Current Account to Record a Surplus in 2009 for the First Time since 1977
Inflationary pressures continue to remain subdued as reflected by the annual average inflation of around 4 per cent recorded by end November 2009, although year-on-year inflation increased to 2.8 per cent. The outlook for inflation remains benign. The development of the Northern and Eastern provinces in the period ahead would result in their increased integration with the rest of the country, leading to enhanced supply of goods and services in the country. The positive supply side developments expected to take place in the domestic economy are likely to have a favourable impact on inflation, going forward.
The higher reduction in expenditure on imports compared to the decline in earnings from exports has resulted in the trade deficit narrowing significantly during the first nine months of 2009. The overall deficits in the trade and income accounts were offset by higher inflows into the current transfers and services accounts, resulting in a surplus of US dollars 393 million in the current account for the first nine months of 2009.
It is expected that this performance will continue through the fourth quarter as well and the current account would record a surplus in 2009 for the first time since 1977.
Prospects for domestic economic activity have improved with the more favourable investment climate that now prevails and the gradual recovery of the world economy, supported by the relaxed monetary policy stance of the Central Bank. Hence, it is expected that credit flows will gradually pick up, with the more favourable credit conditions that prevail on account of the decline in market interest rates as well as the more stable conditions in financial markets. Although broad money supply is likely to further expand, particularly in view of the expansion of foreign assets of the country and the likely pick up in credit flows to the private sector in the ensuing period, such an expansion has been accounted for in stipulating the monetary targets for this year as well as the next year.
Sri Lanka seen losing status as tea exporter
Dec 17, 2009 (LBO) – China has overtaken Sri Lanka as the world’s second largest tea exporter, and the island is in danger of losing its position as a major export origin, the Sri Lanka Tea Board has warned.
It said the island’s tea production appears to have peaked at 320 to 325 million kilos because of lower productivity, aging bushes and inadequate replanting in estates many of which are over a century old.
Sri Lanka emerged as the largest tea exporter to the world in 1965, overtaking India, and remained so until a few years ago when Kenyan exports exceeded those of the island.
More concerted re-planting programmes, infilling on estates and planting of high yielding clones are required, the Tea Board said.
Sri Lanka’s share in the global tea production is only eight percent although the island is a producer of orthodox black tea, and not green tea.
“Even in the export front, the Sri Lanka share in the world market has declined from around 22 percent to 18 percent in recent times,” the board said in its bulletin for the third quarter, warning that the decline cannot be arrested.
“By September 2009, China has also beaten Sri Lanka to become the second largest tea exporter to the world and Sri Lanka is a distant number three,” the Tea Board said.
Black tea production in the three big traditional export origins of Kenya, Sri Lanka and India had been hit by drought this year.
But China and Vietnam are understood to have maintained their usual black tea production and enjoyed the present price increase with more earnings, the Tea Board said.
The Sri Lankan tea industry’s productivity has remained stagnant with yields barely exceeding 1,400 kilos per hectare, compared with an average yield in India of around 1,800 kilos and Kenya around 2,400 kilos per hectare.
“While all players in the industry, whether state or private, recognizes that re-planting of around 2.5 percent to three percent of the acreage of grown tea is mandatory to increase yields, the present re-planting rate just over 0.5 percent is totally inadequate,” the Tea Board said.
Guarantee Scheme for bank loan facilities to Registered Finance Companies and Specialized Leasing Companies in Specific Circumstances
The Monetary Board of the Central Bank of Sri Lanka has decided to establish a new guarantee scheme in respect of loan facilities provided by banking institutions to Registered Finance Companies (RFCs) and Specialized Leasing Companies (SLCs), in instances where RFCs and SLCs face unforeseen liquidity constraints. In providing these guarantees, the Central Bank will assess the need for such guarantees for the applicant RFC or SLC and the quality of assets mortgaged or assigned in respect of obtaining a loan facility. The Central Bank will also adopt expeditious procedures and impose certain conditions in respect of providing guarantee facilities under this arrangement.
Some RFCs and SLCs have been facing liquidity constraints since early 2009 due to a decline in inflow of new funds and the reluctance of some banking institutions to provide loan facilities to those companies. As a result of this new scheme, such RFCs and SLCs will now be able to obtain loan facilities from banking institutions against their assets to enhance their liquidity position and to conduct their normal business operations.
The guaranteeing of bank loans by the Central Bank will benefit banking institutions too as they could extend their facilities at a lower credit risk and as it will enable them to diversify their portfolios.
The Central Bank expects that this scheme will enhance inflow of funds to vulnerable RFCs and SLCs and relieve the liquidity constraints within a short period of time thereby enabling them to carry on their normal businesses and to contribute to the economic growth in the country.