By: Staff Writer

October 01, Colombo (LNW): Sri Lanka’s external sector exhibited a positive trajectory in August 2024, marked by significant inflows from workers’ remittances and increased exports, despite a dip in tourist earnings compared to the previous month, according to the Central Bank’s report. However, the merchandise trade deficit expanded year-on-year (YoY) when compared to August 2023 but showed improvement relative to July 2024.

Key Developments in the Services Sector and Workers’ Remittances

Services sector inflows, excluding tourist earnings, reached USD 327 million in August 2024, up from USD 306 million in August 2023. Workers’ remittances provided a robust boost, totaling USD 4,288 million during the period from January to August 2024, compared to USD 3,863 million in the same timeframe in 2023. This continued growth highlights the resilience of remittances as a key source of foreign exchange for the country.

Tourist Earnings Slow Down, But Still Strong Overall

Although there was a slowdown in tourist earnings in August 2024 compared to the previous month, the sector still performed well. Tourist earnings for the first eight months of 2024 amounted to USD 2,167 million, a significant rise compared to the USD 1,304 million recorded in the corresponding period in 2023. This increase reflects the recovery of the tourism industry despite short-term fluctuations.

Trade Deficit Worsens Year-on-Year

The merchandise trade deficit expanded to USD 430 million in August 2024, compared to USD 307 million in August 2023. The widening of the trade gap was driven by a substantial increase in import expenditures. However, the deficit narrowed when compared to July 2024. Cumulatively, the trade deficit from January to August 2024 reached USD 3,573 million, higher than the USD 2,964 million recorded during the same period in 2023.

Export Performance: A Bright Spot

Earnings from merchandise exports rose by 9.5% YoY to USD 1,224 million in August 2024, marking the highest monthly earnings so far in 2024. Industrial exports, particularly textiles and garments, led this growth, with textiles alone bringing in USD 512 million, the highest since August 2022. Petroleum products and rubber goods also saw significant gains. Agricultural exports were bolstered by tea and coconut-related products, although minor agricultural exports declined. Mineral exports also contributed to the positive export performance.

Import Expenditures Surge

Merchandise import expenditures grew by 16.0% YoY to USD 1,654 million in August 2024, driven by an increase in intermediate and consumer goods imports. Higher imports of textiles, wheat, and chemical products were key contributors, along with a rise in the volume of refined petroleum imports. In contrast, investment goods imports fell, particularly in machinery and equipment.

Conclusion: Mixed Trends Amid Economic Recovery

Overall, Sri Lanka’s external sector continues to recover with strong export growth and remittances, although the expanding trade deficit and volatile tourist earnings pose challenges. Despite these headwinds, the country’s foreign reserves stood at USD 6 billion at the end of August 2024, reflecting a stable external position.

By: Staff Writer

October 01, Colombo (LNW): Sri Lanka’s central bank has reported a 0.1% deflation in the past 12 months, largely attributed to its deflationary monetary policies and a focus on currency stability.

The Colombo Consumer Price Index (CCPI), a key indicator of inflation, has been in decline since March 2024, except for a brief rise in June due to excess liquidity from dollar purchases.

This deflation marks a significant shift from the high inflation rates that had plagued the country in recent years.

The central bank’s efforts to stabilize the currency began in March 2023, when it lifted a surrender rule that had contributed to a currency collapse during a failed float in 2022.

This move allowed the Sri Lankan rupee to appreciate, driving down prices of traded goods and food, even as service costs increased to compensate for the earlier currency depreciation.

 Since then, inflation has remained low, with almost no inflation recorded for the 24 months leading up to September 2024.

Sri Lanka’s inflation challenges are often attributed to the central bank’s lack of a credible anchor, compounded by International Monetary Fund (IMF) advice that critics argue is based on faulty economic doctrines.

Despite these critiques, former State Finance Minister Shehan Semasinghe defended the previous government’s economic reforms, highlighting the significant progress in stabilizing the economy. He noted that when the government took office in 2022, inflation was as high as 70%, with food inflation peaking at 95%.

As of September 2024, Sri Lanka had achieved 0.5% deflation, a dramatic improvement from previous inflation rates. Food inflation also declined, turning to -0.3%, while non-food inflation dropped to -0.5%.

These figures, according to Semasinghe, demonstrate the effectiveness of the government’s policies in controlling inflation and stabilizing the economy.

However, despite these improvements, the foremer President Ranil Wickremesinghe administration lost power after the recent presidential election.

Marxist leader Anura Kumara Dissanayake won the presidency after campaigning against economic reforms implemented by the previous government, including high taxes and the restructuring of state-owned enterprises.

Wickremesinghe’s policies, heavily influenced by the IMF, were seen as unpopular among voters, leading to his defeat in the election. Despite this setback, Wickremesinghe’s coalition, including Semasinghe, is looking to make a comeback in the upcoming November general elections.

Sri Lanka’s economy had been in turmoil since its default in 2022, a result of years of flawed monetary policies aimed at output targeting and flexible inflation targeting without a clean float.

Despite the central bank’s efforts, analysts warn that the current IMF-supported framework could be problematic if inflationary policies resume when private credit recovers. Critics also point to the central bank’s plan to operate a single policy rate, which they believe could harm the poor and lead to further currency crises. In the 24 months leading to September 2024, the central bank has managed to keep inflation at just 0.84%, according to the CCPI. However, analysts remain cautious, warning that the economy could collapse if inflationary policies return.

