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3rd January 2012   1
2012 IS THE SIXTH CONSECUTIVE YEAR THAT
   WE COMMUNICATE OUR PLANS FOR
      THE FORTHCOMING PERIOD




                                  2
TODAY’S STATEMENT WILL BE IN 7 PARTS…
1. Background and Introduction to the Road Map
2. Key Macroeconomic Developments in 2011
3. Developments in the Financial System in 2011
4. Macroeconomic Outlook and Proposed
   Monetary Policy Strategy for 2012 and Beyond
5. Proposed Strategies for Financial System
   Stability for 2012 and Beyond
6. Policies to Strengthen the Economy in 2012 and
   Beyond
7. Concluding Remarks

                                              3
1. BACKGROUND AND INTRODUCTION
        TO THE ROAD MAP

           A quiet peek into
           history is always useful…




                                       4
SRI LANKA INTRODUCED OPEN ECONOMIC POLICIES FROM 1978…
 • Adoption of more market oriented policies promoting greater private
   sector participation in economic activity

 • De-regulation of interest rates

 • Relaxation of exchange controls

 • Removal of price controls

 • Elimination of quantitative restrictions on imports

 • Foreign banks permitted to open branches in the country

 • Establishment of new domestic private banks

 • Adoption of export market oriented industrial policy

 • Promotion of private sector and foreign investments


                                                                5
FURTHER RELAXATION OF POLICY MEASURES TOOK PLACE
FROM 1990 TO 2005…

• Extensive privatisation programme

• Medium term budget deficit reduction programme

• Liberalisation of current account transactions in 1994

• Gradual liberalisation of capital account, commencing 1997

• Independently floating exchange rate policy, commencing 2001

• Export oriented industrialisation policy further strengthened

• Tax reforms and incentives to encourage private sector investments




                                                                  6
FROM 2006 ONWARDS, POLICY MEASURES WERE BASED
ON THE MAHINDA CHINTANA…
•   Transforming the country into an             •   Fiscal consolidation and prudent debt
    economic hub in the region                       management
•   “Inclusive growth” policy and many           •   Foreign investment policy directed towards
    incentives to promote the SME sector             attracting large scale strategic investments
    and Local entrepreneurship
                                                 •   Emphasis on export of high value added
•   Balanced Regional Development promotion          manufactured products
•   Emphasis on the development of the           •   Export oriented industrialisation
    Northern and Eastern Provinces                   policy further strengthened
•   Strong focus on Food Security                •   Monetary Policy and Exchange Rate Policy
                                                     implemented to facilitate stability
•   Address infrastructure bottlenecks by
    implementing a mega infrastructure           •   Expansion of domestic banking activities to
    development drive                                regional areas including the North and East
•   Relaxation of exchange control regulations   •   Strengthen the banking sector and capital
    to address the Savings and Investment gap        market
•   Tax reforms and incentives to encourage
    private sector investments


                                                                                  7
MAHINDA CHINTANA: VISION FOR THE FUTURE ENVISAGES THE
TRANSFORMATION OF SRI LANKA INTO AN ECONOMIC HUB IN SOUTH
ASIA AND DOUBLING OF PER CAPITA INCOME TO US$ 4,000 BY 2016…
                                                                            Aviation Hub
                                                              Second international airport at
                                                               Mattala
                                                              Modernisation of the
                                                               Bandaranaike International Airport (BIA)
               Maritime Hub                                    and building of second runway at the BIA
 Colombo Port – Container mega hub                           Development and upgrading of domestic airports
                                                                                                                                      Commercial Hub
 Hambantota Port – Free port-service,                        Position Colombo as a regional logistics and             Establish Sri Lanka as the
  industrial and multi-purpose                                 services hub and as a hub for budget airlines             foremost centre in the region in the
                                                                                                                         provision of commercial services,
 Galle Port – Cruise shipping centre
                                                                                                                         International banking and
 Trincomalee – Port-related industries                                                                                  international investments

