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1
The Monetary Law Act sets out the Powers, Purposes and Responsibilities of the Central Bank…
2
• The Central Bank has to deliver:
– Economic and Price Stability; and
– Financial System Stability…
with a view to encouraging and promoting the development of the productive resources of Sri Lanka
• Administer, supervise and regulate the monetary, financial and payments system of Sri Lanka
The Central Bank performs other key functions as well…
3
• Manages the Public Debt: Rs. 6,806 billion • Supervises and Regulates the Banks, Finance Companies,
Leasing Companies and Primary Dealers: Rs 6,873 billion
• Manages the Employees’ Provident Fund: Rs. 1,300 billion • Manages the Foreign Reserves of the country:
US$ 7.5 billion (Rs. 980 billion)
• Issues and Manages Currency: Rs. 340 billion
• Facilitates transactions amounting to Rs. 62,773 billion • Facilitates Regional Development
• Carries out Financial Intelligence
• Manages and Regulates Foreign Exchange
48
148
13
87
289
61
Staff Qualification Structure - 2013
Postgraduate, First Degree& Professional Qualification
Postgraduate & First Degree
Postgraduate & ProfessionalQualification
First Degree & ProfessionalQualification
First Degree
Professional Qualification
The Central Bank has a talented, well educated and highly trained human resource pool to perform all these functions…
High Level Academic Opportunities provided
from 2000 to 2013
No. of Opportunities
2000 to
2005
2006 to
2013 PhD 1 22
Masters 32 84
Total 33 106
Total: 646
4
“It would be a mistake to expect startling results immediately from the establishment of the Central Bank. There is no financial wizardry by which the Bank can suddenly pull out of a hat a higher standard of living for everybody. The Bank’s contribution must necessarily be a long-run contribution. The Bank does not itself produce goods and services, but it should, by creating the right monetary conditions enable the country [to do so].”
The words of John Exter, the First Governor of the Central Bank on the day of its establishment are still relevant…
5
an evaluation of the Central Bank’s historical and near term performance could be useful…
years later,
6
By maintaining single digit inflation over the past 5 years, the Central Bank has been able to give a new meaning to price stability…
• Current inflation is below 4.5%, and inflation is expected to remain in mid-single digits for the rest of the year
• Average inflation has been in double digits in the post liberalisation period
Average Inflation
6.0% For last 62
months
62 months
7
-5
0
5
10
15
20
25
30
35
Jan
-78
Ap
r-7
9
Jul-
80
Oct
-81
Jan
-83
Ap
r-8
4
Jul-
85
Oct
-86
Jan
-88
Ap
r-8
9
Jul-
90
Oct
-91
Jan
-93
Ap
r-9
4
Jul-
95
Oct
-96
Jan
-98
Ap
r-9
9
Jul-
00
Oct
-01
Jan
-03
Ap
r-0
4
Jul-
05
Oct
-06
Jan
-08
Ap
r-0
9
Jul-
10
Oct
-11
Jan
-13
Pe
r ce
nt
Year-on-year Inflation (Based on CCPI, Spliced)
The ability to maintain inflation at single digits for over five years has been supported by both demand and supply side improvements…
Demand side • Prudent monetary
management • Continued fiscal
consolidation
Supply side • Higher domestic
food supplies • Improved
infrastructure • Greater
connectivity • Relatively stable
exchange rate
Favourable Inflation
Expectations
Subdued wage
pressures
Continued
low inflation
8
A new meaning to economic stability has also been given by recording an average annual economic growth of 7.5 per cent in the post-conflict period…
Average Growth
7.5% for past 4
years
9
1951-1977 1978-2005
2006-2013 3.7%
4.8%
6.7%
Average Annual Real GDP Growth
-2
0
2
4
6
8
10
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
Pe
r ce
nt
Real GDP Growth Rate
GDP (US$)
24 bn in 2005
67 bn in 2013
45
.0
37
.8
28
.3
27
.6
26
.3
19
.9
11
.8
10
.8
19
.1
16
.8
23
.8 2
9.6
26
.0
27
.3
30
.2
32
.5 35
.9
45
.4
47
.9
42
.8 4
7.7
52
