Sri Lanka Economic Update-December 2017

SNAPSHOT

 

Sri Lankan Economy

 

Growth: Sri Lanka’s economy grew 3.3% in Q3 of 2017, a decline from the growth of 4% in Q2 of 2017. While the services and industrial sectors recorded an expansion, the agriculture sector recorded a decline. The unfavorable weather conditions that prevailed during this period was the main reason for this weak performance.

 

IMF EFF Arrangement: The IMF disbursed US$ 251mn with the completion of the third review under the Extended Fund Facility (EFF) arrangement. As per the IMF, Sri Lanka’s performance under the EFF program has remained broadly on track.

 

FDI: According to the Board of Investment, FDI inflows were USD 796mn during the first nine months of 2017, which is 80% higher than the same period last year and has already exceeded the inflows recorded during 2016. FDI inflows have been led by China (including Hong Kong) accounting for 35% of the FDI Inflows while inflows from India were 16%.

 

Foreign Holdings: The local government securities held by foreigners increased by Rs 13bn during the first two weeks of December 2017. For the year so far, foreign holdings are up by Rs 62bn.

 

Reserves: Sri Lanka’s gross official reserves declined to US$ 7.3bn in November 2017 from US$ 7.5bn in October 2017. However, reserves are up by US$ 1.3bn so far in 2017 compared to the 

end of 2016 aided in part by the purchase of foreign exchange by the Central Bank of Sri Lanka from commercial banks.

Ratings: Moody’s Investor Services retained the sovereign rating at B1 while maintaining the negative outlook citing high government liquidity and external vulnerability risks.

Inflation: Headline inflation as per the Colombo Consumer Price Index (CCPI) eased to 7.6% Year-on-Year (Y-o-Y) in November from a record high of 7.8% in the previous month. However, core inflation continued to decline on a Y-o-Y basis to 5.2% from 5.8% recorded in October 2017.

 

Global Economy

 

Global Growth: The Asian Development Bank in their latest Asian Development Outlook report marginally upgraded the growth outlook for developing Asia for 2017 to 6% from 5.9% driven by stronger exports and domestic consumption. Growth expectation for 2018 was held at 5.8%, similar to the last update.

 

Global Oil Prices: The OPEC Reference Basket rose near 10% to USD 60.74 per barrel in November. Oil prices edged up further in December with it rising towards US$ 64 per barrel by Tuesday 19th December. This was due to a North Sea pipeline outage, OPEC-led supply cuts and expectations of further declines in US crude inventories.

 

US:

 

Fed Rates: The Federal Reserve raised interest rates as expected for the third time in 2017 during their last meeting for the year, referencing to an improving economy and labour market. Three more hikes are projected in 2018 according to the US Federal Reserve.

 

Industrial Production: The industrial production of US rose 0.2% in November compared to an expected 0.3% increase due to a rebound in extracting oil and natural gas after a stoppage due to Hurricane Nate. During the last 12 months, total industrial production of the US has increased by 3.4%.

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