                                                                                                                        With growth of ports and tourism, Sri Lanka’s
 Oluvil Port – Commercial and fisheries                                    South Asian                                  commercial sector will develop naturally
 Kankasanthurei & Point Pedro – Regional ports                              Economic
                                                                               Hub
                                 Energy Hub
                  Develop renewable
                                                                                                                        Knowledge Hub
                   energy sources                                                                          Target IT literacy and
                                                                                                            internet access for all
                  New oil refinery at Hambantota
                                                                                                           Creation of knowledge-based jobs
                  Oil exploration and production –
                   3 sea basins (offshore)                                                                 Commence degree programmes
                   have been identified                                                                     directly targeting foreign students
                   (Mannar, Cauvery, Southern Waters)
                                                                                                           Accredited foreign universities to set up university
                  Develop oil trade-related ancilliary services                                            colleges in Sri Lanka
                   including gas


                                                                                                                                                  8
2. KEY MACROECONOMIC
 DEVELOPMENTS IN 2011
Since the start of the global crisis in 2007, each year seems to
be more challenging than the previous one…

“The world has moved from a troubled multi-speed recovery … to a
new and more dangerous phase.”
         Robert Zoellick - President, World Bank

“During the past year, the Central Bank of Sri
Lanka took courageous decisions that were
based on its core objectives. The Bank took
advantage of the structural changes that were
emerging in the economy. It also made the
necessary interventions to fashion the country’s
economic journey on a “fast track” basis”

                                                                   9
THE PROTRACTED EUROZONE DEBT CRISIS AND LOSS OF
CONFIDENCE HAS SLOWED THE GLOBAL RECOVERY…
                                                        %                                                             GDP Growth estimates (%)
                                                        8
• Estimates of World Economic                           6
  growth                                                4

    World economy:                                     2

               2010: 5.1%                               0
                                                                        2009                      2010                  2011                  2012                       2013                     2014                          2015                             2016
               2011: 4.0%                               -2

               2012: 4.0%                               -4

    Advanced economies:                                -6
                                                                        World                                Advanced economies                                                  Emerging and developing economies
               2010: 3.1%
               2011: 1.6%                                          16
                                                                                     GDP Growth of Selected countries (2010-2011)

               2012: 1.9%                                          14
                                                                   12
    Emerging & developing                                         10


                                                        Per cent
     economies:                                                    8
                                                                   6
               2010: 7.3%                                          4
                                                                   2                                                                                                                                                                                               2010
               2011: 6.4%                                          0                                                                                                                                                                                               2011
                                                                   -2
               2012: 6.1%
                                                                                                                   France
                                                                                     Bangladesh




                                                                                                                                              Japan
                                                                                                                                      India
                                                                                                  Canada




                                                                                                                            Germany




                                                                                                                                                                                                                                                 United States
                                                                         Australia




                                                                                                           China




                                                                                                                                                                          Pakistan


                                                                                                                                                                                                 Spain


                                                                                                                                                                                                                     Thailand
                                                                                                                                                      Korea
                                                                                                                                                              Malaysia




                                                                                                                                                                                                         Sri Lanka
                                                                                                                                                                                     Singapore




                                                                                                                                                                                                                                United Kingdom
                 Source : IMF, WEO Database, Sep 2011




                                                                                                                                                                                       10
THE BELIEF THAT THE WORLD ECONOMIC GROWTH WOULD
CONTINUE TO BE SLUGGISH IN 2012 IS GAINING GROUND…

• The Central Bank’s own projections and policy
  propositions have been based on assumptions and
  judgments, which would need to be modified in line with
  emerging developments in the global as well as Sri
  Lankan economy.
• Naturally therefore, any deviations in trends in the
  economy would be watched even more closely, and
  policies and strategies altered, going forward…




                                                     11
NEVERTHELESS, ASIA’S IMPORTANCE IN THE
GLOBAL ECONOMY HAS BEEN STEADILY RISING…
                              Asia’s Share of Global GDP, 1700-2050




