cont..

Public Wealth Trust, EPF/ETF, Employment Council & new Agencies (cont..)
 International Trade Agency - handle all aspects of international trade
 EPF and ETF will be amalgamated to create a new national pension fund
 Employment Council - to ensure a minimum wage for the working population & will be managed
by members from the civil society, unions and chambers of commerce.
 Introduce a new national pension plan
Central Bank, Central Procurement Secretariat
 The tasks of managing exchange processes and managing the ETF will be taken out of the Central
Bank’s purview.
 Central Procurement Secretariat – established for procurement and awarding of tenders and
handling all purchases over and above the specific value assured
 Establish a committee that will educate companies and contractors on the methodologies to be
followed in applying for state tenders.
Cont..

Rural Economy
 2,500 state rural development centres - grouping of many villages under one development centre.
The centres will have access to fully equipped rural economic market units.
 Large-scale agricultural enterprises in which farmers can be members
 They will be given concessions and land towards harnessing and developing farmer based
agricultural initiatives.
 Fully-fledged agro marketing authority that will purchase all agricultural produce.
 New technology will be used to maximise fishing capabilities
Tea, rubber, paddy
 Tea & Rubber - enhance production efficiencies and add value to the produce to suit the new and
changing needs of the global market.
 A Tea Industry Committee to address all sectors of tea
 Review the issues that stemmed from a surplus in paddy. The process of government purchasing of
paddy will be restructured while reviewing ways of productively utilising the surplus of paddy.
 Introduce an agricultural insurance scheme Cont..

Land and land ownership
 Empower landowners investing in new technology and new farming methods. They will be assisted
with land and the necessary capital benefits.
 Provide assistance to Sri Lankans who would like to engage in large-scale to small-scale agricultural
pursuits
Revitalising underperforming enterprises
 Revitalise underperforming enterprises within the Under Utilised Assets Act and bring the
necessary revisions.
 Investment Bill instead of the Development Methods Bill
 Bring trade determining laws that will manage import export mechanisms in place of the import
export bill
 Bring in new laws that will provide ownership of land to registered investors who meet the
required criteria, without being affected by the Land Restriction and Alienation Act.
 Tax benefits from 2016 to local entrepreneurs who enter the global markets Cont..

Revitalising underperforming enterprises (cont..)
 Appoint a committee that will review the formation of a small and medium scale enterprise
development organisation. The committee will make recommendations to Parliament, which will
then be made law.
Trade agreements
 Entering into trade agreements with India and China.
 Through GSP concessions, we will be able to enter the EU markets as well
 Garment sector - carefully address the Trans-Pacific Partnership Agreement under which tax free
garment export opportunities have been given to countries such as Vietnam. This has enabled
them to engage in competitive markets and supply the American, Chinese and Japanese markets at
low rates. This may also affect exports from Sri Lanka in the future.
 Digitize the economy
Cont..

Balanced Development
 Greater metropolis between Negombo and Bentota will experience a high level of economic
activity, powered by global and local businesses that will have the opportunity to provide
employment and the facilities needed to build and sustain an advanced level of living.
 11 business and technology development areas throughout the island. Of these, work will
commence on Hambantota, Raigama, Trincomalee and Mahaoya by next year.
 Commence work on the information and agricultural technology zone in Kandy next year.
 Financial and business areas throughout the country in a planned manner.
 Zones within 20 to 200 square miles will be developed in keeping with economic activity and social
development.
 Create a special financial and a business hub in Colombo
Cont..

Tourism
 The tourists who visit Sri Lanka today only spend around $ 40-50 daily. We need to build a strategy
that will seek to bring tourists who have the capacity to spend around $ 100-150 daily.
 Focus on encouraging the tourists to stay longer in the island.
 The upliftment of tourism through zonal development
 Developing small tourist inns and encourage provincial businesses to make better use of
opportunities, presented by tourism in their localities.
 Developing the eastern and the southern provinces and also providing an efficient internal air
service.
 Encourage air connections that will connect the north and the east efficiently to the rest of the
country.
 Commence work on tourism zones such as the York Street, Sir Baron Jayatilleke Mawatha and
Prince Street in Colombo and the Deduwa Tourism Zone from Bentota to Mirissa.
 Galle will be developed as a historic location with tourist attractions and preservation of the
historic Galle Fort. Cont..

