1. Economic Capsule
May 2023
Research & Development Unit
316thIssue

2. CONTENTS
BANKING & FINANCE
 CBC results 31 03 2023
 ComBank adjudged the ‘Best Bank in Sri Lanka’ by Global Finance for 21st time
 ComBank is highest ranked bank in BTTop 40 for 14th consecutive year
ECONOMY, BUSINESS & DEVELOPMENT
 Key points of recent IMF visit
 NCPI – April 2023
 Foreign investments in government securities
 Sri Lanka’s industrial production slips on softening global market conditions
 Slump in credit to private sector
 China’s Sinopec seals deal to enter Sri Lanka’s retail fuel market
 Sri Lanka promises EU to present plan to lift import restrictions by June
 News Snippets
GLOBAL UPDATE
 US “Debt ceiling limit” Saga
 China overtakes Japan as world's top car exporter
 “Britain would not enter into a recession this year” - IMF
 After Iran Deals, Indian Lender Spurs RupeeTrade With Russia
 News Snippets
Research & Development Unit

3. Banking &
Finance

4. Research & Development Unit
CBC results – 31 03 2023

5. Research & Development Unit
ComBank adjudged the ‘Best Bank in Sri Lanka’ by Global
Finance for 21st time
The Commercial Bank of Ceylon has been recognized as
Sri Lanka's Best Bank once again by the US-based Global
Finance magazine, at its 30th annual awards ceremony
for the World's Best Banks 2023, reaffirming the Bank's
reputation as the top performer in the country's financial
industry.
This is the 21st occasion that Commercial Bank has won this title. Global Finance considered factors
that ranged from the quantitative objective to the informed subjective.
Objective criteria included: growth in assets, profitability, geographic reach, strategic relationships,
new business development and innovation in products. Subjective criteria included the opinions of
equity analysts, credit rating analysts, banking consultants and others involved in the industry. Award
winners were selected by the editors of Global Finance after extensive consultations with corporate
financial executives, bankers and banking consultants, and analysts throughout the world.

6. Research & Development Unit
ComBank is highest ranked bank in BTTop 40 for 14th
consecutive year
The Commercial Bank of Ceylon led Sri Lanka’s
banking sector when it received the Business
Today Top 40 award.
Business Today said an analysis of the diverse portfolios of the ranked companies provides a broader
picture of the profits and the risks undertaken by these corporates as they worked with resilience,
passion, and dedication while gracefully embracing the challenges.
This represents the 14th consecutive year that Commercial
Bank became the highest-ranked bank and one of the five
best-performing companies in Sri Lanka overall, in the
Business Today ranking. The ranking, based on the 2021-
2022 results of companies, recognised the top corporate
performers that reported positive financial growth amidst
the turbulent situation of the country.

7. Economy, Business
& Development
News
Research & Development Unit

8. Research & Development Unit
Key points of recent IMF visit
“Following strong policy efforts, the macroeconomic
situation in Sri Lanka is showing tentative signs of
improvement, with inflation moderating, the
exchange rate stabilizing, and the Central Bank
rebuilding reserves buffers.
However, the overall macroeconomic and policy
environment remains challenging.
“Performance under the IMF program will be formally assessed in the context of the first review of the Extended
Fund Facility arrangement, which is expected to be undertaken in September 2023
Discussions were made on additional fiscal efforts that will be critical to ensure successful revenue mobilization.
IMF is observing the debt restructuring progress and achieving timely restructuring agreements with creditors in line
with the program targets by the time of the first review will be essential to restoring debt sustainability.
Government should keep up the reform momentum and ensuring timely implementation of program commitments,
including to ensure CBSL independence, improve governance, and protect the vulnerable are key for Sri Lanka to
emerge from the crisis.” Source: https://www.imf.org/en/News/Articles/2023/05/22/pr23167-sri-lanka-imf-staff-concludes-visit-to-sri-lanka