By: Isuru Parakrama

October 01, Colombo (LNW): The Sri Lankan Rupee (LKR) has appreciated further against the US Dollar today (01) in comparison to yesterday (30), as per the official exchange rates released by the Central Bank of Sri Lanka (CBSL).

Accordingly, the buying price of the US Dollar has dropped to to Rs. 292 from Rs. 293.50, and the selling price to Rs. 301.05 from Rs. 302.56.

The Sri Lankan Rupee also appreciated against other foreign currencies, including Gulf currencies.

By: Isuru Parakrama

October 01, Colombo (LNW): Sri Lanka’s export performance in August 2024 saw notable growth, with merchandise exports rising by 4.18 per cent year-on-year, reaching $1,165.4 million, according to provisional data from Sri Lanka Customs.

This increase was driven by key sectors such as apparel, textiles, tea, rubber-based products, coconut products, and spices. The strong performance was complemented by a 3.1 per cent rise compared to July 2024, showcasing consistent upward momentum.

In addition to merchandise, the services sector performed strongly, with estimated export earnings for August reaching $318.77 million, a 6.49 per cent increase from the same period in 2023.

Overall, combined merchandise and services exports for August 2024 totalled $1,483.13 million, reflecting a 4.67 per cent growth from the previous year.

Tea exports played a crucial role, contributing 12 per cent of merchandise exports. Earnings from tea increased by 9.11 per cent year-on-year to $130.54 million, bolstered by strong sales of bulk tea and tea packets, with notable market growth in Iraq and Iran, where exports surged by 13.35 per cent and 114.41 per cent, respectively.

Rubber and rubber-finished products saw significant growth, with a 29.48 per cent year-on-year increase, bringing in $103.79 million in August.

Coconut-based products also showed remarkable performance, with export earnings rising by 38.3 per cent.

Additionally, activated carbon, derived from coconut shells, saw an impressive 27.93 per cent increase, generating $13.74 million.

Spices and concentrates continued their steady climb, growing by 8.55 per cent in August, with pepper exports experiencing a substantial 31.56 per cent surge.

The country’s ICT sector also saw a considerable boost, with export earnings estimated to have risen by 35.76% to $146.26 million.

For the first eight months of 2024, cumulative merchandise exports increased by 5.37 per cent to $8,440.02 million. Services exports for the same period are expected to have grown by 7.58 per cent to $2,246.77 million, bringing the total combined exports to $10,686.79 million, a 5.82 per cent rise compared to 2023.

The growth in key export sectors has been consistent throughout 2024. Apparel exports rose by 1.28 per cent, tea by 8.26 per cent, rubber products by 11.52 per cent, coconut products by 20.85 per cent, and spices by 3.56 per cent in the first eight months of the year.

Meanwhile, ICT exports are expected to have grown by 17.04 per cent during this period.

However, not all sectors witnessed positive trends. Earnings from electrical and electronic components (EEC) decreased by 16.42 per cent to $282.37 million, reflecting challenges within this sector.

Sri Lanka’s major export markets, including the US, UK, India, Germany, and China, showed positive growth. Exports to India rose by 4.57 per cent in August, driven by higher shipments of pepper and animal feed.

Exports to India and Pakistan collectively accounted for 8.4 per cent of total merchandise exports during this period, highlighting the region’s growing importance to Sri Lanka’s trade landscape.

October 01, Colombo (LNW): In a significant milestone for Sri Lanka’s financial sector, DFCC Bank launched its first Green Bonds on the Colombo Stock Exchange (CSE), marking a major step towards addressing environmental challenges through sustainable finance.

This move allows investors to contribute to the fight against climate change while seeking financial returns, creating a mutually beneficial scenario for both the environment and the market.

Takafumi Kadono, Country Director for Sri Lanka at the Asian Development Bank (ADB), stressed the importance of green financing, highlighting its potential to save significant costs associated with post-disaster recovery.

He pointed out that natural disasters, such as floods, inflict heavy losses on the agricultural sector and other industries, with Sri Lanka spending approximately USD 313 million annually on climate-related disaster mitigation.

Kadono underscored the necessity for businesses to invest in projects that can prevent such climate-induced damage, opening new avenues for corporate investment.

Chairman of the CSE, Dilshan Wijesekera, lauded DFCC Bank for its leadership in entering the green finance space, describing it as a bold move that signals the nation’s commitment to environmental sustainability. He remarked,

“Today, we are not just ringing the bell for a new financial product, we are taking a decisive step towards a greener nation.”

DFCC’s green bond issuance was met with overwhelming investor interest, being oversubscribed, reflecting a strong demand for sustainable and environmentally friendly investment options.

Wijesekera added that the CSE offers numerous fundraising avenues and expressed his optimism that more companies will follow DFCC’s example in exploring green finance initiatives.

On a global scale, sustainable bond issuance surpassed a trillion dollars in 2023, driven by record green bond sales. Sri Lanka’s entry into this growing market aligns it with international efforts to combat climate change and promote environmental responsibility.

The move represents an invaluable opportunity to attract responsible investments that not only enhance the resilience of the capital market but also encourage businesses to innovate and adopt eco-friendly practices.

DFCC Chairman, Jegan Durairatnam, noted that the bank has a long history of introducing pioneering financial solutions, with green bonds being the latest in its line of innovative offerings.

He stressed that the bank’s efforts to promote this product included one-on-one meetings with potential issuers, organising forums and technical workshops, and collaborating with international agencies such as the ADB, IFC, UNDP, and the French Embassy.