PEST ANALYSIS OF SRI LANKA

Political 1. Form and type of govt.: Republic

Takes place in a framework of a presidential representative democratic republic, whereby the President of Sri Lanka is both head of state and head of government, and of a multi-party system. Executive power is exercised by the government. Legislative power is vested in both the government and parliament. Since decennia the party system is dominated by the socialist Sri Lanka Freedom Party and the conservative United National Party. The Judiciary is independent of the executive and the legislature. The Politics of Sri Lanka reflect the historical and political differences between the two main ethnic groups, the majority Sinhala and the minority Tamils, who are concentrated in the north and east of the island.2. Foreign and Trade policies

Sri Lanka opened its borders to allow free trade, dismantled price control, eliminated import tariffs and, in a broad sense, introduced an open economy.Free Trade Zones and Export Processing Zones were set up offering many concessions to foreign (and local) investors. The Board of Investment of Sri Lanka (formerly known as the Greater Colombo Economic Commission) was set up as a ‘One-Stop-Shop’ to assist foreign investors.The granting of licenses to organizations situated outside the BOI Zones, but with all BOI facilities and concessions further enhanced the investor-friendly environment.

3. FDI structure

4. Treaties

Sri Lanka maintains good relationships with both Russia and United States at the same time; showing how important Sri Lanka is to the welfare of South Asia and Indian Ocean.

Sri Lanka traditionally follows a nonaligned foreign policy; Sri Lanka now seeks to strengthen its diplomatic, economic and military ties with China, Pakistan, India, Russia, United States, Japan, Malaysia, Iran and European Union. Sri Lanka has also forged close ties with the member states of the Association of Southeast Asian Nations (ASEAN), African Union and Arab League. Sri Lanka has friendly relations with Bangladesh and Myanmar. Though Sri Lanka continues to have a traditional military relationship with Pakistan, China has emerged as Sri Lanka's largest military partner.

Sri Lanka participates in multilateral diplomacy, particularly at the United Nations, where it seeks to promote sovereignty, independence, and development in the developing world. Sri Lanka was a founding member of the Non-Aligned Movement (NAM). It also is a member of the Commonwealth, South Asian Association for Regional Cooperation (SAARC), World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB) and Colombo Plan. Sri Lanka continues its active participation in the NAM, while also stressing the importance it places on regionalism by playing a strong role in SAARC.

Economic

A) Monetary policy

One of the core objectives of the Central Bank of Sri Lanka is economic and price stability. The Central Bank formulates and implements its monetary policy, i.e. actions to influence cost and availability of money, to attain this objective. The Monetary Law Act (MLA), the legislation under which the Central Bank has been established and operates, has provided a wide range of instruments for monetary management. At present, the monetary policy framework of the country places greater reliance on market based policy instruments and the use of market forces to achieve the desired objectives.At present, monetary management in Sri Lanka is based on a monetary targeting framework. In this framework, the final target, price stability, is to be achieved by influencing changes in broad money supply which is linked to reserve money through a multiplier. Reserve money is the operating target of monetary policy. The monetary targeting framework is operated through a monetary programme. The monetary programme is prepared by the Central Bank taking into account economic factors such as the expected fiscal and balance of payments developments, economic growth, desired levels of growth in credit and inflation. Based on these factors, the monetary programme sets out the desired path for monetary growth and determines the path of quarterly reserve money targets necessary to achieve this monetary growth. The Bank would then conduct its Open Market Operations (OMO) within a corridor of interest rates formed by its policy rates i.e. the repurchase rate and the reverse repurchase rate, to achieve the reserve money target. Policy rates are periodically reviewed and adjusted appropriately, if necessary, to bring the reserve money to the targeted path.B) Trade policy

Sri Lanka began trade liberalization policies in the late 1970s, well ahead the rest of South Asia. Since then Sri Lanka has operated a unified exchange rate under a "managed float" system which became fully floated in January 2001. Sri Lanka’s trade integration, measured by the trade-GDP ratio stood at 82 percent of GDP in 2004. While average tariffs are low, tariff escalation has increased in recent years and effective protection to agriculture remains high. Most QRs were removed in the 1980s and by the end of 1990s only a few remained on selected agricultural and industrial commodities. However, these were eventually removed in 1998 following a review by WTO.

Future trade agenda

With the abolition of the Multi-Fiber Agreement (MFA) since January 2005, Sri Lanka faces additional challenges to remain competitive in the market place. Against this backdrop, it will be important for Sri Lanka to further strengthen external sector policies and address remaining "behind the border constraints" (e.g., infrastructure bottlenecks and labor regulations).

In terms of trade policies, a competitive exchange rate will need to be maintained and pressures to increase tariff protection will need to be resisted. It will also be important for Sri Lanka to maintain a selective policy towards FTAs, following those completed with India and Pakistan, given the substantial administrative costs associated these type of arrangements. For instance, it would be desirable for Sri Lanka to actively pursue an FTA with the US, Sri Lanka’s largest export market for garments. Since half of the garment imports to the US occur under various preferential agreements, such an FTA would help Sri Lanka compete in the post-MFA period.

1. Banking structure

Sri lanka has more govt. owned banks as compare to the private banks. Here are the few names of popular banks of Sri lanka

Nation trust bank sri lankaNational apprenticeship board sri lankaNational water board sri lankaNational development bank sri lankaNational savings bank sri lankaHatton national bank sri lankaAmerican express bank sri lanka

2. GDPGDP (purchasing power parity): $91.9 billion (2008 est.) $86.7 billion (2007)

$81.18 billion (2006)

GDP - real growth rate: 6% (2008 est.) 6.8% (2007 est.) 7.7% (2006 est.)

