The document provides a summary of economic developments in Sri Lanka based on reports from the Asian Development Bank and Sri Lankan central bank. Key points include: - Agriculture and industry are expected to grow gradually in 2019-2020 while services growth remains moderate. Private spending will be supported by government wage increases. - Exports grew 7.3% in Jan-Feb 2019 led by textiles and garments. Imports fell 22.7% due to lower consumer goods and intermediate goods. The trade deficit shrank 41.2%. - Brexit could impact Sri Lanka's garment exports to the UK if tariffs are imposed, but a UK-EU customs union may allow Sri Lanka to retain existing EU trade

1. Economic Capsule
April 2019
268th Issue
Research & Development Unit

2. CONTENTS BANKING & FINANCE
 Combank first in Sri Lanka to offer global Wi-Fi to World Mastercard holders
 ComBank named ‘Best Internet Bank’ & ‘Best Green Bank’ by two UK magazines
 Commercial Bank’s Flash becomes Sri Lanka’s First Multilingual Digital Banking Application
ECONOMY & BUSINESS
 Asian Development Outlook 2019 by ADB : Sri Lanka
 Key Economic Indicators
 External Sector, January - February 2019
 Summary of Export Performance, Jan-Feb’ 19
 Summary of Import Performance, Jan-Feb’ 19
 Brexit and its implications for Sri Lanka’s exports
 21/4 terror strikes in Sri Lanka: expected to dampen tourism earnings - raise borrowing risks: Fitch
 Sri Lanka’s Hambantota Port positioned as region’s Bunkering Hub
INTERNATIONAL
 Global economy cooling, coordinated stimulus may be needed: IMF
 Japan exports hit by weak China demand, raising risk of economic contraction
 Current Global Developments
 USA
 Europe
 US to end all waivers to buy Iran oil imports: crude price jumps

3. Banking & Finance

4. Research & Development Unit
ComBank first in Sri Lanka to offer global Wi-Fi to
World Mastercard holders
Commercial Bank of Ceylon has become the
first bank in Sri Lanka to offer access to over
one million Boingo Wi-Fi hotspots worldwide
at no additional charge to holders of World
MasterCard credit cards issued by the Bank.
This global benefit allows eligible persons to enjoy Wi-Fi in locations such as hotels,
retail outlets, cafes and restaurants,airports and even on-board flights operated by
select airlines, the Bank said.
Eligible Commercial Bank World Mastercard cardholders can use the Boingo service
for up to four devices, including any combination of smartphones, tablets and
laptops.

5. Research & Development Unit
ComBank named ‘Best Internet Bank’ & ‘Best Green
Bank’ by two UK magazines
The Commercial Bank of Ceylon has won two more
international awards – ‘Best Internet Bank – Sri Lanka’ and
‘Best Green Bank – Sri Lanka’, continuing a winning streak that
has taken its tally of international awards in the first quarter
of 2019 alone, to five.
While Global Banking and Finance Review Magazine of the UK
adjudged Commercial Bank the Best Internet Bank in Sri Lanka
for the fourth successive year, Capital Finance International
Magazine, also of the UK, named the Bank the Best Green
Bank.
Both titles were conferred upon the Bank for its green
initiatives and the sustainable practice of promoting paperless
banking.

6. Research & Development Unit
Commercial Bank’s Flash becomes Sri Lanka’s First
Multilingual Digital Banking Application
Flash Digital Bank, a Fintech initiative by Commercial Bank
PLC, recently launched a comprehensive financial services
application in Sinhala and Tamil.
The Flash app, previously available only in English, has
seen a very high adoption rate across Sri Lanka over the
past few months
The introduction of the Tri-lingual version of the app would
be the first time in Sri Lanka’s banking history that a mobile
banking application of this nature would be available to
the public.