.8 5
8.0
56
.8
0
10
20
30
40
50
60
70
1950 1960 1970 1980 1990 2000 2005 2013
Sectoral Share of GDP (at Current Factor Cost Prices)
Agriculture Industry Services
In that growth model, the relative importance of the Industry Sector has been increasing, while the Services sector has remained strong…
10
Per Capita GDP (US$)
1,241 in 2005
3,280 in 2013
1,2
41
3,2
80
0
500
1,000
1,500
2,000
2,500
3,000
3,500
19
59
19
60
19
61
19
62
19
63
19
64
19
65
19
66
19
67
19
68
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
US$
GDP Per Capita
The Per Capita GDP has risen significantly over the past few years…
11
Average Annual Increase in Per Capita GDP 1978-2005
Average Annual Increase in Per Capita GDP 2006-2013
5.8%
13.1%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
19
63
19
73
19
82
19
93
20
03
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Pe
r ce
nt
Unemployment Rate
Total Male Female
The unemployment rate, which is a key factor in determining economic stability, has moderated and stabilised below 5% over the past 4 years…
Unemployment
4.4% In 2013
12
2005: Exports US$ mn 6,347 Imports US$ mn 8,863
-15
-10
-5
0
5
10
15
20
25
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
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96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
US$
bn
Merchandise Exports and Imports
Exports
Imports
Trade Balance
Increased merchandise exports and imports over the past 8 years reflect the country’s growing economic activity and increased openness…
2013
Exports US$ mn
10,394 Imports US$ mn
18,003
13
0
1
2
3
4
5
19
78
19
83
19
88
19
93
19
98
20
03
20
08
20
13
US$
bill
ion
Service Exports
The importance of services exports has also been rising while workers’ remittances have increased significantly…
0
1
2
3
4
5
6
7
19
78
19
83
19
88
19
93
19
98
20
03
20
08
20
13
US$
bill
ion
Inward Workers' Remittances
2013 Service Exports
US$ mn
4,685
14
2005:US$ mn 1,540 2005: US$ mn 1,968
2013 Workers’
Remittances US$ mn
6,407
-20
-15
-10
-5
0
5
10
19
50
19
51
19
52
19
53
19
54
19
55
19
56
19
57
19
58
19
59
19
60
19
61
19
62
19
63
19
64
19
65
19
66
19
67
19
68
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Pe
r ce
nt
Current Account (as a % of GDP)
The external current account has been improving while allowing greater trade openness…
Current Account Deficit
3.9% of GDP
15
0
200
400
600
800
1,000
1,200
1,400
1,600
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
US$
mill
ion
Foreign Direct Investment (Gross)
Foreign Direct Investments have increased to over US$ 1 bn annually, from negligible levels…
2013 FDI Inflows
US$ mn
1,421
16
Average FDI Inflows 1978-2005 US$ mn
Average FDI Inflows 2006-2013 US$ mn
101.1 901.6
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
US$
mn
Overall Balance
Balance of Payments is now in positive territory on a consistent basis…
BOP Surplus US$ mn
985.4
17
0
1
2
3
4
5
6
7
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
Mo
nth
s o
f Im
po
rts
Gross Official Reserves (in Months of Imports)
0
1
2
3
4
5
6
7
8
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
US$
bn
Gross Official Reserves (in US$ bn)
Gross Official Reserves have reached unprecedented levels and Months of Imports have also recorded comfortable levels…
Gross Official Reserves US$ bn
7.5
Months of Imports
5.0
18
Average Depreciation
from 1976-2005
9.9% from
2006-2013
3.3% -10
0
10
20
30
40
50
60
70
80
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
De
pre
ciat
ion
of
the
An
nu
al A
vera
ge E
xch
ange
Rat
e
Exchange Rate Movements
In recent times, the exchange rate has been relatively stable, thereby supporting economic and price stability…
5
19
Over the past few years, Financial Sector Indicators have moved to benign territory, thereby portraying improved financial system stability…
CBSL 12.1%
LCBs 48.7%
LSBs 8.9%
LFCs 6.3%
EPF 12.6%
Insurance Companies
3.5%
