Sri Lanka's Central Bank has decided to keep interest rates steady at 8.50% and 9.50% for the Standing Deposit Facility Rate and the Standing Lending Facility Rate, respectively [6c36f28c]. This decision comes as Sri Lanka aims to manage inflation pressures and promote economic stability following a severe financial crisis. The country's key annual inflation rate was at 1.5% in April, down from 6.4% at the beginning of the year. The Central Bank mentioned that there is room for market lending interest rates to decrease further and urged lenders to pass on the benefits of lower rates to borrowers [6c36f28c].
Sri Lanka's economy is expected to grow by 3% in 2024 after securing a $2.9 billion lending program from the International Monetary Fund (IMF) in March. The country is currently facing a June deadline to reach agreements with its bilateral creditors and bondholders to renegotiate its foreign debt and receive a third tranche of $337 million from the IMF [6c36f28c].
In addition to managing inflation and promoting economic stability, the Central Bank of Sri Lanka has released its Economic Analysis for the year 2023, titled Central Bank of Sri Lanka Annual Economic Review. The report provides insights into the country's economic performance, including output, income, price level, Balance of Payments, employment, and investment [1bb548a5].
In 2022, Sri Lanka experienced a significant economic downturn, with the economy shrinking by 7.3%. The agriculture and industry sectors collapsed, tourism declined, and the banking system was shaken. The country faced mass protests, social unrest, and a severe economic crisis. However, there are signs of improvement, with a growth forecast of 3% in 2024, single-digit inflation, and a positive Balance of Payments. The government's daily income is Rs. 8,420 million, while the daily recurring expenditure is Rs. 14,670 million, resulting in a deficit of Rs. 6,250 million. Fiscal discipline is crucial to reduce the budget gap [1bb548a5].
The Central Bank's report provides essential data and guidance for policymakers, politicians, and the general public to understand the country's economic situation and necessary reforms. The bank's main objective is to maintain domestic price stability and financial system stability, rather than making a profit. It intervenes in the exchange rate market when necessary and has implemented policies to control inflation and stabilize the economy. The government's efforts, along with support from the International Monetary Fund (IMF), have contributed to stabilizing the economy. However, there is still a need for continued action and fiscal discipline to address the budget deficit and promote economic development [1bb548a5].
Sri Lanka's commercial banks have repaid debt or collected $1.49 billion up to August 2023, reducing domestic credit. The net foreign assets of commercial banks increased to $1.07 billion by the end of August [c85b7039]. Sri Lanka ran a marginal current account surplus in the last quarter of 2022 and a $644 million surplus in the first quarter of 2023. Analysts warned that misunderstandings about the balance of payments would lead to a debt crisis [c85b7039].
The agriculture sector in Sri Lanka is actively developing solutions for climate change and its impact. The sector recognizes the need to adapt to global climate change [c85b7039].
Profits at Sri Lanka's Indian Oil Corporation unit fell 60% in the September 2023 quarter [c85b7039].
Sri Lanka and the United States have planned joint naval exercises for 2024. The Indian Ocean is becoming a focal point of strategic competition and power politics [c85b7039].
Sri Lanka's central bank recorded a loss of 234 billion rupees in September 2023 due to a domestic debt restructuring. However, the bank still holds profits from currency gains and interest earnings made throughout the year. The central bank converted 335 billion rupees in provisional advances to interest-bearing securities, increasing the government's interest bill. The bank's government securities and provisional advances decreased from 2,880 billion rupees in August to 2,590 billion rupees in September after the debt restructure. The central bank is still sitting on 410 billion rupees of profits for the year. In other news, former cricket captain Arjuna Ranatunga has been appointed to head an interim committee to run Sri Lanka cricket. China has sought approval from Sri Lankan authorities for another research ship to arrive in early 2024, but approval has not yet been granted. Private credit in Sri Lanka grew for the fourth consecutive month in September 2023, while credit to the government contracted after the domestic debt restructure [db78b270].
Sri Lanka's government has set a budget deficit target of 2.85 trillion rupees in 2024, higher than the revised 2.4 trillion rupees in the current year. The deficit would stand at 9.1% of GDP next year compared with 8.5% in 2023. Sri Lanka's economy is showing signs of recovery with the help of a $2.9 billion bailout from the International Monetary Fund (IMF), which has warned of revenue shortfalls and supported a 12% deficit under its four-year program. The Sri Lankan Budget 2024, recently announced, aims to address the challenges faced by the country, including a debt crisis, inflation, and broken supply chains. The budget focuses on welfare measures and proposes an increase in public sector salaries, pensions, and subsidies. However, the economy is still in crisis, and more borrowing is necessary to implement the budget. Bank recapitalization is also needed to address the circular debt issue of state-owned enterprises. The budget aims to improve fiscal management and broaden the tax base to address tax evasion and corruption. Bold steps are needed to achieve a balanced budget in the future [909ab253].
People’s Bank, one of Sri Lanka's leading banks, has faced significant challenges in recent years, including the Covid-19 pandemic and economic crisis. CEO Clive Fonseka highlighted the bank’s journey through Sri Lanka’s worst economic crisis in history. The bank successfully navigated these challenges and ended 2023 with a total operating income of Rs.96.8 billion and pre-tax profit of Rs.19.3 billion. The bank aims to reduce its exposure to state-owned enterprises (SOEs) from 54% to 32% by Q1 2025. The bank is focused on transforming its lending focus from SOEs to the private sector and improving customer services. Stricter rules on credit risk and restrictions on individual borrowers are being rolled out, which the bank supports. People’s Bank has a positive outlook for 2024, with a focus on aggressive growth in the private sector. The bank aims to manage the restructuring of SOEs effectively. People’s Bank assures its customers of its commitment to support them and offers stability, reliability, and a range of products and services [f2381d07].