Commercial Bank Economic Capsule - December 2023

Economic Capsule
December 2023
Research & Development Unit
323rdIssue

CONTENTS
BANKING & FINANCE
 ComBank ranked No 1 in ‘Business TodayTop 40’
 ComBank raises Rs 12bn as Debentures are snapped up on opening day
 ComBank receives licence to operate in Colombo Port City
 ComBank wins triple Gold at CA Sri LankaTAGS Awards 2023
ECONOMY, BUSINESS & DEVELOPMENT
 GDP growth – 3Q 2023
 IMF Executive Board completes the first review under the Extended Fund
Facility arrangement with Sri Lanka
 Quarterly Debt situation – as of end Sep 2023
 ADB approves USD 200mn to sustain economic stabilization efforts in Sri Lanka
 World Bank releases USD 250mn for Sri Lanka as budget support
 Gross official foreign reserves to exceed USD 4bn by end of 2023
 Govt. to revise down SSCL threshold to Rs.60mn from Rs.120mn
 Australia’s United Solar to invest USD 1.73bn in SL
ECONOMY, BUSINESS & DEVELOPMENT (cont.)
 CSE announces constituent changes in S&P Sri Lanka 20 Index
 News Snippets
GLOBAL UPDATE
 Global trends to watch out in 2024
 Developing countries paid record USD 443.5bn on public debt in 2022:World
Bank
 Belt and Road: Italy pulls out of flagship Chinese project
 European Union reaches agreement on landmark legislation to regulate AI
 IEA expects oil demand slowdown to persist in 2024 butOPEC remains
“cautiously optimistic”.
 Global News Snippets

ComBank ranked No 1 in ‘BusinessTodayTop 40’
The Commercial Bank of Ceylon was ranked No 1
on the Business Today ranking of Sri Lanka’s Top
40 business entities in 2022-23.
Business Today assigned Commercial Bank an aggregate score of 34.55 at the top of a list that
includes the country’s biggest diversified conglomerates, banking and financial services giants
and manufacturing colossi.
This is the 15th consecutive year that Commercial Bank was ranked by Business Today as not
only the best-performing bank in the country, but one of the five best-performing companies in
Sri Lanka overall.

ComBank raises Rs 12bn as Debentures are snapped up on
opening day
The Commercial Bank of Ceylon raised Rs 12 billion in capital with its Debenture issue
closing after over subscription on its opening day, Tuesday 12th December 2023.
The Bank offered an initial issue of 60mn Basel III Compliant - Tier 2 Listed Rated
Unsecured Subordinated Redeemable Debentures with a Non-Viability Conversion
feature, at the par value of Rs 100/= each, to raise Rs 6bn, with an option to issue up to
another 60mn Debentures to raise an additional Rs 6bn at the discretion of the Bank in
the event of an oversubscription of the initial issue.
The issue is intended to further strengthen its Tier II capital base, raise funds for the
expansion of its lending portfolio, and bridge maturity mismatches in the assets and
liabilities portfolio of the Bank.

ComBank receives license to operate in Colombo Port City
Commercial Bank of Ceylon PLC was recently
issued an Authorized Person (AP) license to offer
offshore banking services within the Colombo
Port City, the 269-hectare special economic zone
(SEZ), tasked with establishing a premier multi-
currency international business and financial
services hub that will transform the country’s
economic landscape.
The AP license was presented to the Bank by the Colombo Port City Economic Commission,
paving the way for Commercial Bank to operate within and from the precincts of the Colombo
Port City, offering banking services to investors as well as customers.

ComBank wins triple Gold at CA Sri LankaTAGS Awards 2023
The Commercial Bank of Ceylon won
three Golds and a Bronze at CA Sri
Lanka’s ‘TAGS’ Awards 2023 for the
Bank’s 2022 Annual Report, excelling in
key aspects recognized by the awards
programme which is dedicated to
Transparency, Accountability,
Governance, and Sustainability – TAGS.
The Bank was adjudged the best across all sectors for ‘Corporate Governance Disclosure’ and
for Digitally Transformative Reporting’ taking two Golds in the main category awards, and won
the Gold for the best annual report in the Banking sector, in addition to taking the Bronze for
‘Overall Excellence in Corporate Reporting.”