GDP - per capita: $4,300 (2008 est.) $4,100 (2007 est.) $3,900 (2006 est.) note: data are in 2008 US dollars

GDP - composition by sector: agriculture: 15.5% industry: 27% services: 57.5% (2008 est.)

Social

Literacy ratio

Literacy: definition: age 15 and over can read and write total population: 90.7% male: 92.3% female: 89.1% (2007 census)

Sex ratio

Sex ratio: at birth: 1.04 male(s)/female under 15 years: 1.04 male(s)/female 15-64 years: 0.96 male(s)/female 65 years and over: 0.88 male(s)/female total population: 0.97 male(s)/female (2008 est.)

Population: 21,128,772

Religions: Buddhist 69.1%, Muslim 7.6%, Hindu 7.1%, Christian 6.2%, unspecified 10% (2001 census provisional data)

Urban population

Main cities :

Colombo (aggl.) 3 700 000 peopleColombo (capital) 850 000 people

Moratuwa 180 000 people

Jaffna 135 000 people

Kotte 115 000 people

Kandy 110 000 people

Technology

1. Infrastructure

Sri Lanka has a well-developed transport system, including a road network of approximately 100,000 kilometers (62,140 miles). A rail network consisting of about 1,944 kilometers (1,208 miles) of tracks links Colombo with the rest of the country. Road networks are under severe strain due to the rapid increase in the number of vehicles since the 1980s. The number of registered vehicles nearly tripled from 478,000 in the mid-1980s to 1.38 million in 2000, generating severe traffic congestion. With a rising number of vehicles, and the need for a more efficient road network to facilitate the movements of goods and services, the government is actively engaged in improving, rehabilitating, and extending the existing network.Sri Lanka has 14 airfields, the largest of which is the Katunayake International Airport, the principal gateway to Sri Lanka. The country is serviced by 32 airlines, both domestic and foreign, and the national carrier, SriLankan Airlines, handles about 56 percent of international passengers to and from Sri Lanka. It has scheduled operations to 35 destinations in 26 countries covering Australia, the Indian subcontinent, the Far East, Europe, and the Middle East. The Sri Lanka Ports Authority (SLPA) is responsible for operating the ports. The SLPA operates 4 major ports in Colombo, Galle (in the south), Trincomalee (in the east), and Kankasanturai (in the north). In addition, limited shipping facilities are provided by the Ceylon Shipping Corporation and by several private sector shipping companies. A major restructuring of the cargo handling facilities in Colombo port is now taking place in conjunction with the British PNO company.Hydropower is the major source of electricity, accounting for 66 percent of the nation's electricity supply. One of the main sources of hydropower is the gigantic Mahaweli Scheme, which has harnessed the flow of Sri Lanka's longest river in several stages. The remainder is generated through thermal power (34 percent) and most recently, wind power. Electricity generation and distribution has traditionally been a government monopoly. However, the private sector has become much more involved in power generation during the past decades.

Communication

Telecommunications is the fastest growing sector in the country. During the first half of

2000, the telecommunications sector grew by 11 percent. Sri Lanka Telecom Ltd. (SLT)

is the major supplier; its network provided 44,228 new telephone connections during the

first half of 2000, with total network subscriptions of 621,394. The demand for

telephones is growing much faster than supply: at the end of June 2000, there were

246,560 applicants on the waiting list. To meet rising demand the SLT is expanding its

capacity with assistance from international donors. In addition to the SLT subscriber

network, there are 4 cellular phone operators with a subscription of 307,027. Other

service providers include wireless local loop telephones (2 operators with 101,093

subscribers), data communication services such as Internet and e-mail (15 operators with

32,633 subscribers), and public phones (6 operators with 7,491 public phone booths)

Country Newspapers RadiosTV

Setsa

Cable

subscribersa

Mobile

Phonesa

Fax

Machinesa

Personal

Computersa

Internet

Hostsb

Internet

Usersb

1996 1997 1998 1998 1998 1998 1998 1999 1999

Sri Lanka 29 209 92 0.0 9 N/A 4.1 0.52 65

United

States215 2,146 847 244.3 256 78.4 458.6 1,508.77 74,100

India N/A 121 69 18.8 1 0.2 2.7 0.18 2,800

Bangladesh 9 50 6 N/A 1 N/A N/A 0.00

As of 2007Length of Roads 91,907Main Roads 27,248Paved Roads 81Access to All-Season-Roads 65Road Density - LAND 1422Rail Track Length 1,640Total No. of Ports 3Total turnaround timeTotal No. of Airports 3International 1

Innovations

Mobitel (Pvt) Ltd recently introduced a new and improved range of banking facilities via

Short Messaging Services (SMS) to its subscribers banking with Sampath Bank. This

range of SMS related services allows subscribers the option to check balance inquiry

from multiple accounts, inquire the clearance status of cheques, access a mini statement

of their last five transactions, inform the bank of a cheque number they wish to stop

payment on, initiate transfer of funds between their own accounts, change their existing

passwords, and request alerts on the basis of account balance changes and credit card

transactions.

The range of SMS services provided in the package is substantail to Sampath Bank

customers utilising the Mobitel network..These facilities offer both security and

convenience through various methods in initiating or even stopping transactions while

also providing information regarding recent transactions. This aspect in banking thus

ensures subscribers an additional level of security.

Commenting on this new facility, Mobitel`s CEO Suren Amarasekera said that: ``This

service will greatly help Mobitel and Sampath Bank customers to improve their

productivity.` Among the services offered to their mutual customers is the ability to

access bank balance inquiries on multiple Sampath Bank accounts. Commenting further

Amarasekera said `It is our belief that this information will give our mutual customers a

advantage in receiving updates and thereby be able to better manage their financial

resources. It also provides customers additional security as they can check their accounts

at