Other Contractual Savings
Institutions 3.3%
SLCs 0.6%
PDs 2.1%
Other Specialised Financial
Institutions 0.9%
Co-operative Rural Banks 0.9%
Thrift and Credit Co-operative
Societies 0.1%
Other 4.0%
2005 2013
Banking Sector 2,208 7,188 CBSL 441 1,246 LCBs 1,449 5,022 LSBs 319 919
Other Deposit Taking Financial Institutions 119 756 LFCs 88 653 Co-operative Rural Banks 27 95 Thrift and Credit Co-operative Societies 5 9
Specialised Financial Institutions 129 376 SLCs 53 65 PDs 46 214 Other Specialised Financial Institutions 30 98
Contractual Savings Institutions 694 1,998 Insurance Companies 105 360 EPF 424 1,300 Other Contractual Savings Institutions 165 338
TOTAL 3,151 10,318
Rs. bn
Total Assets of the Major Financial Institutions
20
Total Assets Rs. billion
2005
3,151 2013
10,318
The Banking Sector has made major strides since 2006…
21
Banking Business (Rs. trillion)
End 2005
Change 2005-2013
End 2013
Assets 1.8 4.1 5.9
Loans 1.0 2.4 3.4
Deposits 1.3 2.9 4.2
Investments 0.4 1.3 1.7
Key Soundness Indicators (%)
End 2005 End 2013
Capital Adequacy Ratio
13.4 16.3
Statutory Liquid Asset Ratio
31.7 37.7
Non Performing Loans Ratio
7.1 5.6
Return on Equity
16.4 16.0
Return on Assets
1.2 1.3
Key prudential policies adopted during 2006-2013 has reinforced the resilience of the banking sector…
• Improved governance framework of banks
• Improved risk management framework and capital adequacy standards
• Enhanced consumer protection
• Improved financial literacy and training
• Encouraged healthy competition and improved efficiency
• Established a Financial Safety Net in the form of a mandatory Deposit Insurance Scheme
• Improved disclosure requirements with a view of greater transparency
22
As a result, Capital Adequacy and Liquidity ratios have also reached reasonably healthy levels…
Liquidity Ratios of the Banking Sector Capital Adequacy Ratios of the Banking Sector
1,131 1,357 1,571
1,527 1,815 2,269
2,600 2,904
12.1 12.2 12.5
14.1 14.3 14.4 14.5
13.7
13.3 13.7
14.5
16.1 16.2 16.0 16.3 16.3
0
2
4
6
8
10
12
14
16
18
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2006 2007 2008 2009 2010 2011 2012 2013
Rat
io (
Pe
r ce
nt)
Am
ou
nt
(Rs.
bn
)
Risk weighted Assets (Rs.bn) Core CAR (%) Total CAR (%)
68.5 70.3 70.0
60.9 63.9
70.1 71.1
66.1
30.4 30.4 31.3
39.2 36.6
32.4 31.3
37.7
23.9 28.2 28.3
35.2
31.1
26.8 26.6
31.9
34.3
40.6 40.6
47.6
42.6
37.1 37.5
45.5
0
10
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011 2012 2013
Rat
io (
Pe
r ce
nt)
Credit to Deposits & Borrowings SLAR -DBU
Liquid Assets to Total Assets Liquid Assets to Deposits
23
NPLs have increased recently as gold backed advances were impacted by the decline in gold prices in the international market… • The narrowing of interest spreads of
banks also affected the profitability of the banking sector
• However, the banking sector is adequately capitalised to withstand any potential shocks
Non-Performing Loans of the Banking Sector Provisions for NPLs of the Banking Sector
4.4 4.4 4.4 4.6 4.6 4.2 4.1
3.5
1.2 1.1 1.1 1.0
1.8 1.7 1.7 1.3
15.2 14.0 13.4
11.8
22.0
19.8 20.3
16.0
0
5
10
15
20
25
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011 2012 2013
RO
E (P
er
cen
t)
NIM
& R
OA
(P
er
cen
t)
Interest Margin Return on Assets Return on Equity
Profitability Indicators of the Banking Sector
24
73 79 103 136 107 99 117 191
5.6 5.2
6.3
8.5
5.4
3.8 3.7
5.6
2.3 2.4
3.4
5.0
3.0 2.1 2.2
3.8
0
1
2
3
4
5
6
7
8
9
0
50
100
150
200
250
2006 2007 2008 2009 2010 2011 2012 2013
Rat
io (
Pe
r ce
nt)
Am
ou
nt
(Rs.
bn
)
Gross NPL Volume (Rs.bn) Gross NPL Ratio (%) Net NPL Ratio (%)
44.4 43.7 49.2 58.0 48.5 45.7 48.3 62.1
4.1 7.3
13.7
13.8
13.7 11.0 13.9
15.2 61.2
55.3
47.6 42.8
45.3 46.0 41.4
32.5
66.9 64.5 60.9
53.0
58.1 57.1 53.4
40.4
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
90
2006 2007 2008 2009 2010 2011 2012 2013
Rat
io (
Pe
r ce
nt)
Am
ou
nt
(Rs.