Economy, Business
& Development
News

GDP growth – 3Q 2023
* Recession - A recession is a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative GDP growth mean recession,
although more complex formulas are also used.
1. The GDP growth rate for the third quarter of
year 2023 has recorded a positive rate of 1.6 %
(yoy) after almost two years of *recession. 2. Sectoral contribution to GDP 3Q 2023

GDP growth – 3Q 2023 (cont.)
3. Sectoral Performance ,2023 3Q
Source: Department of Census and
Statistics

GDP growth – 3Q 2023 (cont.)
4. Selected activities with positive growth rates, 2023 Q3
Source: Department of Census and Statistics
5. Selected activities with negative growth rates, 2023 Q3
Agriculture Services
Industries
Agriculture Services
Industries

IMF Executive Board completes the first review under the
Extended Fund Facility arrangement with Sri Lanka
The IMF Board completed the first review under the 48-
month Extended Fund Facility with Sri Lanka on 12 Dec 2023,
providing the country with access to *SDR 254 million (about
USD 337mn) to support its economic policies and reforms.
Key points of the IMF publication
*SDR - The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries. The SDR is not a currency. It is a potential claim on the freely usable
currencies of IMF members.
The IMF commended on
• Restoring debt sustainability
• Raising revenue
• Rebuilding reserves buffers
• Reducing inflation
• Safeguarding financial stability.
They further noted that a strong commitment to improve governance and
protect the poor and vulnerable remains critical.

(cont.)
Some salient points of the IMF publication
“Preserving the revenue-based fiscal consolidation supported by revenue administration
reforms is critical”.
“Monetary policy needs to avoid further loosening that may require a policy reversal if
risks materialize”.
“To preserve central bank independence, the CBSL needs to continue offloading
government securities and no longer make purchases in the primary market”.
“A slower pace for reserve accumulation during the remainder of 2023 is justified amid FX
scarcity given the financial system’s need for FX. However, a faster pace of accumulation
would be needed in 2024 and beyond to ensure reserve adequacy is achieved by 2027”.
“The prompt implementation of financial sector recapitalization is key to safeguarding
financial stability. Efforts to strengthen financial supervision and crisis management
framework are crucial to enhance resilience and prepare the financial system for times of
stress”.
Revenue based fiscal consolidation
Monetary policy
CBSL independence
Reserve accumulation
Recapitalization of CBSL and Banks

(cont.)
Some salient points of the IMF publication (cont.)
“Reforms to tackle corruption and strengthen governance are critical to unleash Sri
Lanka’s growth potential.
The next step is to ensure a transparent and merit-based selection process for the Anti-
corruption Commission members.
Implementation of key recommendations from the Governance Diagnostics to tackle
corruption vulnerabilities in revenue administration, tax policies, public procurement, and
PFM (Public Financial Management) as well as financial oversight will be critical.
“Staff has assessed that the authorities engage in good faith negotiations with the
International Sovereign Bond (ISB) bondholders with a view to reaching an AIP
(Agreement In Principle) no later than the second review of the EFF, and that negotiations
with the China Development Bank (CDB) are also at an advanced stage”.
Tackle corruption and strengthen
governance
Source: https://www.imf.org/en/Publications/CR/Issues/2023/12/12/Sri-Lanka-First-Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-Facility-542441
External Debt Optimization

Quarterly Debt situation – as of end Sep 2023
PC –Paris Club
NPC – Non Paris Club
Maturity structure of ISBs
Summary of Public Debt as of 30th September 2023
Source: https://www.treasury.gov.lk/api/file/c90fb6c6-17fb-4940-ad28-eb710dc33cff

ADB approves USD 200mn to sustain economic
stabilization efforts in Sri Lanka
The Asian Development Bank (ADB) approved a
USD 200mn concessional loan to the Government of
Sri Lanka under the “Financial Sector Stability and
Reforms Program” to help stabilize the country’s finance
sector following the sovereign debt and economic crises
that started in April 2022 when it suspended its external
debt payments.
The Financial Sector Stability and Reforms Program comprises two subprograms of USD 200 million each.
Subprogram 1 Subprogram 2
Targets short-term stabilization and crisis
management measures that were
implemented in 2023.
Planned to be implemented in 2024 and focuses on
structural reforms and long-term actions to restore
growth in the banking sector.
Source: https://www.adb.org/news/adb-approves-200-million-sustain-economic-stabilization-efforts-sri-lanka
Amount : USD 200mn
Term : 25 years (including a 5 year grace period)
Rate : 2% per annum