9. Research & Development Unit
NCPI – April 2023
Source: DCS
Year on year April 2023 March 2023
NCPI Headline 33.6% 49.2%
NCPI *Core 31.8% 44.2%
NCPI Year on year April 2023 March 2023
Food inflation 27.1% 42.3%
Non food inflation 39.0% 54.9%
April national inflation is also the lowest in 14 months when the consumer prices
rose at 21.5% in March, last year.
*Core inflation excludes volatile food, energy and transport prices

10. Foreign investments in government securities
Research & Development Unit
Foreign holdings of T bills and T bonds rose to Rs
150.52bn during the week ended 18 May 2023.
Sri Lanka securing an IMF program and talks about
domestic and foreign debt restructuring have
contributed to increase foreign investor appetite towards
government securities.
However, this figure is far less than 2017 levels.
Foreigners held government securities worth Rs324.32bn
as at end December 2017.
Increased foreign inflows through the bond market is one reason behind the rupee’s
recent resurgence.
(As of 24 May, the USD/LKR middle rate published by CBSL was 304.61)
Source: CBSL

11. Research & Development Unit
Sri Lanka’s industrial production slips on softening global
market conditions
Sri Lanka’s industrial production
slipped in March from February as
most of the manufacturing
segments weakened on the back
of softening global demand and
also precarious local market
conditions.
P - Provisional
The Index of Industrial Production (IIP) is an abstract number, the
magnitude of which represents the status of production in the
industrial sector for a given period of time.
Its main purpose is to provide a measure of the short-term changes
in the volume of industrial production from the manufacturing sector
in the country.
The IIP provides Information to gauge industrial performance and to
forecast the future economic performance.
It can be used to identify the turning points in economic development at an early stage. The major advantage of the production index compared to other indicators is the
combination of fast availability and detailed breakdown of activities
Source: DCS

12. Research & Development Unit
Slump in credit to private sector
The months-long descent in credit to the private sector
turned more pronounced in March as such credit reported
a net de-growth of Rs.107.6bn, nearly doubling from the
Rs.57.6bn contraction in February 2023. (5.1% YoY decline
in March 2023)
The larger decline in net credit to the private sector
demonstrates that the economy was still in decline
although it might have turned a corner and found some
footing with the improvement in the foreign currency
conditions in the country and the deceleration in the
consumer prices.
Source: CBSL

13. Research & Development Unit
China’s Sinopec seals deal to enter Sri Lanka’s retail fuel
market
In a significant move to address Sri Lanka’s
fuel supply challenges, a contract agreement
was signed with Sinopec, a leading
international petroleum company. The
agreement, signed on 22 May, marks a
crucial step in ensuring a steady and
uninterrupted fuel supply for the nation.
Source: President’s Media Division
The license grants Sinopec to import, store and distribute fuel in Sri Lanka for a 20-year period while bringing in
competition to the country’s duopoly retail fuel market dominated by state-owned Ceylon Petroleum Corporation
(CPC) and Lanka Indian Oil Company (LIOC).
A key requirement for new retail suppliers entering the market is their ability to secure forex requirements, without
depending on the domestic banking sector. “It was mandated that these companies source their own funds for fuel
procurement through foreign sources, at least during the initial one-year period of operation” PMD report said.

14. Research & Development Unit
Sri Lanka promises EU to present plan to lift import
restrictions by June
Sri Lanka has promised the European Union
(EU), the country’s second largest trading
partner, to present a plan by June to lift the
import restrictions that came into place in 2020
as a measure to hold on to the fast-depleting
foreign exchange reserves.
This was conveyed during the 25th session of Sri Lanka - EU Joint Commission that was
held virtually on April 25, 2023.
Sri Lanka expressed its intention towards a gradual phasing out of the restrictions,
factoring in the current economic conditions.

