The document provides an economic summary for Sri Lanka and internationally: - Domestically, tourist arrivals, earnings from tourism and remittances increased. Inflation decreased while credit expanded. The Central Bank governor urged the private sector to capitalize on growth opportunities. - Internationally, the US Federal Reserve chair indicated interest rates may rise further. Trade deals with the US faced increased uncertainty. China's economic slowdown continued as industrial output and retail sales fell short of targets. - Visa International opened an office in Sri Lanka to expand electronic payments. Government revenue in Sri Lanka rose substantially in 2016 compared to prior years.

1. Economic Capsule
August 2016
Research & Development Unit
236th Issue

2. C O N T E N T S
BANKING AND FINANCE 
 Commercial Bank declared the ‘Strongest Bank’ in Sri Lanka
 Commercial Bank is Sri Lanka’s Most Respected Bank for 12th successive year
ECONOMY & BUSINESS 
 CB Governor urges private sector to grab SL’s best growth opportunity
 An increase in government revenue
 Inflation comes down
 Credit expands
 Tourist arrivals to Sri Lanka hit an all-time high in July
 Earnings from tourism & Workers’ remittances
 Visa (cards) International opens office in Sri Lanka
 Fed's Yellen sees stronger case for interest rate hike
 U.S. trade deals in doubt
 China's economic slowdown deepens

3. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Banking & Finance

4. 4< Research & Development Unit >
Commercial Bank declared the
‘Strongest Bank’ in Sri Lanka
• Commercial Bank has been adjudged ‘The Strongest
Bank in Sri Lanka in 2016’ following a detailed and
transparent scorecard compiled and analysed by The
Asian Banker, a leading provider of strategic
intelligence on the financial services industry.
• Based on an independent assessment of six areas of
balance sheet financial performance – the ability to
scale, balance sheet growth, risk profile,
profitability, asset quality and liquidity – the
accolade ranks Commercial Bank amongst the 500
strongest banks in the Asia Pacific Region.

5. 5< Research & Development Unit >
Commercial Bank is Sri Lanka’s Most
Respected Bank for 12th successive year
• Commercial Bank has been rated the most respected bank in Sri Lanka for the 12th
year running and the second ‘Most Respected’ corporate entity in the country
overall for the sixth successive year in the 2016 LMD rankings of the Most
Respected Entities in Sri Lanka.
• The Bank has retained its No 1 ranking in Sri Lanka for ‘Honesty’ for the fourth
consecutive year, and has been rated No 1 overall for Financial Performance for two
consecutive years.
• Commercial Bank remains the only bank among the top five Most Respected
entities in Sri Lanka in 2016.

6. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Economy & Business

7. 7< Research & Development Unit >
CB Governor urges private sector to grab
SL’s best growth opportunity
Delivering the keynote address at the CIMA
Sri Lanka Business Leaders Summit, Central
Bank Governor Dr. Indrajit Coomaraswamy
noted that the Government was committed to
building a private sector-led competitive social
market economy, and there was greater focus
on export development and luring more
foreign direct investments.
• Dr. Coomaraswamy noted that today prospects for Sri Lanka looked much better
due to factors such as peace, growing international good will and strong ties with
both the West and capital-surplus Asian countries as well as the country’s strategic
location. Cont…
Opportunities

8. 8< Research & Development Unit >
CB Chief urges private sector to grab SL’s best growth
opportunity (cont…)
• Impending new trade agreements with India, China, Singapore, Japan and GSP+
provide Sri Lanka preferential market access to 3 bn people.
• The Megapolis, the International Financial Centre, and regional development initiatives
covering the southern province, north, Trincomalee, Kandy, etc. were also significant.
Challenges
• The Central Bank Chief emphasised reducing the fiscal deficit was key and noted the
Government’s commitment to reduce it to 3.5% of GDP was encouraging.
• Since Sri Lanka can no longer benefit from concessionary aid, the country needs more
FDIs. For this, Sri Lanka will need to leverage its future preferential trade/market
access.
• Sri Lanka has begun to age before achieving development transition and this was
another challenge.
Cont…

9. 9< Research & Development Unit >
CB Chief urges private sector to grab SL’s best growth
opportunity (cont…)
Challenges
• “We can’t drive growth with cheap labour augmentation but focus more on greater
productivity, skills, training and development and competitiveness,” he said adding
“globalisation places high premium on competitiveness.”
• Sri Lanka has no choice but to pursue a private sector-led growth since the country
has “maxed-out” on concessionary credit and the Government doesn’t have money.
State revenue is needed to repay debts.
• “In that context, private sector has to step up,” he reiterated. This together with
more FDIs, and exports will be key to achieve higher 7-8% economic growth.
Source: Daily FT

10. 10 < Research & Development Unit >
An increase in government revenue
Institution 2014 2015 2016
% Change
15/16
Inland Revenue Department 211,006 191,596 242,811 26.0
Department of Sri Lanka Customs 266,842 376,994 457,616 21.5
Excise Department 37,818 57,276 69,326 21.0
Total 515,666 625,866 769,753 23.0
This is seen as a positive development towards achieving fiscal consolidation since
Sri Lanka has been experiencing a continuously declining Government Revenue/GDP
ratio since 2006 (although there was a slight increase in the ratio in 2015, it was
mostly due to the one-off ‘Super Gains tax’ and increase in trade related taxes due
to high vehicle imports).
Revenue details from January to July (in Rs Mn)
Source: Daily FT

11. 11 < Research & Development Unit >
Inflation comes down
• Both headline and core
inflation, measured on a year-
on-year basis, edged down
further in August 2016.
• According to CBSL, the
normalisation observed in
domestic supply conditions as
well as the suspension of the
revisions made to certain taxes
moderated consumer price
inflation.