World Bank releases USD 250mn for Sri Lanka as budget
support
The World Bank released the second tranche of the USD 500mn
Sri Lanka Resilience, Stability and Economic Turnaround
Development Policy Operation (RESET DPO), considering the
continued satisfactory progress made by the government with the
reform programme.
Source https://www.worldbank.org/en/news/press-release/2023/12/13/world-bank-releases-additional-us-250-million-for-sri-lanka-to-sustain-economic-reforms
• The RESET DPO, which provides budget support to the government was approved on June 28, 2023.
• This is the first in a series that supports foundational reforms to
• Restore macroeconomic stability
• Mitigate the impacts on the poor and vulnerable
• Support an inclusive, private sector-led recovery
• The first tranche of the RESET DPO for USD 250mn was released in June 2023 upon the completion of seven
reform prior actions across three pillars: economic governance; growth and competitiveness; and
protecting the poor and vulnerable.

Gross official foreign reserves to exceed USD 4bn by end
of 2023
Sri Lanka’s gross official foreign reserves are expected to exceed USD 4bn by the end of this year,
the President’s Media Division (PMD) said, citing information from the Finance Ministry.
Sri Lanka received USD 337mn from the International Monetary Fund as the second tranche of
the Extended Fund Facility this month (December, 2023). Also, the government received USD
200mn from the Asian Development Bank this month and the World Bank announced the release
of USD 250mn.
These disbursements, totalling USD 787mn, will aim to strengthen budget support and the
country’s external buffers.
USD 250mn USD 200mn USD 337mn (approx)
Source: https://www.treasury.gov.lk/api/file/440b6d63-9aba-40b4-9104-ae8836a8a6a5

Govt. to revise down SSCL threshold to Rs.60mn from
Rs.120mn
The Cabinet of Ministers has given its approval to amend the Social Security
Contribution Levy Act No. 25 of 2022 to revise down the threshold of the Social
Security Contribution Levy (SSCL) to Rs.60mn from Rs.120mn a year.
The Department of Government Information said this will come into effect from
January 1, 2024.
The draft bill, prepared by the Legal Draftsman in this regard, has received clearance
from the Attorney General.
The SSCL is a new tax proposed in Budget 2022. The rate of SSCL is 2.5 % and is
charged on the turnover.

Australia’s United Solar to invest USD 1.73bn in SL
Australia-based United Solar Group has
proposed to invest a whopping USD
1.73bn to construct a 700 MW solar power
plant with a battery energy storage system
at Poonakary Lake located in Kilinochchi.
United Solar has submitted a proposal to develop a solar power plant of 700 MW with a battery energy
storage system at Poonakary lake in Kilinochchi to provide a power supply of 134 MW, according to the
Department of Government Information.
Established in 2009 by Richard Vargas, United Solar Group emerged to become a successful business
that has helped over 19,500 customers access low cost electricity in Australia.
As one of Australia’s foremost renewable energy investors, United Solar is also involved in renewable
energy projects in six continents and 20 countries with a large portfolio of utility-scale solar projects,
wind farms, hydro-solar and green hydrogen.

CSE announces constituent changes in S&P Sri Lanka 20
Index
The Colombo Stock Exchange (CSE) has
announced the changes in S&P Sri Lanka 20
index constituents, made by S&P Dow Jones
Indices at the 2023 year-end rebalance.
Exclusions Inclusions
Browns Investments PLC DFCC Bank
Dipped Products PLC Dialog Axiata PLC
Expolanka Holdings PLC Distilleries Company of Sri
Lanka PLC
Richard Pieris & Co PLC Hatton National Bank PLC
Telecom PLC Nations Trust Bank PLC