    Source: Asia 2050 – Realising the Asia Century, ADB 2011




                                                                      12
IN THIS SCENARIO, THE SRI LANKAN ECONOMY HAS ACHIEVED
A HIGH GROWTH PATH…
• The growth in 2011 is estimated at 8.3%        • Sovereign Credit Ratings, Doing Business
                                                   Index, FDI, etc. on the rise
• First time in history to record over
  8% growth in two consecutive years             • Continuation of fiscal consolidation
                                                   process
• GDP ESTIMATED TO EXCEED US$ 59 BILLION
  & GDP PER CAPITA TO REACH US$ 2,830            • Lowest unemployment rate of 4.3%
• Inflation steadied at mid-single digit level   • Significant reduction in poverty
• Comparatively low interest rate environment
                                                                        Real GDP Growth
• Savings and investments on a steady growth                9
                                                                7.7
                                                                                                 8.0
                                                                                                          8.3
                                                            8
  path                                                                 6.8
                                                            7
                                                                              6.0
• External trade on a buoyant path                          6



                                                 Per cent
                                                            5
• Foreign reserves preserved at a comfortable               4                        3.5
  level                                                     3
                                                            2
• Stable exchange rate                                      1
                                                            0
• Some pressure on BOP was observed                             2006   2007   2008   2009        2010   2011 Est




                                                                                            13
THE SERVICES SECTOR CONTRIBUTION TO THE GROWTH WAS
SIGNIFICANT…
                                                                                Services Sector and GDP Growth
Services sector estimated to grow by 8.6% in 2011
                                                                        10
•   Services sector growth was 8.7% for the first
                                                                        8
    three quarters of 2011
                                                                        6
•   Healthy growth in consumer demand for




                                                    Per cent
                                                                        4
    services with increasing real income level in
    the country                                                         2

•   Wholesale and retail trade, port operations,                        0
                                                                              2007          2008     2009        2010      2011 Proj.
    cargo and container handling, post and                                               Services                 GDP
    telecommunication, banking, insurance and
                                                                                       Performance of the Ports
    real estate continued to expand                                     66
                                                                                                                                4,500


•   Transport and communication grew with                               62
                                                                        58
                                                                                                                                4,000

    gradual integration of Northern and Eastern                         54                                                      3,500




                                                    Metric Tonnes mn.
                                                                        50
    Provinces with the rest of the economy




                                                                                                                                         TEUs '000
                                                                        46                                                      3,000
                                                                        42
                                                                        38                                                      2,500
• Services estimated to                                                 34
                                                                        30                                                      2,000
  contribute about US$ 34 billion                                            2006    2007     2008   2009    2010     2011
  to the GDP (58%)                                                           Cargo Handling
                                                                                                                     (Proj.)
                                                                                                     Container Throughput (Right Axis)



                                                                                                      14
THE INDUSTRY SECTOR RECORDED THE HIGHEST SECTORAL
GROWTH…
Industry sector estimated to grow by 10.1% in 2011
                                                       Industry Sector Quarterly Growth Rates (2009-2011)
• Industry sector growth was 10.5 % during the                         12.0
  first three quarters of 2011                                         10.0




                                                    Growth Rate (%)
• Increased demand from both domestic and                                     8.0

  external sectors                                                            6.0

                                                                              4.0
• Manufacturing, mining and quarrying,
                                                                              2.0
  electricity, gas and water and construction
                                                                              0.0
  sub-sectors recorded higher growth rates                                               Quarter 1    Quarter 2      Quarter 3   Quarter 4

• Factory industry grew by 8.4 % during the first                                               2009     2010        2011 Est

  three quarters of 2011 mainly due to export                 Factory Industry Quarterly Growth Rates (2009-2011)
  market oriented industries, despite global                                      10.0
  economic slowdown
                                                                                   8.0




                                                                Growth Rate (%)
• Food, beverages and Tobacco industries                                           6.0
  performed exceptionally well
                                                                                   4.0

                                                                                   2.0
• Industries estimated to contribute about
                                                                                   0.0
  US$ 18 billion to the GDP (30%)                                                         Quarter 1 Quarter 2 Quarter 3 Quarter 4
                                                                                               2009      2010        2011 Est