bn
)
Specific Provisions (Rs.bn) General Provisions (Rs.bn)
Specific Provisions to NPL Ratio (%) Total Provisions to NPL Ratio (%)
At the same time, banking density has almost doubled since 2005…
2005 2006 2013
LCBs
Branches 1,611 1,737 2,803
Other Outlets 1,501 1,800 2,864
LSBs
Branches 404 425 645
Other Outlets 167 175 175
Total no. of ATMs 901 1,155 2,538
Banking Density 7.6 8.7 16.8
Distribution of Bank Outlets
No. of Bank Outlets
6,487
25
ATMs
2,538 Banking Density
16.8
2013
2005 No. of
Bank Outlets
3,683
ATMs
901
Banking Density
7.6
• Strengthened risk focused regulatory and supervisory system, and action based examination procedure with the introduction of integrated risk management systems
• Increased number of on-site examinations to at least once a year
• Used the online early warning system to identify the possible risks and inform NBFI in advance to take remedial action
• Computed the rating of LFCs on a quarterly basis to assess the associated risk
• Implemented a framework of macroprudential supervision to assess group risks
• Reviewed and followed up rehabilitation processes of weak companies
• Reviewed existing prudential directions and formulated new prudential directions and guidelines
• Reviewed adequacy and effectiveness of corporate governance
• Ceased the issue of new licences to NBFIs from 2013 onwards
• Took necessary steps to further strengthen the NBFI sector through a process of consolidation
• Expedited the investigation process on unauthorised finance businesses
Significant Developments have been effected in the NBFI sector during the past five years…
26
4.2 3.8 3.3 4.6 4.1
6.9 7.6 7.4
6.6
2.9 2.6 2.1 1.5 0.4 3.2 5.9 4.2 2.1
13.9 12.1 9.7 9.7
-2.8
11.6
34.3
18.9
8.2
-10
0
10
20
30
40
2005 2006 2007 2008 2009 2010 2011 2012 2013
Pe
r ce
nt
Profitability Indicators of the LFC and SLC Sector
Net Interest Margin ROA ROE
-10
0
10
20
30
40
50
60
-100
0
100
200
300
400
500
600
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Pe
r ce
nt
Rs.
bn
Accomodations - LFCs & SLCs
Amount Growth (YoY)
0
10
20
30
40
50
-100
100
300
500
700
900
2005 2006 2007 2008 2009 2010 2011 2012 2013
Pe
r ce
nt
Rs.
bn
Total Assets - LFCs & SLCs
Amount Growth (YoY)
0
5
10
15
20
25
30
35
40
-
50
100
150
200
250
300
350
400
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Pe
r ce
nt
Rs.
bn
Total Deposits
Amount Growth (YoY)
These prudential measures taken have helped to address the possible risks, and have led to reasonably satisfactory results in the NBFI sector…
27
In the meantime, many improvements have taken place in the Payment and Settlement Systems…
• Cheque Imaging and truncating system was introduced in 2006 eliminating manual processing. As a result, the number of days for cheque clearing was reduced to one day
• Regulatory framework relating to electronic retail payment systems was strengthened in 2009 in order to promote a level playing field for retail payments while mitigating risks
Number of Days
for Cheque Clearing
1
28
Over the past few years, Sri Lanka has been steadily moving towards high level electronic payment systems…
• Service providers of payment cards and mobile payment systems are now licensed
• Sri Lanka Interbank Payment System (SLIPS) upgraded from off-line to on-line to provide same day settlement
• Electronic money systems to reduce the usage of cash implemented (eZ cash and mCash)
• Stored value card system for transport sector implemented
• Security of payment card infrastructure strengthened
• Common ATM Switch (CAS) implemented
Implemented
COMMON ATM
SWITCH
to enhance customer
convenience
Upgraded SLIPS to facilitate
SAME DAY
settlement
29
Public Debt has been managed prudently…
Debt to GDP improved
from
90.6%
in 2005 to
78.3%
in 2013
30
0
20
40
60
80
100
120
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
Pe
r ce
nt
Government Debt (as a % of GDP)
Domestic Foreign
Average Time to Maturity increased
from
2.5 years
in 2005 to
4.8 years
in 2013
64%
1%
1%
3%
3%
10%
18%
Treasury bonds Borrowing from OBUs Rupee loans Other CBSL Advances SLDBs Treasury bills
Improved Public Debt Management is reflected in numerous indicators…
31
Composition of Government Domestic Debt (December 2013) in favour of T- Bonds
Average Time to Maturity (ATM) Steady Expansion of the Yield Curve for Government Securities
-
1
2
3
4
5
6
-
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013
Ye
ars
T-bills
T-bonds
Rupee Loans
Total (Right Axis)
-
5
10
15
20
25
3M
6M
12
M 2Y
3Y
4Y
5Y
6Y
8Y
10
Y1
5Y
20
Y3
0Y
End 2005End 2008End 2013
• Domestic government securities market broadened while increasing the competition by opening it for foreigners in November 2006
• Benchmark T-bond series introduced and the yield curve developed in 2007
• Yield curve extended up to 10 years in 2009 and 30 years in 2013
