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News Bulletin - March 2013

News Bulletin - March 2013

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Published by Roshaan Ranasinghe
Our latest monthly news bulletin provides an overview of the key economic, business and consumer events that took place in Sri Lanka in March 2013.
Our latest monthly news bulletin provides an overview of the key economic, business and consumer events that took place in Sri Lanka in March 2013.

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Categories:Types, Business/Law
Published by: Roshaan Ranasinghe on Apr 01, 2013
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12/08/2013

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In Economic news:In Business news:In Consumer news:
 Tourist arrivals increase 13.4% YoY in Jan with signicant growth rom UK as Sri Lankalooks to boost Chinese tourist arrivals Tea exports continue to decline on persistent unrest in the Middle Eastern markets.Motor vehicle registrations tumble 44.9% YoY as recent uel hike urther aects theindustryMattala International Airport opensCommercial banks increase net interest margins and expand operations to underpenetrated areasLMD-Nielsen Business Condence Index drops 18 pointsDialog expands to mobile phone devicesoering two own brand smartphones atcompetitive pricesAgreement on halal certication reachedby Ceylon Chamber o Commerce andclergyNielsen Consumer Condence Indexremains steady at 68 (+1 point MoM).
Monthly Bulletin: March 2013
Sri Lanka’s economy grows 6.4% in 2012 rom an expanding industrial sectorosetting sluggish service and agriculture sectors. GDP per agriculture sectorworker underperorms national average.Standard Chartered lowers Sri Lanka’s 2013 GDP growth to 6.7%.Moody’s concerns over lack o new unding and slower growth aectingexternal nances.CEB to raise electricity taris and considers non-renewal o external powerpurchase agreements to curtail lossesSri Lanka to shun global lending agencies, seeks unding rom bilateralagreements with
“riendly countries” 
Ination in Mar 13 drops to 7.5% YoY (-230bps MoM) on lower ood prices. The rupee ended at 125.31/128.47 vs. the USD (rupee stronger ~0.4%MoM, +0.2% YTD).All Share Price Index closes at 5,735.68, +1.8% MoM, +1.6% YoY. Pro. DissaBandara resigns rom SEC, its ourth high prole exit in recent years.Flurry o debentures hit the market as companies take advantage o withdrawalo withholding tax.UN-ESCAP classies Sri Lanka as “less indebted” in ve out o its six externaldebt vulnerability indicators.
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In Economic news:
Sri Lanka’s economy grows 6.4% in 2012.
Department o Census and Statistics recorded Sri Lanka’s 2012 GDP growth at 6.4% YoY (8.3%in 2011). In 2012, industrial sector (~30% o GDP) comprising mainly o textilesand garments, construction and manuacturing grew 10.3% YoY in-line with2011. Whereas services sector (~59% o GDP) o trade, tourism, transport, nancialservices etc. grew only 4.6% YoY(8.6% in 2011) mainly due to lower import trade.Agriculture sector grew 5.1% YoY (1.5% in 2011) but its contribution to GDPcontinued to decline and now is only 11.1% o GDP. Worryingly this sector’scontribution in 4Q12 dropped to 8.8%, an all-time low. Despite severalgovernment incentive schemes such as ertiliser subsidies (Rs.60bn in 2012 orpaddy), guaranteed prices or selected crops, low interest loans etc., agriculturalsector struggles to make a higher contribution to the economy. The governmentcontinues to oer substantial support as the sector employs about 31% o thecountry’s workorce.
Monthly Bulletin: March 2013
Lack o new unding and slowergrowth to aect Sri Lanka.
 