                                                                                                                15
THE AGRICULTURE SECTOR GROWTH WAS AFFECTED, BUT
RECOVERED…
Agriculture sector is estimated to grow by 2.0% in 2011
                                                                   5,000               Paddy Production
•   Sector contracted by 1.8% in the first half                    4,500
    of 2011 due to adverse weather                                 4,000
                                                                   3,500




                                                  Production mt.
                                                                   3,000
•   Fertilizer support programme and high                          2,500
    prices in first half of 2011 helped                            2,000
                                                                   1,500
    production of export agriculture                               1,000
                                                                     500
•   Rubber production and prices remained                              -
                                                                             2006 2007 2008 2009 2010 2011 2012
    strong                                                                                                 Proj.
                                                                           Production of Tea, Rubber and Fish
•   Coconut production recovered
•   Fish production for Jan-Oct 2011 recorded
    an increase of 15.5%

• Agriculture estimated to contribute about
  US$ 7 billion to the GDP (12%)



                                                                                                   16
UNEMPLOYMENT DECLINED WHILE LABOUR PRODUCTIVITY
             INCREASED….
                                                Unemployment Rate (%)
                      •       Unemployment rate declined to 4.3% in first                                     8.00
                              half of 2011                                                                    7.00          6.5
                                                                                                                                                6.0
                                – Continued employment generation was due                                     6.00                                            5.2
                                                                                                                                                                                5.7
                                                                                                                                                                                               4.9
                                  to reconstruction, infrastructure development                               5.00                                                                                            4.3
                                  and expansion of economic activities                                        4.00
                                – Increase in share of employment in micro                                    3.00
                                  entrepreneurship category                                                   2.00
                                                                                                              1.00
                                – Sharp drop in unemployment among the age
                                                                                                              0.00
                                  group of 15-24 years




                                                                                                                            2006



                                                                                                                                                2007



                                                                                                                                                              2008



                                                                                                                                                                                2009



                                                                                                                                                                                               2010



                                                                                                                                                                                                               2011 H1
             •                Overall labour productivity, measured by GDP
                              per worker, is continuing to improve
                                                                                                                         Unemployment Rates of Advanced and Some
                               – Industry and Service sectors recorded growth in                                             Emerging Economies - 2011 Est.
                                 productivity                                                                                                         20.7
                                                                                                                    22
                      500                        Labour Productivity by Sector
                      450
                                                                                                                                                       16.5
                                                                                                                    17
                      400


                                                                                                         Per cent
Rs. '000 per person




                      350
                                                                                                                    12
                      300                                                                                                                      9.5                                                                       9.1
                                                                                                                            7.6                                                                        7.4         7.8
                      250                                                                                                                6.7         6.0   6.8                  6.46.2
                      200
                                                                                                                    7 5.0                                        4.9
                                                                                                                                   4.0                                                           4.3
                                                                                                                                                                       3.33.2                                3.4
                      150                                                                                                                                                                2.3
                      100                                                                                           2
                      50


                                                                                                                                France




                                                                                                                             Malaysia
                                                                                                                             Australia

                                                                                                                                 China




                                                                                                                                 Japan




                                                                                                                          Switzerland
                                                                                                                           Czech Rep.


                                                                                                                               Greece
                                                                                                                            Indonesia




                                                                                                                         New Zealand




                                                                                                                              Sweden
                                                                                                                                 Korea




                                                                                                                                 Spain
                                                                                                                            Singapore

                                                                                                                             Sri Lanka


                                                                                                                                    UK
                                                                                                                               Canada




                                                                                                                             Germany




                                                                                                                                   USA
                                                                                                                              Pakistan
                          0                                                                                         -3
                                2005      2006         2007          2008       2009   2010       2011

                                       Overall         Agriculture          Industry   Services                                                                            17
AT THE SAME TIME, POVERTY ALLEVIATION HAS BEEN
     GIVEN SERIOUS ATTENTION...