Tourism (cont..)
 Transform the Cultural Triangle sites, the Eastern Province beaches, Nuwara Eliya, Badulla and up
country sites as tourist attractions.
 The Colombo Port and the Katunayake Airport will be developed.
 The Mattala Airport and the Hambantota Port, will be transformed into profit making initiatives
with changes and modifications.
 Develop the Trincomalee Port and the city.
 Plan to rebuild war-affected areas in the north and the east – we have discussed with Japan the
possibility of convening an aid summit in this regard in 2016.
Education
 Increase the expenditure on education – this is imperative to increase the productivity of our
highly literate population.
 Introducing knowledge mechanisms that will fulfill employment requirements and encourage
participation in national development. Cont..

Education (cont..)
 Encourage an education process that will go on for 13 years.
 Restrict the number of children in a classroom to 35.
 The schools will be provided facilities and access to the digital world that will bring the students
together in their quest for knowledge.
ICT development and vocational training
 ICT centres for innovation
 Laptops for university students on an interest free loan basis while also providing free Wi-Fi zones
for all universities.
 Techno-based campuses and vocational training institutes alongside the current universities.
 Put in place a voucher system that will be tested – it will serve as a springboard for talented
students from low-income categories to enter these techno campuses, vocational training
institutes and private universities.
 Adequate opportunities for vocational training outside Colombo.
Cont..

ICT development and vocational training (cont..)
 Strict enforcement of standards of English teaching centres. Government will encourage and
provide facilities for organisations coming forward to teach English and provide vocational training.
 Removal of all taxes imposed on knowledge and talent – as a step in this direction, removal of
taxes on all books and the import of sports equipment.
Empowering women
 From 2017 onwards, when making budget allocations, it will be based on identifying financial
needs on a gender basis, enabling women to have better access to opportunities at all levels.
Cont..

 The third generation of economic reforms envisioned here is based on
multifaceted economic mechanisms and the increase in trade
development.
 Many qualified people prefer well-paying jobs that are given based on
professional capabilities. It is not viable to maintain a low paying
production based economy.
 Accordingly, we need to look to sectors like ICT and tourism to generate
employment opportunities in the short term.
 Increasing and enhancing our trained labour capacity is beneficial for us.
Through it, we can also empower those engaged in foreign employment
sectors to fulfill qualified and professional job requirements overseas.

Sri Lanka Moves Up in Doing Business
2016 Rankings
Topics DB 2016 Rank DB 2015 Rank Change in Rank
Doing Business 107 113 6
Starting a Business 98 104 6
Dealing with Construction Permits 77 106 29
Getting Electricity 81 101 20
Registering Property 153 151 -2
Getting Credit 97 90 -7
Protecting Minority Investors 49 46 -3
Paying Taxes 158 157 -1
Trading Across Borders 90 90 No change
Enforcing Contracts 161 161 No change
Resolving Insolvency 78 84 6
Sri Lanka was
ranked 107 in the
World Bank’s
“Doing Business
2016 index, which″
measures the ease
of doing business in
189 different
countries. Source: www.doingbusiness.org

Sri Lanka Ranked 61st
in the Prosperity Index
Sri Lanka has risen a notch higher this year and ranked 61st globally in the 2015 Legatum
Prosperity Index, which ranks 142 nations according to wealth and wellbeing of their people.
61
Sri Lanka 15’ 14’
Overall Rank  61 62
Economy  65 76
Entrepreneurship
& Opportunity
85 85
Governance  58 52
Education  59 66
Health  77 78
Safety & Security 113 120
Personal Freedom 43 43
Social Capital  32 27
Source: Legatum Institute

Sri Lanka Issues USD 1.5 Bn Sovereign Bond
Sri Lanka, successfully raised US$ 1,500mn from an International Sovereign Bond on October 27,
2015.
This marks Sri Lanka’s ninth US Dollar benchmark as well as the largest offering in the
international bond market since 2007.
Amount USD 1,500 mn
Period 10 years
Interest Rate 6.850% (p.a.)
Ratings Fitch - BB-
Moody’s - B1
S&P - B+
Joint Lead Managers/Bookrunners Citigroup, Deutsche Bank, HSBC and Standard Chartered Bank
Final Order USD 3,300 mn (from 290 investor accounts)
Oversubscribed by 2.2 times
Allocation of the bonds 55% (USA), 29% (Europe) & 16% (Asia)
Allocation of investor type 88% (fund managers), 9% (banks) & 3% (pension/insurance agencies)
Cont..