News Snippets
Korean support to uplift tourism in three provinces
Sri Lanka will enter into an agreement with Korea to uplift
tourism in three provinces.
The Cabinet nod was given for the Sri Lanka Tourism
Development Authority to enter into a memorandum of
understanding with the Korean Tourism Organization (KTO) to
implement a community-based tourism development project in
the Central, Northern and Eastern provinces of Sri Lanka.
The project will be rolled out with a grant of 2.172 billion
Korean won (approximately Rs.538 million)
India’s U-Solar wins USD 11mn contract to supply power to
Jaffna Peninsula islets
India’s U-Solar Clean Energy Solutions has bagged a
USD 11mn contract to supply electricity to the residents of
Delft, Nainathivu, and Analathivu islets in the Jaffna
peninsula.
The contract is being awarded subsequent to the
authorization by the Indian government of a USD 11mn
grant, dedicated to providing electricity to the residents of
Delft, Nainathivu, and Analathivu islets in the Jaffna
peninsula..
World Bank issues warning on growing skills shortage in Sri Lanka
As Sri Lanka is transitioning from a rural-based to a modern, urbanized economy,
with better jobs being created, specially in services, the World Bank yesterday
warned that skill shortages are likely to worsen.
This challenge is expected to escalate as the country aspires to achieve the full
upper-income status.
Sri Lanka and India to conclude ETCA technical talks by March
2024
Sri Lanka and India have agreed to conclude the technical level
discussions of the Economic and Technology Co-operative
Agreement (ETCA) by March, 2024.
Sri Lanka and India have held 12 rounds of ETCA negotiations
up to now and the 13th round will be held in India from
January 08 to 10, 2024.
Read more:
https://openknowledge.worldbank.org/entities/publication/b0cd289f-ae72-460f-94ce-aad793ce7331

Global
Update

Global trends to watch out in 2024
Elections
Elections all over the world, for more voters than ever before, will put a spotlight on the global
state of democracy. There will be more than 70 elections in 2024 in countries that are home to
around 4.2bn people—for the first time, more than half of the global population.
Economic climate
Western economies did better than expected in 2023 but are not out of the woods yet, and
interest rates staying “higher, for longer” will be painful for companies and consumers alike,
even if recessions are avoided. The situation in China will also shape how the global economy
performs in 2024.
Source: The Economist - The World Ahead 2024
African continent
Africa’s political and social unrests are rising at an alarming rate. Civil war in Sudan, violent
extremism in the Sahel area (Mali, Burkina Faso, Chad, Nigeria and Niger), conflicts in Congo DR,
Somalia, Ethiopia and Central African Republic will be crucial developments to watch in 2024.

Global trends to watch out in 2024 (cont.)
New energy geography.
The clean-energy transition is minting new green superpowers and redrawing the energy-
resources map. Lithium, copper and nickel matter much more, while oil and gas, and the
regions that dominate their supply, matter less. Competition for green resources is reshaping
geopolitics and trade, and creating some unexpected winners and losers. Meanwhile, a
“*green lash” is under way among voters who regard climate-friendly policies as an elite
conspiracy against ordinary people.
*Green lash is an abbreviation for 'green backlash', meaning resistance to decarburization and other climate and nature-
related measures.
AI
Businesses are adopting it, regulators are regulating it and techies continue to improve it. Debate will
intensify over the best regulatory approach—and whether arguments over “existential risk” are a decoy
that benefits incumbents. Unexpected uses and abuses will keep popping up. Worries abound about AI’s
effect on jobs and potential for election meddling. Its biggest actual impact? Faster coding.
Source: The Economist - The World Ahead 2024

Source: https://www.worldbank.org/en/news/press-release/2023/12/13/developing-countries-paid-record-443-5-billion-on-public-debt-in-2022
Amid the biggest surge in global interest rates in four decades,
the developing countries spent a record USD 443.5bn to service
their external public and publicly guaranteed debt in 2022, the
World Bank’s latest International Debt Report showed.
Developing countries paid record USD 443.5bn on public
debt in 2022: World Bank
• Increase in costs has shifted scarce resources away from critical needs such as health, education and environment.
• Debt-service payments—which include principal and interest—increased by 5% over the previous year for
all developing countries.
• The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA)—which
supports the poorest countries has paid a record USD 88.9bn in debt-servicing costs in 2022. Over the past decade,
interest payments by these countries have quadrupled, to an all-time high of USD 23.6bn in 2022.
• Overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024—by as much as
39%.
Key takeaways

Belt and Road: Italy pulls out of flagship Chinese project
Italy will pull out of China's flagship Belt and
Road Initiative (BRI), the government has
confirmed.
Source: BBC
Prime Minister Giorgia Meloni's administration
notified Beijing that it would cease participating in
the BRI ahead of a deadline at the year's end. Italy
was the only major Western nation to sign up to the
BRI, one of China's most ambitious trade and
infrastructure projects, in 2019.
The country's BRI membership was due to renew
automatically in March next year unless Italy notified
China that it was withdrawing by the end of this year.
Italian exports to China were worth €16.4bn last year, compared to €13bn in 2019.
By contrast, Chinese exports to Italy rose to €57.5bn from €31.7bn over the same period.