                         Poverty Headcount Index                                                         Poverty HCI
           35
                            (% of population)                                         Sector
                                                                                                 2006/07                2009/2010
           30     28.8

           25                  22.7
                                                                                     Sri Lanka      15.2                       8.9
per cent




           20
                                               15.2
           15                                                                          Urban         6.7                       5.3
                                                                     8.9
           10
                                                                                       Rural        15.7                       9.4
            5

            0                                                                          Estate       32.0                      11.4
                1995/1996      2002         2006/2007           2009/2010
                                                                                                 Source : Department of Census and Statistics
                                      Source : Department of Census and Statistics




                                                                                                                18
THE EXTERNAL SECTOR DISPLAYED STRONG PERFORMANCE
AMIDST THE SLOW PACE RECOVERY IN THE WORLD ECONOMY…
• External trade in 2011 remained strong where
  both exports and imports expanded recording
  51.6% of GDP, up from 44.4% in 2010
• Tourism on an accelerator (1.4% of GDP)
• International investor confidence at high levels
• Expatriate workers’ remittances continued to be
  the foremost foreign exchange earner, recording
  8.8% of GDP, up from 8.3% in 2010
• Consolidation of ‘Middle-Income Emerging
  Market Country’ status




                                                     19
A SIGNIFICANT INCREASE IN EXPORT EARNINGS WAS RECORDED
    DESPITE SLOWER GROWTH IN TRADITIONAL MARKETS…
•              Export earnings increased by over 23% with                                     1,000
                                                                                                                          Earnings from Exports
               continuous growth in exports to the EU and the
                                                                                                       900
               USA
                                                                                                       800
•              Export diversification in terms of markets and




                                                                                             USD mn.
                                                                                                       700
               products
                                                                                                       600

•              Value addition was more price competitive                                               500

•              Exports as a percentage of GDP: 17.7%                                                   400
                                                                                                             Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
                                                                                                                         2009          2010               2011


                            Exports of Garments to the EU                                                           Exports of Garments to the USA
               220                                                                                 160
                                                    2009      2010       2011                                                   2009               2010          2011
               200                                                                                 150
                                                                                                   140
               180
                                                                                                   130
     USD mn.




                                                                                   USD mn.
               160
                                                                                                   120
               140                                                                                 110
               120                                                                                 100
                                                                                                       90
               100
                                                                                                       80
                80
                                                                                                       70
                60                                                                                     60
                     Jan   Feb Mar   Apr May Jun   Jul   Aug Sep   Oct   Nov Dec                             Jan Feb Mar Apr May Jun     Jul       Aug Sep Oct Nov Dec



                                                                                                                                              20
AT THE SAME TIME, IMPORTS EXPANDED AT AN EVEN FASTER
PACE…
•   For the first 10 months of 2011, imports                                       Expenditure on Imports
    expanded by over 50%, y-o-y
                                                                      2,000
     –   Investment goods imports increased by over 60%
                                                                      1,800
     –   Intermediate goods imports increased by over 51%             1,600

     –   Consumer good imports increased by over 47 %                 1,400




                                                            US$ mn.
                                                                      1,200
•   The sharp rise in investment goods imports                        1,000
    was due to expanding infrastructure
                                                                       800
    development projects
                                                                       600

•   The bulk of the expenditure on intermediate                        400
                                                                              Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
    good imports was on account of petroleum
    imports with increases in both volume and                                        2009           2010           2011

    price
•   Consumer goods were driven by motor
    vehicle imports and non-essential goods:
    Higher demand due to increased real
    incomes
•   Imports as a percentage of GDP: 33.9%

                                                                                                     21
IN PARTICULAR, PETROLEUM, MOTOR VEHICLES AND GOLD
IMPORTS SURGED IN 2011…
                                              Imports (US$ mn)
                                                                              Growth             Share of
    Category                                       2010        2011 Est.      Rate (%)         imports (%)
    1. Consumer goods                                  2,870         4,137                44            20.7
        Food and drink                                 1,642         2,108                28            10.5
        Other consumer goods                           1,228         2,029                65            10.1
           Motor Cars, Cycles, Electrical Appl.          632         1,121                77              5.6
          Other                                          596            908               52              4.5

    2. Intermediate goods                             7,496         11,234                50            56.1
         Petroleum                                    3,019          4,505                49            22.5
         Textiles and clothing                        1,732          2,223                28            11.1
         Other intermediate goods                     2,745          4,056                64            22.5
            Gold                                         82            600               632             3.0