Previous Bond Issues
Year
Amount
(USD mn)
Period Interest Rate %
2007 500 5 year 8.250
2009 500 5 year 7.400
2010 1000 10 year 6.250
2011 1000 10 year 6.250
2012 1000 10 year 5.875
2014 Jan 1000 5 year 6.000
2014 Apr 500 5 year 5.125
2015 May 650 10 Year 6.125
2015 Oct 1500 10 year 6.850
Sri Lanka Issues USD 1.5 Bn Sovereign Bond (cont..)

Provincial Gross Domestic Product – 2014
Province
Rs. Billion
2013 2014
Western 4,078 4,320
Southern 1,001 1,112
North Western 1,006 1,100
Central 1,005 1,073
Sabaragamuwa 648 689
Eastern 562 597
North Central 481 523
Uva 471 511
Northern 339 367
Sri Lanka 9,592 10,292
Nominal GDP by Provinces
Share of PGDP in the overall GDP
% share
• Western province
remained the
frontrunner
providing the
highest
contribution
Cont..
Source: CBSL
Source: CBSL

Provincial Gross Domestic Product – 2014 (cont..)
•Southern
province
recorded the
highest growth
rate
•Western
province grew
the slowest
Source: CBSL

External Sector Performance – August 2015
Aug 15 Change (%) Jan-Aug 15 Change (%)
Total exports 798.9 (19.5) 7,146.5 (3.4)
Textiles and garments 400.1 (6.6) 3,218.7 (1.1)
Tea 91.8 (33.9) 901.2 (16.8)
Total imports 1,523.4 (11.7) 12,558.6 0.0
Fuel 186.5 (60.5) 1,789.3 (48.1)
Trade balance (724.5) (1.0) (5,412.0) 5.0
The BOP is estimated to have recorded an overall deficit of USD 1,795 mn during the first eight months of 2015 in
comparison to a surplus of USD 2,150 mn recorded a year earlier. Sri Lanka’s gross official reserves stood at USD
6.5 bn as at end August 2015, equivalent to 4.0 months of imports.
The lower earnings from tea, textiles
and garments, transport equipment
and rubber products mainly
contributed to the overall decline in
exports earnings during the month.
On a cumulative basis, export
earnings declined by 3.4 %, year-on-
year, to USD 7,147 mn during the first
eight months of 2015 largely due to
weak global demand.
Expenditure on imports in August 2015 declined by 11.7 %, year on year, to USD, 1,523 mn. Despite the
considerable expansion in import expenditure on consumer goods and investment goods, a substantial reduction
in intermediate goods imports mainly due to a significant decline in fuel imports led to this decline.
Source: CBSL

Inflation
Aug 15 Sep 15 Oct 15
Headline
P.P. % -0.2 -0.3 1.7
A.A. % 1.0 0.7 0.7
Core
P.P. % 3.9 4.2 4.4
A.A. % 2.8 2.8 2.9
 Consumer prices in October rose 1.7 % from a year earlier, ending a three-month streak of falling prices.
 Inflation, as measured on a 12-month moving average basis, was steady at a record low of 0.7 % in October,
the same pace as in September.
 Core annual inflation, which excludes fresh food, energy, transport, rice and coconuts, edged up to a 29-month
high of 4.4 % in October from the previous month's 4.2 %. It hit a record low of 0.8 % in February.
Source: DCS

in Sri Lanka
October, 2014
Industry Update

Sri Lanka Consumer Durables Demand to
Remain Healthy in 2016: Fitch
The conducive demand environment for Sri Lanka-
based consumer durables retailers is likely to
continue in the short to medium term despite
possible headwinds from depreciation in the Sri
Lankan rupee against major currencies and higher
import tariffs.
 Favourable Demand Environment: The strong demand trend is supported by
lower energy tariffs, low interest rates, public-sector salary increases and
reductions in the prices of essential food items introduced by the new
government in early 2015.
 Hire Purchase (HP)-Led Growth Continues: In-house HP programmes offered by
top retailers, which contribute to about 40% of sector revenues, will continue to
drive top-line growth. Cont..