15. News Snippets
Research & Development Unit
Confectionery industry cuts retail
prices as consumption drops
The local confectionery industry is
witnessing a consumption drop of over 25%,
due to the escalation of the prices of all
product ranges and to remedy the situation,
a decision has been taken by Lanka
Confectionery Manufacturers Association
(LCMA) to reduce the prices.
Galadari Hotel to proceed with proposed refurbishment
after 4-year hiatus
Galadari Hotels (Lanka) PLC has decided to proceed with the
proposed refurbishment of the 450-room hotel after a 4-year
hiatus, of which details are yet to be finalised.
EU backing for Sri Lanka on climate change adaptation
The European Union (EU) has expressed its willingness to extend
support to Sri Lanka as it adapts to the impacts of climate change.
The EU has said it is committed to working with Sri Lanka to help
the country build a more resilient and sustainable future.
Net foreign assets (NFA) of banking system
Net foreign assets of banking sector, which
turned negative amid the economic crisis
has returned to positive territory as banks
have improved their foreign currency
liquidity. NFAs which moved to positive
territory in February to around Rs 61bn has
further improved to Rs 80.3bn in March
2023.
Manufacturing activities dropped in April
Following the seasonal pattern, Sri Lanka’s manufacturing PMI
decreased to 34.7 in April 2023, indicating a month-on-month
contraction in manufacturing activities. Services sector PMI remained
slightly below the neutral threshold, recording an index value of 49.6
in April 2023

16. Global
Update
Research & Development Unit

17. US “Debt ceiling limit” Saga
Research & Development Unit
“Debt ceiling limit” in simple terms is a lid
on government spending/borrowing. For
USA, this lid on US government borrowing
affects only the ability to pay existing bills,
not to approve more spending.
• The US is getting close to the current federal debt limit of nearly USD 31.4tn, at which point it could lose the
ability to meet all payment obligations
• US treasury secretary Janet Yellen says that point could arrive by June 1 2023.
• Since January her department has been using extraordinary measures to keep paying debts.
• US debt ceiling was created in 1917 to make it easier to fund the World war 1. With World War II looming in
1939, US congress created its first aggregate debt limit.
• Since 1953 the debt ceiling limit has been raised 12 times.
• Leaders of both major political parties (Democratic and Republican) acknowledge that the debt limit must be
raised, because the gap between government spending and revenue is so large.

18. US Debt ceiling limit Saga (Cont.)
Research & Development Unit
• But Republicans, who took control of the *House of Representatives on Jan. 3 and blame high inflation on spending
during President Biden’s first two years in office, want to pair a debt limit hike with spending cuts.
• On April 26, House Republicans passed a bill that would raise the debt ceiling by USD 1.5tn in exchange for
USD 4.8tn in budget deficit cuts over 10 years.
• Speaker Kevin McCarthy has called that bill — which on its own stands little chance of passing the **majority-
Democratic Senate — an opening offer that he is willing to use to strike a deal with Biden, who has said that raising the
debt ceiling is non-negotiable and shouldn’t be conditioned on any other action.
• President Biden and McCarthy, has so far failed to reach a deal to, but has vowed to keep talking. Both men described
their hours-long meeting at the White House on Monday (22 May) as “productive” and suggested an agreement was
within reach
• If US fails to raise their debt limit and suspends mandatory government payments, it will lead to credit rating
downgrades on US treasury securities and loss of business confidence.
*US Congress (legislative system) has two chambers
– House is the lower chamber
** – Senate is the higher chamber
Any law or bill will be passed if they receive majority vote of both House and the Senate.
Presently Republicans have the majority of the House and Democrats have the majority of Senate. Hence implementation of laws, bills has become harder due to their
differences.
Sources: Bloomberg, US Senate

19. China overtakes Japan as world's top car exporter
Research & Development Unit
China says it has become the world's biggest exporter
of cars after overtaking Japan in the first three months
of the year.
Officials figures released in the last week show China
exported 1.07mn vehicles in the period, up 58%
compared to the first quarter of 2022.
At the same time Japan's vehicle exports stood at 954,185, after edging up 6% from a year earlier.
China's exports were boosted by demand for electric cars and sales to Russia. Last year, China overtook
Germany to become the world's second largest car exporter.
According to China's General Administration of Customs, China exported 3.2mn vehicles in 2022,
compared to Germany's 2.6mn vehicle exports.
The shift away from fossil fuels has helped fuel the rise of China's motor industry.
Source: BBC