• First international sovereign bond issued in 2007. Since then, ISBs were issued in 2009, 2010, 2012 and 2014 while the borrowing costs have been progressively reduced
• Steps being taken to improve to “investment grade” by 2016
• Issuance of Sri Lanka Development Bonds streamlined
• Half-yearly Treasury bond Calendar introduced
• Initiated strong standby funding arrangements
• Enhanced transparency of the debt management function since 2006 with an annual publication
Public Debt Management has been gradually improved over the years…
32
100% Accuracy
of Servicing of Public
Debt
In the meantime, many Exchange Control Regulations have been relaxed in keeping with the strengthening of the External Account… • Introduced scheme for resident companies to borrow from non-
residents under the External Commercial Borrowing Scheme (ECBS) • Introduced Foreign Exchange Earners’ Account (FEEA) by unifying
several existing foreign currency Accounts and permitted to extend accommodations in foreign currency from DBU to FEEA holders
• Introduced scheme for setting up places of business outside Sri Lanka and investments in overseas by residents through convenient ‘Outward Investment Account’ (OIA)
• Introduced scheme for residents who provide goods and services to non residents to accept foreign currency, by abolishing the requirement of acceptance permits
• Introduced Securities Investment Account (SIA) amalgamating several types of accounts for investments in Sri Lanka by non-residents
• Introduced scheme for non residents to invest in Rupee denominated debentures issued by Sri Lankan companies
33
405 472
542 627
738 867
986 1,106
1,257
0
200
400
600
800
1000
1200
1400
2005 2006 2007 2008 2009 2010 2011 2012 2013
Rs.
bn
Growth of the Investment portfolio
Government Securities Equity Investments Corporate Debentures & other
The EPF Investment Portfolio was managed prudently and expanded, resulting in the returns remaining attractive, even in the low interest rate environment…
Growth (Annual Compound)
of Investment Portfolio
2006-2013
15%
34
Asset base at end 2013
Rs. bn
1,300 0
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013
Rat
e o
f R
etu
rn (
%)
Interest Rates for Selected Investments vs. Inflation Return offered by EPF1 yr FD rate of a Major Savings BankAWDRReturn offered by a Similar Superannuation FundAnnual Average Inflation
The EPF also gradually improved its service levels in order to provide a satisfactory service to its 2.4 mn active members…
2.4 million
Active Members
35
•Re-registration project launched to assign Unique Identification Numbers to all existing members
2007
•Web based member information service introduced 2008
•e-Return System and a Direct Debit Payment Scheme for EPF payments introduced
2009 •Real time registration process for all the
new members to assign Unique Identification Numbers implemented
2010
•The asset base of the Fund surpasses Rs. 1 trillion 2011
•e-Returns and Direct Debit Payments made mandatory for all the employers who have more than 50 employees
2012
• Image Scanning Project with the aim of near paperless environment, initiated 2013
Unique Identification
Numbers assigned to
1.2 million
Members
RDD contributed to the achievement of inclusive and balanced growth, and its outreach increased by 37% from 2005 to 2013… • RDD focused on Access to finance and Awareness building
• RDD made available, affordable financing through PFIs
Credit Disbursement – Rs. bn
Sector 2005 2013
Agriculture & Animal Husbandry Sector
6.0 8.4
SMEs 4.5 5.6
Total 10.5 14.0
Credit Penetration – No. of Loans
Sector 2005
2013
Agriculture & Animal Husbandry Sector
79,124 96,751
SMEs 9,909 25,483
Total 89,033 122,234
36
The Financial Intelligence Unit (FIU) has supported the financial integrity of the country… • The FIU helps to prevent Money Laundering by enforcing the Prevention of
Money Laundering Act No.5 of 2005
• The FIU implements the Convention on the Suppression of Terrorist Financing Act
• The FIU functions as a Member of the Egmont Group of Financial Intelligence Units since 2009 for the purpose of international cooperation and exchange of information
• The FIU implements the provision of the United Nations Security Council Resolutions (UNSCRs) 1267 and 1373 in Sri Lanka with the Ministry of External Affairs and the Ministry of Defence and Urban Development
• The FIU is in the process of amending Financial Transactions Reporting Act No.6 of 2006 (FTRA) to be in line with international standards set by the Financial Action Task Force (FATF) since February 2012
37
In recognition of the FIU achievements during the past five years, the Asia Pacific Group on Money Laundering (APG) has chosen Sri Lanka to Co-chair the APG for two years commencing July 2016.