Moody’s
Investors Service, an international rating agency viewthe lack o a program with the International MonetaryFund (IMF) and slower growth to aect externalnances. Moody’ states
“Although the government will likely continue to make gradual progress in reducing itsdefcit, the debt burden will remain high,” “The absence o a new unding program is credit negative rom the perspectives o external payments and growth”.
In Feb 13, Sri Lankadecided against seeking unds rom the IMF, as it was not willing to give moneydirectly or government spending stating “the country is not deemed to require anyexceptional nancial support rom the IMF”.Moody’s acknowledging progress since the end o the civil war in 2009, however notedthat a ollow-up unding program would have increased external reserves, bolsteredinvestor condence and supported balance o payments. Additionally, Moody’sregarded Sri Lanka’s External Vulnerability Indicator (oreign reserves/short term debt)to be high at 124% in 2013 (down rom 132% in 2012). Moody’s rates Sri Lanka a “B1”speculative rating with a ‘Positive” outlook.
Sri Lanka to shun global lending agencies.
CentralBank o Sri Lanka (CBSL), Governor, Mr. Ajith Cabraal stated that Sri Lankawould not seek unds rom World Bank, IMF and Asian Development Bank as the country is categorised as a middle income nation. This classicationmeans Sri Lanka does not receive loans at concessionary interest rates. Mr.Cabraal opines that unding would transpire through bilateral agreementswith
“riendly countries”.
Source:
CBSL
Source:
CBSL, Department o Census and Statistics
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In Economic news:
Standard Chartered lowers Sri Lanka’s 2013 GDP growth to 6.7%.
Standard CharteredBank o Sri Lanka (SCB) lowered its orecast or the country’s 2013 GDP growth to 6.7% rom 7.5%. SCB expects a
“slower than expected recovery” 
due to a) increased need or scal consolidation b) higher ination limiting room or near termpolicy easing and c) slow recovery in EU and US (Sri Lanka’s main trading partners). SCB also remains concerned o CBSL’s 2013 budget decit o 5.8% o GDP, as it believes this to be challenged by debt repayments and lower taxrevenue.
S&P confrms B+ sovereign rating or Sri Lanka.
Standard and Poor’s Ratings Services (S&P)afrmed its ‘B+’ sovereign rating or Sri Lanka with a ‘stable’ outlook. However S&P warned against weak external liquidity(gross external reserves at three months o current account payments), scal weaknesses and state institutions lackingtransparency and independence. On a positive note S&P supported its ratings by country’s strong growth prospectsand single digit ination.
CEB in tari hike to coverlosses.
 The Ceylon Electricity Board(CEB) proposes to raise electricity taristo cover mounting losses rom high costo thermal power generation. The brunto the tari increase would be elt by 0-120 unit domestic users andmost industrial users whilst high volume domestic users and places o religious worship are less aected. Losses at CEB were Rs.65bn in 2012(~+37% in 2011). Without proposed tari hikes CEB is projected to lose acrushing Rs.94bn in 2013. The revised taris were orwarded to the Public Utilities Commission o SriLanka (PUCSL), who in turn requested the general public to submit theirthoughts on the proposed hikes. The move is widely seen as a publicitystunt as PUCSL has no choice but to rubber stamp proposed hikes.Previously, the IMF laid down conditions as part its $2.6bn SBA acilitygranted to Sri Lanka that CEB and CPC must be restructured and subsidiesreduced.In addition to tari hikes CEB is also exploring the introduction o anautomatic tari adjustment based on market indicators to the benet o consumer and the institutions. However this would take about three toour years to implement.
Monthly Bulletin: March 2013
Another strategy beingmulled to reduce CEBlosses is the non-renewalo its power purchaseagreements with theIndependent PowerProducers (IPPs). IPPscurrently numbering 11are engaged in thermalpower generationusing urnace oil anddiesel, which CEB purchases at a high cost. Expansion o coal and mini-hydro power plants and somewhat avourable weather conditions areconsidered to be reasons or considering non-renewal. I conrmedlarge IPPs such as Hemas Power and Aitken Spence, each supplying over100MW are likely to be most aected.Further, learning rom bitter past experience the government is keento bring CEB and CPC losses to manageable levels. In 2011 its ailure toraise electricity taris, nancing CEB losses through cheap bank credit(as interest rates were not adjusted) led to a balance o payment crisis(country’s cash outows exceeding inows). To rectiy the situation interestrates were raised, import taxes hiked and the Rupee was depreciated vs.USD to 134 rom about 110, pushing ination higher.
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