European Union reaches agreement on landmark
legislation to regulate AI
European Union policymakers have agreed on landmark legislation to regulate artificial
intelligence (AI), paving the way for the most ambitious set of standards yet to control
the use of the game-changing technology.
The agreement to support the “AI Act” came after nearly 38 hours of negotiations
between lawmakers and policymakers.
Source: https://www.europarl.europa.eu/news/en/press-room/20231206IPR15699/artificial-intelligence-act-deal-on-comprehensive-rules-for-trustworthy-ai
The law is widely seen as a global benchmark for governments hoping to take advantage of the potential
benefits of AI while guarding against risks that range from disinformation and job displacement to
copyright infringement.
The legislation, which had been delayed by divisions over the regulation of language models that scrap
online data and the use of AI by police and intelligence services, will now go to member states and the
EU parliament for approval.

IEA expects oil demand slowdown to persist in 2024 but
OPEC remains “cautiously optimistic”.
The International Energy Agency said evidence of softening
global oil demand is mounting and a slowdown is expected
to continue into 2024, reaffirming a starkly different outlook
compared with oil-producing group OPEC.
The IEA said oil market sentiment had turned “decidedly
bearish” in recent weeks, even after some members of OPEC
and non-OPEC oil-exporting allies — collectively known as
OPEC+ — on Nov. 30 announced a new round of voluntary
production cuts in the first quarter of next year.
Source: CNBC
OPEC, meanwhile, struck a markedly different tone in its latest monthly report. The oil producer group,
which has frequently clashed with the IEA in recent years over issues such as peak oil demand and the need
for investment in new supplies, on 13th December said that it remained “cautiously optimistic” about market
dynamics in 2024.

Global News Snippets
The world economy is on the brink of a
second cold war that could “annihilate”
progress made since the collapse of the
Soviet Union, a senior International
Monetary Fund official has warned. Gita
Gopinath, the IMF’s first deputy managing
director, said the accelerating fragmentation
of the world economy into regional power
blocs – centred around the US and China –
risked wiping out trillions of dollars in global
output.
The Federal Reserve left its key interest rate on hold at a range of between 5.25%
and 5.5%, but it also published projections that suggested it would cut rates three
times in 2024. The Fed’s decision came after data for November showed that
America’s annual inflation rate had slowed only slightly to 3.1%, and the core rate,
which excludes food and energy, had remained at 4%.
The European Central Bank and Bank of England followed suit and kept their
rates on hold. The ECB gave little away about when it might reduce rates, though it
did lower its inflation forecasts. The British central bank scotched hopes that it
would loosen policy soon, confirming that rates needed to be kept elevated for an
“extended period of time” to curb inflation.
Britain’s two-year cost of living crisis eased
last month (November) as cheaper petrol
and less expensive food helped send the
annual inflation rate sharply lower to 3.9%
– its second big monthly fall in succession.
Oil rose slightly on 20 December as investors kept an eye on the situation in the
Red Sea after recent attacks by Iran-aligned Yemeni Houthi militants. USA
Launched a task force to safeguard Red Sea commerce as attacks by the Yemeni
militants forced major shipping companies to reroute, stoking fears of sustained
disruptions to global trade.
China reported its industrial output expanded at the fastest pace since February 2022 in November, though retail sales growth
missed expectations, pointing to a patchy recovery in the world’s second-largest economy. China’s industrial output grew 6.6% in
November from a year earlier, according to the country’s National Bureau of Statistics.

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 >
Sri Lanka: Emerging from the economic crisis…
“Much remains to be done. We should not take for granted, having achieved
low inflation, that inflation would always stay within the CBSL’s target of 5 %
or that progress in the fiscal area will continue. Our post-independence
economic history is full of stop-and-go policies and brief victories over
instability that are not sustained. We cannot afford yet another replay of
that familiar script.”
-Dr Sharmini Coorey : Advisor to President and former IMF Director

Commercial Bank Economic Capsule - December 2023

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