    3. Investment goods                               2,909          4,550                56            22.7
         Machinery and equipment                      1,206          1,975                64             9.9
         Transport equipment                            582            990                70             4.9
         Building materials                             810          1,124                39             5.6
         Other investment goods                         312            461                48             2.3

    Total Imports                                    13,451         20,021                49           100.0



                                                                                                 22
TOURISM ENTERED A HIGH GROWTH ERA…
•   Tourist arrivals poised to record 850,000                                                                                                Tourist Arrivals
                                                                         100                                                                                                                                                                              80
    for 2011. Tourist arrivals 758,458 for Jan-                                   90
    Nov 2011, an increase of 33% y-o-y




                                                  No. of Tourist Arrivals ' 000
                                                                                                                                                                                                                                                          60
                                                                                  80




                                                                                                                                                                                                                                                                Year-on-year % change
                                                                                  70
•   Earnings from tourism increased by 47%                                        60
                                                                                                                                                                                                                                                          40


    to US$ 736 million & average spending                                         50                                                                                                                                                                      20

    per tourist per night increased to US$ 97                                     40
                                                                                                                                                                                                                                                          0
                                                                                  30
    from US$ 88 in 2010
                                                                                  20
                                                                                                                                                                                                                                                          -20

•   Western Europe (37%), India (20%), East                                       10

                                                                                  0                                                                                                                                                                       -40
    Asia (11%) and Middle East (7%)




                                                                                                                                    Nov-09




                                                                                                                                                                                           Nov-10




                                                                                                                                                                                                                                                 Nov-11
                                                                                                                           Sep-09




                                                                                                                                                                                 Sep-10




                                                                                                                                                                                                                                        Sep-11
                                                                                       Jan-09




                                                                                                                                             Jan-10




                                                                                                                                                                                                    Jan-11
                                                                                                         May-09




                                                                                                                                                               May-10




                                                                                                                                                                                                                      May-11
                                                                                                Mar-09




                                                                                                                                                      Mar-10




                                                                                                                                                                                                             Mar-11
                                                                                                                  Jul-09




                                                                                                                                                                        Jul-10




                                                                                                                                                                                                                               Jul-11
•   As of November 2011, 197 hotel projects                                                                         No. of Tourist Arrivals                                                                  Growth (%)

    for 12,579 rooms are in the pipeline
•   Tourism as a percentage of GDP: 1.4%




                                                                                                                                                                                          23
SEVERAL ADDITIONS TO TOURISM INDUSTRY ARE EXPECTED TO
    TAKE THE INDUSTRY TO THE NEXT LEVEL….
•   More International Hotel Chains
     - Shangri-La, Sheraton, Hyatt, Sun City
•   11 new airlines have registered since 2010
                       New air lines start after conflict ended in Sri Lanka
         1.Gulf Air             5.China Eastern             9. Aerosvit Airlines
         2.Oman Air             6. Finnair                  10. Hainan Airlines
                                                             11. PIA – Pakistan
         3. Flydubai            7. Nova Airways
                                                                 International Airlines
         4. SpiceJet            8. Aeroflot

•   SriLankan Air Taxis now operate to 14 popular domestic
    tourist destinations
•   “Mirissa” has now established itself as the world’s top spot
    for watching Blue Whales…
•   The East coast and the Southern coastline are becoming
    major attractions for surfers and windsurfers
•   New Shipping lines
     −      Top 20 shipping lines, which contribute to
            80% of international trade, use the Colombo Port


                                                                                          24
WORKERS’ REMITTANCES EMERGED AS THE FOREMOST FOREIGN
          EXCHANGE EARNER INDICATING A MAJOR SHIFT IN SRI LANKA’S
          EXTERNAL SECTOR…
                                 Workers’ Remittances                          • Workers’ remittances estimated to be
          5500                                                      5,231        around US$ 5.2 billion in 2011, up by
          5000
                                                                                 27% from previous year
          4500

          4000
                                                           4,116
                                                                                   – As a percentage of GDP: 8.8%
                                                                                   – As a percentage of total external
US$ mn.