7. Economy & Business

8. Research & Development Unit
Asian Development Outlook 2019 by ADB : Sri Lanka
Economic prospects – Supply Side
Agriculture is expected to continue to grow at about the same
rate, i.e. 4.8%, in the next 2 years, assuming normal weather.
Tea and marine fishing, both large contributors to
agriculture, are expected to turn around in 2019 from the
dip experienced in 2018
Industry is expected to pick up gradually over the 2-year period,
reversing the slowdown in 2018
Construction is expected to reverse the contraction last year
with marginal growth this year thanks to a base effect and also a
higher budget for public investment.
Services are expected to continue moderate growth at 4.6% in 2019, picking up marginally to 4.8% in 2020 with
support from trade and financial services, as well as from accommodation and food and beverage services
Source: Asian Development Outlook 2019 - ADB
KEY TAKES

9. Research & Development Unit
Asian Development Outlook 2019 by ADB : Sri Lanka
(Cont)
Private expenditure and growth will be supported by budget proposals such as increasing public sector salaries
and allowances and addressing the pension anomalies.
The government continues to consolidate its finances, but the primary surplus target of 1.5% in 2019 is
downgraded than the original target of 2.0%.
Uncertainties surrounding the upcoming election are expected to affect private investor sentiment.
Economic prospects – Demand Side
Economic prospects – External Sector
Garment exports are expected to grow only moderately as export markets expand more slowly over the next 2
years.
Downside risks to garments arise from a scenario of a no-deal Brexit and tariff escalation between Sri Lanka and
UK.
The introduction of an excise duty and a luxury tax on motor vehicles will keep vehicle imports in check.

10. Research & Development Unit
Asian Development Outlook 2019 by ADB : Sri Lanka
(Cont)
After shrinking in 2018, remittances are expected to remain more or less the same over the next 2 years under a
structural decline in outmigration and lower oil prices impacting economic activity in key host countries
The current account deficit is expected to shrink to 2.5% in 2019, widening marginally to 2.6% in 2020.
Downside risks to the forecast emanate from the economic fallout due to Easter
Sunday terror strikes, political developments connected to upcoming elections and
the ensuing policy direction, as well as weather related uncertainties.
International risks would be a deeper slowdown in the advanced economies, fuel
prices or import volume above expectations, or fallout from Brexit that is difficult
to fully assess at this point.

11. Research & Development Unit
Key Economic Indicators
Govt Securities held by Foreign Investors vs USD/LKR FDI Inflows (2010-2018)
Source: CBSL, BOI

12. Research & Development Unit
Key Economic Indicators (Cont)
External Sector Performance Gross Official Reserves & Month of Imports
Source: CBSL, DCS

13. External Sector: January - February 2019
Research & Development Unit
Category Jan- Feb 2018 Jan-Feb 2019 Change (%)
Exports 1,881 2,019 7.3
Imports 3,992 3,088 -22.7
Trade Balance -2111 -1,069 41.2
Earnings from Tourism (b) 891 932 4.6
Workers’ remittances 1,301 1,046 -19.6
Inflows to the CSE (net) (c) 54 -29 (d)
T-bills and T-bonds 265 167
Long term loans 318 344
Overall Balance -0.4 -858
Summary of External Sector (a) USD Mn
(a) Provisional, (b) Revised based on survey results of SLTDA on average stay period and average spending per day estimates for 2018,
(c) Include secondary and primary market transactions, (d) Primary market transactions data is available only for January 2019 Source: CBSL

14. Summary of Export Performance: Jan-Feb’ 19
Research & Development Unit
Category Jan- Feb 2018 (USD Mn) Jan-Feb 2019 (USD Mn) Change (%)
Industrial Exports 1,460.9 1,595.9 9.2
Textiles and garments 841.8 941.5 11.8
Rubber products 139.4 150.3 7.9
Machinery and mechanical appliances 61.1 69.1 13.0
Petroleum products 98.2 76.0 (22.6)
Agricultural Exports 410.2 415.4 1.3
Tea 230.0 221.4 (3.8)
Rubber 8.1 5.1 (37.0)
Coconut 47.5 53.0 11.8
Spices 54.7 56.4 3.2
Mineral and other 6.2 4.6 (26.9)
Total Exports 1,881.0 2,019.3 7.3
Source: CBSL