Currency in circulation
Rs.132 billion in 2005
Rs.340 billion in 2013
Recent Developments in Currency Management 38
• Introduction of Rs. 2,000 note 2006
• Installation of a new Currency Disintegrator Machine to fast track destruction of notes unfit for circulation 2007
• Currency Museum opened in Anuradhapura 2008
• Commemorative Note on ushering of peace to Sri Lanka 2009
• Currency Museum opened in Matara 2010
• 11th currency note series introduced after 20 years, with standardised sizes of notes as well as a Rs. 5,000 note for the first time
2011
• Introduction of Clean Note Policy 2012
• Installation of advanced currency note processing system with briquetting system
• Cash counting machines with counterfeit detection facility made mandatory for financial institutions
• Introduction of Rs.2 and Rs.10 coins in stainless steel
• New Economic History Museum opened in Central Point Building
2013
THESE DEVELOPMENTS & TRENDS HAVE NOW ESTABLISHED A
NEW ECONOMIC PLATFORM IN SRI LANKA.
TO BENEFIT BY THESE NEW TRENDS, A NEW MIND-SET
AND A NEW SET OF INITIATIVES ARE NOW NECESSARY IN GOING FORWARD…
39
Projected BOP Surplus for 2016
US$ bn
3.0
A medium term macroeconomic framework is envisaged to take the economy beyond US$ 4,000 per capita…
Indicator Unit 2013 Projections*
2014 2015 2016 2017
Real Sector and Inflation
Real GDP Growth % 7.3 7.8 8.2 8.3 8.4
Per Capita GDP US$ 3,280 3,718 4,243 4,825 5,485
Total Investment % of GDP 29.6 31.0 32.0 33.1 34.0
GDP Deflator % 6.7 6.0 5.5 5.0 5.0
Headline Inflation % 4.7 5.0 4.5 4.0 4.0
External Sector
Trade Balance % of GDP -11.3 -10.9 -9.0 -7.2 -5.6
Current Account Balance % of GDP -3.9 -2.5 -0.9 0.1 0.2
Overall Balance US$ mn 985 1,510 2,185 2,967 3,606
Fiscal Sector
Current Account Balance % of GDP -0.8 1.1 1.6 2.3 2.3
Overall Balance % of GDP -5.9 -5.2 -4.4 -3.8 -3.8
Government Debt % of GDP 78.3 74.3 70.6 65.0 62.0
Monetary Sector
Broad Money Growth (M2b) % 16.7 14.0 14.0 14.0 14.0
Private Sector Credit Growth (M2b)
% 7.5 14.0 15.0 15.0 15.0
40 Projected GDP per capita in
2016 US$
4,825
Projected Debt/GDP for
2016
65%
The 5+1 hub strategy has been designed to meet these challenging medium terms targets, while avoiding the Middle Income Trap…
41
However, in order to successfully realise these goals, many challenges remain in the country’s path towards prosperity… Therefore, appropriate policies need to be implemented in order to address these challenges… Some of these key challenges are briefly discussed in the Annual Report 2013…
42
Enhancing the productivity and profitability of the strategically important Agriculture sector
Issue • Agriculture sector absorbs
29% of the labour force while contributing 11% of GDP
• Low productivity raises cost of production and reduces competitiveness
Policies required to: • Modernise the sector through new
technologies
• Link the sector to global value chains
• Enhance uniformity in land use in selected areas according to inherent strengths
• Encourage better farm management practices
• Develop domestic input industries
• Develop product based agricultural export industries
43
Introducing improved insurance and credit guarantee schemes for the Agriculture sector
Issue • Due to the lack of
insurance and credit guarantee schemes, access to bank credit is limited
Policies required to: • Promote traditional and non-traditional
insurance schemes
• Develop financial risk transfer products such as weather index based insurance products
• Develop credit guarantee funds
• Encourage farmers to make informed decisions with regard to the choice of crop
44
Promoting high value added manufacturing via innovation and Research & Development
Issue • With rising incomes,
competitiveness of labour intensive industries will reduce in the future
Policies required to: • Promote knowledge based technology
incentive industries
• Diversify the industrial base into high value added products
• Train and re-train the labour force in required skills
• Promote education in engineering and technology related subjects
• Promote practical hands-on-training opportunities
• Set up industrial clusters to boost technology based industries
45
Further diversifying export products and markets