          3500                                     3,330
                                           2,918
          3000
                                   2,502
                                                                                     receipts: 18%
          2500
                 1,919
                         2,161                                                                Results mainly due to…
          2000
                                                                                              •   Attention to skilled labour migration
          1500

          1000
                                                                                              •   Negotiations to increase average
                 2005    2006      2007    2008    2009    2010    2011 Est.                      wages and working conditions
                                                                                              •   Improved arrangements to channel
                                                                                                  remittances through banking sources
                                                                                              •   Positive sentiment on domestic
                                                                                                  environment
                                                                                              •   Diversification in terms of
                                                                                                  employment destinations


                                                                                                                  25
WORKERS’ REMITTANCES AND INFLOWS TO THE SERVICES
ACCOUNT SERVED TO CONTAIN THE WIDENED TRADE DEFICIT…
 • Deficit in trade account is now
                                                        Workers' remittances and inflows to the Services a/c
   offset by:                                       6

                                                    5
    −   Higher inflows of workers’
        remittances                                 4




                                          USD bn.
                                                    3
    −   Surplus in the services account
                                                    2
 • Inflows on account of emerging
                                                    1
   services – transportation,
   computer and information,                        0
                                                         2005       2006     2007      2008    2009      2010    2011 Est
   BPOs, insurance, and business                                Workers' Remittances     Inflows to the Services A/C
   services, also increasing


 THIS NEW TREND SUGGESTS THAT NEW OPPORTUNITIES ARE
 AVAILABLE IN THIS REGARD IN THE FUTURE…
                                                                                                26
FOREIGN CAPITAL INFLOWS CONTINUED TO BE SIGNIFICANT
& PICKED UP MOMENTUM…
• Fourth international sovereign bond in July 2011 was oversubscribed
  by 7.5 times
• FDI exceeded US$ 1,000 million for the first time in history
• Limit on foreign investment in Sri Lanka rupee denominated
  government securities relaxed from 10% to 12.5%
• Further impetus provided to external financing by relaxation of private
  sector external financing
• Gross official reserves being equivalent to cover about 4 months of
  imports
• Exchange rate remained competitive and stable in a highly volatile
  external environment



                                                                 27
THE FOURTH SOVEREIGN BOND ISSUE CLEARLY RESONATED
     WITH INVESTORS…
•       The 10 year bond of US$ 1 bn was oversubscribed                        Investor Mix of 2011 Sovereign Bond Issue
        by over 7.5 times
•       Issue attracted highly diverse investor interest                         Europe
                                                                                 30%
•       ‘Best Sri Lanka Deal’ awarded for the US$1 billion
        10-year sovereign bond by Finance Asia, for the
        second consecutive year
•       Highly competitive yield                                                                                    United States
                                                                              Asia 27%                                  43%
           Harmonised long-term interest rates (% p.a)
    (Period averages; secondary market yields of government bonds with
                       maturities of close to ten years)
                                  Euro area
                                      Jul-11               Nov-11
    Greece                                          16.2            17.9   Sovereign Bond Issues - Amount & Coupon Rate (%)
    Ireland                                         12.4             8.5
    Portugal                                        12.2            11.9
    Spain                                            5.8             6.2
    Italy                                            5.5             7.1
    Belgium                                          4.2             4.8
    France                                           3.4             3.4
    Austria                                          3.4             3.4
    Netherlands                                      3.2             2.4
    Finland                                          3.2             2.5
    Germany                                          2.7             1.9
    Sources: ECB and European Commission
                                           Jul-11          Nov-11
                                                                                                           28
    Sri Lanka                                       5.7             6.2
AS A RESULT, GROSS OFFICIAL RESERVES REMAINED AT
COMFORTABLE LEVELS, ALTHOUGH LOWER THAN AT THE
BEGINNING OF THE YEAR…
• Gross Official Reserves amounted to US$ 6.0 billion by end 2011
  compared to US$ 6.6 bn by end 2010.