Sri Lanka Consumer Durables Demand to
Remain Healthy in 2016
 Mix Shift to ITC: The revenue mix shift towards IT and Communication (ITC)
products will continue in 2016.
 Margins to Improve: The EBITDAR (earnings before interest, tax, depreciation,
amortization and rent or restructuring costs) margin upswing in 2015 that
emerged from the lows in 2014 to continue at a gradual pace in 2016, supported
by strong operating leverage resulting from top-line growth, expansion in high-
margin HP sales and cost efficiency measures.

in Sri Lanka
October, 2014
Analysis & Forecast

Budget Deficit Exceeds 2015 Target in July
Approved
Annual Est.
Jan-Jul
2015
Revenue and Grants 1,562,000 721,715
Expenditure 2,061,376 1,245,054
Overall Deficit (499,376) (523,339)
Foreign Financing (Net) 291,376 (12,177)
Domestic Financing (Net) 208,000 535,516
Budgeted for 2015
by the Government
Source: CBSL, Ministry of Finance
IMF projects a fiscal deficit in the range of 5.5 to 6 % of GDP in 2015 higher than budgeted by the SL
government and financed mainly by domestic borrowing and according to the World Bank, increased
wages, social welfare and interest payments will expand the fiscal deficit to 5.8 % of GDP.
Latest Projection 6.5% - 6.9% (Minister of Finance announced on 19th
Oct,2015).
Cont..
Source: Ministry of Finance

Budget Deficit Exceeds 2015 Target in July
(cont..)
 The government spends more than 50 % of the tax revenue for the salaries &
pensions of government sector workers.
 Up to July 2015, 61 % of the tax revenue has been spent on salaries and pensions
as the government has increased the salaries and pension payments significantly
in 2015.
Rs. Mn 2013 2014
2015
Budget Est.
2015 July
Salaries and wages 393.23 440.98 570.00 319.62
Pensions 122.81 126.14 180.00 87.01
Total 516.04 567.12 750.00 406.63
Revenue 1,005.90 1,050.36 1337.00 663.26
As a % of tax Revenue 51.3 54.0 56.10 61.3
Source: CBSL, Ministry of Finance

Reasons for Depreciation of LKR
The 7% YTD (21 Oct)
depreciation in the LKR
is not primarily due to
the pressure from
higher imports but due
to approximately USD 1
bn outflow from foreign
investors who had
invested in LKR
government securities.
Source: CBSL

in Sri Lanka
October, 2014
International News

The 2015 Nobel Prize for Economics
ANGUS DEATON has been named the winner of this year's Sveriges
Riksbank prize in economic sciences in memory of Alfred Nobel.
Mr Deaton is a Britain-born economist (Scotland, to be specific), who
earned his PhD in economics at Cambridge University before moving
to America; he is now at Princeton University. Mr Deaton is best
known for his work on consumption theory, welfare and inequality.
The committee awarded him the honour “for his analysis of consumption, poverty,
and welfare”. His work “linking detailed individual choices and aggregate
outcomes” was praised for having helped to “transform the fields of
microeconomics, macroeconomics, and development economics”.

China's Economic Growth Slows to 6.9%
 China's economy grew 6.9% in the third quarter,
the weakest rate since the global financial crisis.
 The year-on-year growth rate is also below the
government's 7% target.
 Though slightly above expectations, the data is
expected to raise pressure on policymakers to
step up monetary policy to stem the slowdown.
 China's economy has been hit by extreme stock
market volatility over the summer and weak
economic data, causing concern on markets
around the world.

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 - October 2015

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Economic Capsule - October 2015