20. “Britain would not enter into a recession this year” - IMF
Research & Development Unit
Source: CNBC
The IMF said that Britain would not enter into a
recession this year, revising earlier predictions that its
economy would shrink by 0.3% in 2023.
It now expects GDP to grow by 0.4%. The fund said that
resilient demand had bolstered Britain’s ailing
economy, but warned that the outlook for growth
“remains subdued” and that inflation is still “stubbornly
high”.
The U.K. economy grew by 0.1% in the first quarter 2023, following an unexpected contraction in March,
official figures showed
The construction sector expanded by 0.7%, while manufacturing performance went up by 0.5% in the
first quarter, with 0.1% growth logged in services and production.

21. After Iran Deals, Indian Lender Spurs RupeeTrade With
Russia
Research & Development Unit
Source: Bloomberg
A state-run bank India used to skirt sanctions is spurring trade with Russia by using
rupees as payment and expects to see more deals as Moscow gets increasingly locked
out of the global financial system.
UCO Bank, which handled India’s purchases of Iranian crude and managed billions of
dollars of frozen payments, is now a key bank facilitating trade with sanctions-hit
Russia in rupees.
UCO Bank, among the smallest of the state-owned banks by market capitalization, facilitates the
transactions through a special rupee account with Gazprombank, which acts as an agent to execute
withdrawals and deposits for Russian businesses. Gazprombank is one of the main channels used for
paying for oil and gas.

22. News Snippets
Research & Development Unit
IMF raises 2023 Asia-Pacific growth
forecast
The International Monetary Fund raised its growth
forecast for Asia-Pacific (4.6%), saying the region’s
growth will be primarily driven by China’s recovery
and “resilient” growth in India. This comes as the
rest of the world braces for slower growth from
tightened monetary policy and Russia’s invasion of
Ukraine.
Global Central Bank policy decisions
The Federal Reserve raised interest rates by a quarter point (0.25%) on 03
May, the tenth rate hike since the central bank started its battle against
inflation last March. The Federal Reserve’s interest-rate increases have
helped consumer-price growth to slow since its peak in June (Annual
inflation dropped to 4.9% in April 2023). Markets are betting that the Fed
will soon pause the run of rate rises, though the labour market is still
running hot. Employers created 253,000 jobs in April 2023, well above
estimates.
The Bank of England raised its benchmark interest rate for the twelfth
consecutive time on 11 May, lifting it by 0.25% to 4.5%, its highest level
since 2008. Annual inflation in Britain has remained stubbornly high, well
above inflation in America and the euro area. The bank said that further
rate rises were on the cards, if inflationary pressures persist
European Central Bank too increased its policy rates by a further 0.25%
on 04 May to 3.75%.
The Reserve Bank of Australia surprised markets when it raised its rate by
0.25%, to 3.85%. The bank had left the rate on hold in April, suggesting
that a rapid run of increases was over.
Natural gas prices in EU drop
The price of natural gas in Europe fell to its lowest
level since July 2021. Alternatives to Russian energy
and a mild winter that has left gas stocks in good
shape were factors in the benchmark Dutch ttf
contract (Dutch ttf is a virtual trading hub for gas in
the Netherlands and is the primary gas pricing hub
for the European gas market) falling to just over
Euro 35 (USD 38) a megawatt hour (mwh).
Last August the price peaked at more than
Euro 300 a mwh as Russia squeezed its supplies.

23. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC
The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain
accuracy/completeness of the information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the
information or for losses or damages, financial or otherwise, suffered in consequence of using such information for whatever purpose.
< Research & Development Unit >
Emerging from the economic crisis
“Sri Lanka has for a long-time dreamt of joining Global Value Chains (GVCs) with little
success. Now GVCs are coming to India and as a result right to Sri Lanka’s doorstep.
This offers Sri Lanka a second chance to make its long-standing dream a reality. By
focusing on supply chain integration and resilience, ETCA like agreements can help Sri
Lanka to put itself on the map of GVCs that is being redrawn”.
Subhashini Abeysinghe and Mathisha Arangala from Verite Research.