15. Research & Development Unit
Category Jan- Feb 2018 (USD Mn) Jan-Feb 2019 (USD Mn) Change (%)
Consumer Goods 883.3 560.4 (36.6)
Food and Beverages 349.0 196.9 (43.6)
Non-food consumer goods 534.3 363.5 (32.0)
Personal vehicles 208.8 97.7 (53.2)
Medical and pharmaceuticals 82.6 77.7 (6.0)
Clothing and accessories 69.8 52.6 (24.7)
Intermediate goods 2,229.7 1,787.1 (19.8)
Fuel 677.2 610.8 (9.8)
Gold 205.7 0.8 (99.6)
Textiles and textile articles 492.5 474.7 (3.6)
Investment goods 817.4 739.5 (9.5)
Machinery and equipment 440.7 425.1 (3.5)
Building material 266.1 240.8 (9.5)
Transport equipment 108.9 72.8 (33.2)
Unclassified imports 62.2 0.8 (98.7)
Total Imports 3,992.5 3,087.9 (22.7)
Summary of Import Performance : Jan-Feb’ 19
Source: CBSL

16. Research & Development Unit
Brexit and its implications for Sri Lanka’s Exports
 Considering that Sri Lanka currently benefits from a positive and growing
balance in its merchandise trade with the UK, it is important for Sri Lanka to
be able to enjoy the existing GSP+ concessions for some time, until it
graduates from the scheme, a few years after it reaches the threshold of the
World Bank ranking of Upper-Middle Income category.
 UK remains confident of reaching a deal with EU in relation to Brexit that can
gain the support of the UK legislature, despite several failed attempts in the
UK Parliament. Political analysts have noted that it’s most likely that UK will
reach a deal to enter into Custom Union with EU similar to that of EU -Turkey
Customs Union
Despite services exports not
benefiting through GSP+ concessions,
the trade potential for the services
sector is promising. Efforts need to be
made to enhance trade between UK
and Sri Lanka by promoting more
services exports to this market. In this
regard, Sri Lanka looks forward to
promoting ICT/BPM and Wellness
Tourism in the UK and enlist the
support of the Sri Lankan diaspora in
the UK in such promotions.
(Source: Research Intelligence Unit (RIU) -
Trade Surveillance report in association with the
Sri Lankan High Commission in London)
If UK enters into Custom Union with EU, the beneficiary nations of the EU
GSP scheme would not have to enter into separate bilateral agreements with
UK to retain the tariff concessions granted to over 7,100 products under the
programme to the UK market.

17. Research & Development Unit
Brexit and its implications for Sri Lanka’s Exports
(Cont)
Sri Lanka and UK have already engaged
in several preliminary level discussions
through diplomatic channels on a
potential bilateral preferential trade
agreement, and the UK government has
informed Sri Lankan counterparts that
UK legislature’s approval is required for
60 sensitive products in the EU GSP
scheme in order to grant the same tariff
lines to Sri Lanka in the post-Brexit
period in case of a no-deal Brexit. In
addition, Sri Lanka has also been
requested to submit a detailed brief with
facts and figures outlining its concerns to
the UK government.
(Source: Sri Lanka eyes special preferential trade pact in post-Brexit UK – ‘Daily Mirror’, April 08, 2019)

18. Research & Development Unit
Source: Economynext
21/4 terror strikes in Sri Lanka: expected to dampen
tourism earnings - raise borrowing risks: Fitch
Sri Lanka will face heightened risks to its growth outlook and funding needs, and lower
tourism earnings after the April 21 terror attacks, Fitch Ratings has said.
The rating agency said in its Asia-Pacific sovereign credit overview for the second quarter of
2019 that outlooks for sovereigns remain stable, with global financial conditions easing, while
global growth prospects have deteriorated.
The terror attacks in Sri Lanka will dampen tourism receipts, which had been rising steadily in
recent years to reach about 5% of GDP in 2018, according to Fitch Ratings.
Sri Lanka’s recent USD 2.4Bn bond issuance in March, 2019 helped ease near-term fiscal and
external financing constraints, Fitch Ratings said. However, it has noted that conditions
remain challenging in the wake of the terror attacks.