Issue • Exports structure is still
based on light manufacturing and commodities
Policies required to: • Continue to promote diversification
through the 5 hubs strategy
• Provide incentives to local companies to develop global brands
• Improve utilisation of bilateral and multilateral trade arrangements
• Conduct awareness programmes to educate exporters
• Seek geographical diversification towards new and emerging markets
46
Addressing the pressure on public utilities and infrastructure facilities as a result of increasing commercial activity Issue • Developing the country as
an internationally competitive commercial hub requires major improvements to public utilities and continuous improvement of infrastructure
Policies required to: • Develop capacity of the major public
utilities and infrastructure facilities to meet rising demand
• Improve the distribution and transmission networks of public utilities
• Reduce leakages and improve metering systems of public utilities
47
Promoting the country’s brand identity as a stand-alone strategy as well as a viable outsourcing destination Issue • The country has to be re-
branded in line with its new status as a peaceful and emerging economy
• Brand identity is essential for the development of the IT/BPO/KPO services
Policies required to: • Implement a coordinated strategy of involving
both the government agencies and the private sector to re-brand the country
• Ensure the availability of skilled manpower
• Create awareness about job opportunities in related sectors
• Continue collaboration between universities and the private sector to establish required degree programmes
• Conduct roadshows to position the country as an emerging outsourcing destination
48
Positioning the Tourism industry to meet the new and ambitious targets
Issue • A clear, market driven
strategy is required to facilitate the target of 2.5 million arrivals by 2016
Policies required to: • Strengthen training by establishing new
training schools
• Encourage staff to obtain higher certification and multi-skills
• Continue collaboration between the government and the private sector
• Continue to conduct promotional campaigns in untapped potential markets
49
Ensuring the continued strength and dynamism of the financial sector
Issue • Transaction and
information costs need to be reduced, and the entire financial sector has to be boosted on a continuous basis
Policies required to: • Promote further financial deepening
• Continue consolidation efforts to generate economies of scale
• Further diversify financial services to attract a larger pool of savings, both locally and from overseas
• Promote global competitiveness
• Promote non-inflationary sources of financing such as private equity
50
Promoting new savings and pension products
Issue • Low interest rate
environment is likely to continue in the light of low inflation
• Population is gradually ageing
• A reasonable standard of living for the aged needs to be ensured
Policies required to: • Promote alternative saving and pension
products such as annuities, superannuation schemes and pension plans
• Promote health and life insurance
51
Continuing the efforts to reduce the cost of doing business
Issue • Increasing domestic and
foreign private long term investments require further improvements to the doing business environment
Policies required to: • Engage international agencies with
regard to improving doing business ranking
• Educate potential investors in relation to the doing business environment
• Improve efficiency of the public sector institutions in service provision
• Continue labour market and legal reforms
52
Strengthening the contingency buffers to meet future global challenges
Issue • Global economic
conditions continue to be challenging
Policies required to: • Strengthen fiscal, monetary and external
sector buffers to mitigate global risks
• Maximise benefits of increasing world trade
• Reduce vulnerabilities arising from adverse capital flows
53
DEVELOPING AND IMPLEMENTING POLICIES TO ADDRESS THESE ISSUES
WILL IMPROVE OVERALL PRODUCTIVITY AND RESILIENCE
OF THE ECONOMY, AND
ENSURE SUSTAINED MACRO-ECONOMIC STABILITY
54