12. 12 < Research & Development Unit >
Credit expands
• According to CBSL a high intake of credit to the
Industry and Services sectors together with a
substantial growth in personal loans and advances
drove the credit expansion during the first half of the
year.
• Reflecting these developments, the growth of broad
money (M2b) accelerated to 17.0 % in the month of
June 2016 from 16.5 % recorded in the previous
month.
• Short term interest rates increased considerably in
response to monetary tightening measures adopted
by the Central Bank during the first seven months of
the year, leading to a sharp upward adjustment in
both lending and deposit rates in the financial
sector.
• Credit granted to the private sector by commercial banks continued to increase at a significantly
high rate of 28.2% in June 2016, on a year-on-year basis, in comparison to 28.0% recorded in the
previous month.

13. 13
Tourist arrivals to Sri Lanka hit an
all-time high in July
Tourist arrivals to SL hit an all-time high in July
this year. The number of arrivals, which clocked
209,351, represented a growth of 19.1%
compared to July last year and is the highest
number recorded in a single month since
records began in the sixties.
< Research & Development Unit >
Source: SLTB

14. 14
Earnings from tourism & Workers’
remittances
• Earnings from tourism were estimated to have
increased by around 16.7 % during the period from
January to July 2016, with a record number of tourist
arrivals during the month of July.
• Workers’ remittances increased by 3.8 % during the
first seven months of the year.
• These inflows, coupled with the renewed foreign
interest in investments in government securities and
the realisation of medium to long term financial flows
to the government, eased the pressure on the balance
of payments and the exchange rate.
• Meanwhile, gross official reserves were estimated to
have improved to USD 6.5 bn by end July 2016 from
USD 5.3 bn in end June 2016.
< Research & Development Unit >

15. 15< Research & Development Unit >
Visa (cards) International opens office in
Sri Lanka
• Visa international has opened its Colombo office - the second in the region of
South Asia.
• According to Visa Asia Pacific Group Executive, Chris Clark;
“Sri Lanka is a priority market for Visa in South Asia and one where we see
tremendous opportunity for growth.
However, there is a tremendously low level of personal consumption expenditure
penetration of electronic payments in Sri Lanka and the actual acceptance of
electronic payments is also relatively low compared to other countries in the region.
So, we take a lead by opening an office here to help grow that penetration providing
Sri Lankans with easier and more secure payment options”.
• Visa has been present in Sri Lanka since 1989 and has witnessed a growth of 85%
and 25% in terms of Visa debit and credit card usage over the last five years. Visa
currently works with 19 banks in Sri Lanka and nine other issuers of Visa card.

16. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
International

17. 17< Research & Development Unit >
Fed's Yellen sees stronger case for interest
rate hike
Speaking at an annual meeting of central
bankers, Janet Yellen was cautiously upbeat
about the US economy.
Economic growth and a stronger jobs market
meant "the case for an increase in the federal
funds rate has strengthened in recent
months".
There has been a growing expectation that
US interest rates will rise this year.
Some economists are saying that the next
hike could even come next month.
The central bank raised interest rates at the
end of last year for the first time in nearly a
decade, but has held them steady amid
concerns over persistently low inflation.
Signs of slow improvements in the US economy came in data published on Friday
(26.8.16). Although the growth rate of second quarter GDP was revised down slightly,
from an annual rate of 1.2% to 1.1%, consumer spending - which makes up more than
two-thirds of US economic activity - was revised up from 4.2% to 4.4%.
Separately, US Labor Department figures showed that claims for state unemployment
benefits slipped 1,000 to a seasonally adjusted 261,000 for the week ended 20
August. It was the third straight weekly decline in claims.
Commerce Department data showed that US new homes sales jumped in July to their
fastest rate in nearly nine years. Source: BBC

18. 18< Research & Development Unit >
U.S. trade deals in doubt
France demands an end to TTIP talks
France cast serious doubt on the prospects of an EU free
trade deal with the United States, adding to opposition
within Germany and growing scepticism among Americans.
− Washington and Brussels are officially committed to sealing
the Transatlantic Trade and Investment Partnership (TTIP)
before U.S. President Barack Obama leaves office in January,
but their chances of doing so are being eroded by
approaching elections on both sides of the Atlantic and
Britain's vote in June to leave the European Union.
− In the United States, Obama has promoted the accord, saying
it would fuel growth. But the public mood is turning
increasingly negative, with Republican presidential candidate
Donald Trump making attacks on international trade deals a
cornerstone of his campaign, saying they have cost U.S. jobs.
− His opponent, Democratic nominee Hillary Clinton, has also
stepped back from her previous support for free trade when
she was U.S. Secretary of State, and has questioned whether
trade deals hold down U.S. wages.
Pacific trade pact remains top
issue for Obama administration
Trans-Pacific Partnership (TPP) is the economic pillar of
Obama's broader plan to shift U.S. foreign policy toward
Asia and counter the rising economic and military might
of China.
The agreement's fate remains uncertain as both
Republican Donald Trump and Democrat Hillary Clinton
have said they oppose the TPP, citing past trade deals
that have cost Americans jobs.
Source: Reuters

19. 19< Research & Development Unit >
China's economic slowdown deepens
− Fresh economic data from China has added to a
raft of indicators suggesting the world's second
largest economy remains in the doldrums.
− Both industrial output and retail sales fell short
of expectations for the month of July.
− The figures underline China's difficulty of
transforming the economy away from factories
and exports.
− The data come just as economic growth had ever so slightly improved in the
second quarter.
− China's latest trade data had also pointed to a further slowdown.
Source: Reuters

20. 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 >