19. Research & Development Unit
Source: Sunday Times
Sri Lanka’s Hambantota Port positioned as region’s
bunkering hub
The Hambantota International Port (HIP) recently awarded a tender to Sinopec Fuel Oil Sales Co Ltd for
oil trading works and the operation and maintenance of their oil tank terminal along with associated
facilities.
Bunkering being an important part of the marine services portfolio offered by HIP, the oil tank terminal
in partnership with Sinopec Fuel Oil Sales Co Ltd will provide high grades of marine fuels compliant
with the IMO 2020 Low Sulphur Rule as well as other ancillary facilities to marine liners calling and
passing through Hambantota.
“The partnership with Sinopec, which is one of the largest providers of bunkers worldwide, underlines
our goal of becoming a bunkering hub for the entire region. Plans are already in the pipeline to expand
our tank capacity in the near future,” said Ray Ren, CEO of Hambantota International Port Group
(HIPG), adding that HIP intends taking maximum advantage of its location, just 10 nautical miles from
the main sea route connecting east and west, on which ply more than 31,000 vessels each year.

20. International

21. Research & Development Unit
Source: Reuters
Global economy cooling - coordinated stimulus may be
needed: IMF
The global economy is slowing more than expected
and a sharp downturn could require world leaders to
coordinate stimulus measures, the International
Monetary Fund said as it cut its forecast for world
economic growth this year.
They pointed to the US-China trade war and a
potentially disorderly British exit from the European
Union as key risks and warned that chances of
further cuts to the outlook were high.
Some major economies, including China and
Germany, might need to take short-term actions, the
IMF said.
The IMF’s new forecast assumes an orderly “Brexit,” but the Fund said a chaotic process could shave
more than 0.2 percentage points from global growth in 2019. It said the Bank of England should be
“cautious” on its interest rate policy, an apparent tip to wait before hiking borrowing costs.

22. Research & Development Unit
Source: Reuters
Japan exports hit by weak China demand, raising risk of
economic contraction
Japan’s exports fell for a fourth straight month in March as China-bound
shipments slumped again, reinforcing growing anxiety that weak external
demand may have knocked the economy into contraction in the first
quarter.
Ministry of Finance data out on Wednesday showed exports fell 2.4% in
March from a year earlier.
The data reinforces worries that weak external demand may hurt
company profits and in turn curb business expenditures, workers’ wages
and consumer spending in a broad hit to growth.
“Slump in exports have caused capital expenditure to drop sharply and
private consumption to slow,” said Ryutaro Kono, chief economist at BNP
Paribas Securities.
The economy grew at an annualised rate of 1.9% in the fourth quarter driven by business and consumer spending.
Bank of Japan Governor Haruhiko Kuroda last week stuck to his optimism that Japan’s export-dependent economy
will soon climb out of its doldrums as global growth recovers.

23. Research & Development Unit
Current Global Developments
USA
On 22 March the yield on ten-year treasury bonds fell beneath that on the three-month
variety in America. The last time that happened was in 2007, one of the “inversions” in bond-
market yields that preceded each of the past seven American recessions.
America’s inverted yield curve* suggests that the Federal Reserve’s interest-rate rise in
December, 2018, its ninth in three years, will be its last for now. But, that does not mean
recession is imminent.
Although risks to growth have risen, America is in a position of relative strength.
Unemployment is low; consumers are flush with cash; and underlying inflation is close to
the Fed’s 2% target.
[*An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality].

24. Research & Development Unit
Current Global Developments (Cont)
 Europe
The primary cause for Europe’s slowdown – and particularly Germany’s – is falling
global trade, notably China’s slackening demand for goods. Europe relies on Asian
markets far more than America does and China slowed in late 2018.
Although America may have finished raising rates for now, the euro zone is yet to
begin that process. Growth in 2019 could be a little over 1%. Wage growth is
subdued, inflation is below target and Italy is in recession.
Source: ‘The Economist’, March 30, 2019

25. Research & Development Unit
Source: Reuters
US to end all waivers to buy Iran oil imports: crude
price jumps
The US recently said it will eliminate in May all
waivers granted to eight economies allowing
them to buy Iranian oil without facing US
sanctions, as it ratcheted up pressure to choke
off all oil revenues of the Islamic Republic.
The decision, taken by President Donald Trump,
has sent oil prices to their highest levels in 2019,
even though the White House said the US was
working with top OPEC exporter Saudi Arabia and
the United Arab Emirates to ensure the oil
market is “adequately supplied”.
The US re-imposed sanctions in November, 2018 on exports of Iranian oil after President Trump
unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers last May.

26. 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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John Wooden