                           Gross Official Reserves (Without ACU balances) and Months of Imports
                           7.0                                                                             9.0

                                                                                                           8.0
                           6.0
                                                                                                           7.0
                           5.0
                                                                                                           6.0




                                                                                                                 US$ bn.
                           4.0                                                                             5.0
       Months of Imports




                           3.0                                                                             4.0

                                                                                                           3.0
                           2.0
                                                                                                           2.0
                           1.0
                                                                                                           1.0

                           0.0                                                                             0.0
                                 Feb-09




                                 Feb-10




                                 Feb-11
                                 Jan-09




                                 Jun-09
                                  Jul-09




                                 Jan-10




                                 Jun-10
                                  Jul-10




                                 Jan-11




                                 Jun-11
                                  Jul-11
                                 Mar-09




                                 Mar-10




                                 Mar-11
                                 Nov-09
                                 Dec-09




                                 Nov-10
                                 Dec-10




                                 Nov-11
                                 Dec-11
                                 May-09


                                 Aug-09
                                 Sep-09
                                 Oct-09




                                 May-10


                                 Aug-10
                                 Sep-10
                                 Oct-10




                                 May-11


                                 Aug-11
                                 Sep-11
                                 Oct-11
                                 Apr-09




                                 Apr-10




                                 Apr-11

                                    Gross Official Reserves (Right Axis)   Months of Imports (Left Axis)



                                                                                                                           29
DURING 2011, INTERNATIONAL RESERVES WERE ACCUMULATED
TO HISTORICALLY HIGH LEVELS, AND ALLOWED TO DECLINE
TOWARDS THE END OF THE YEAR…
• Foreign reserves, stood at US$ 6.6 billion on 30 December 2010 and increased to a
  record high level of US$ 8.2 billion by mid August 2011, due to large-scale absorption
  of foreign exchange by the Central Bank
• Thereafter, there was a draw down of reserves, mainly due to significant supply of
  foreign exchange to the market by the Central Bank
• Yet, The current level of reserves is well above the level needed to:

    – Maintain confidence in the policies for monetary and exchange rate management including
      the capacity to intervene
    – Limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during
      times of crisis or when private access to borrowing is slow
    – Assist the government in meeting its foreign exchange needs and external debt obligations

• The current reserve level is also higher than the reserves level contemplated of 3.5
  months imports equivalent, which was envisaged at the time of entering into the
  Stand-by Arrangement with the IMF

                                                                                  30
THE CENTRAL BANK HAS BEEN CONFIDENT OF ITS STANCE IN
THE SECOND HALF OF 2011, SINCE SUBSTANTIAL FOREIGN
EXCHANGE INFLOWS ARE EXPECTED IN 2012…

• Expected inflows in 2012 are well over US$ 25 billion:

  Exports: US$ 12.5 bn                          Major Corporates’ capital from abroad: US$ 500
                                                  mn
  Tourism: US$ 1.2 bn (1.8% of GDP)
                                                 Special long term financing expected for
  Expat Workers’ remittances: US$ 6.5 bn         Petroleum: US$ 1.0 bn
   (9.8% of GDP)
                                                 Long-term currency swaps: US$ 500 mn
  Foreign Direct Investments: US$ 2.0 bn
   (2.9% of GDP)                                 Net Stock Market inflows: US$ 500 mn

  Commercial Banks’ Tier II capital: US$ 1 bn   Net Treasury Bill & Bond inflows: US$ 500 mn




                                                                               31
AS A RESULT OF THE CENTRAL BANK POLICIES, THE EXCHANGE
                         RATE IN 2011 DID NOT SUFFER UNNECESSARY VOLATILITY...
                          •                The Central Bank absorbed and supplied foreign currency to avoid excessive
                                           volatility in the domestic foreign exchange market and to maintain stability.

                          •                The Central Bank also accommodated the high growth driven demand for the
                                           increased import of intermediate and investment goods.
                          •                Overall, the Rupee depreciated against the US dollar by 2.6% in 2011


                Daily Sri Lanka Rupee/US Dollar                                                                                              Daily Sri Lanka Rupee/Sterling                                                                                                    Daily Sri Lanka Rupee/EURO
                  Exchange Rate Movements                                                                                                   Pound Exchange Rate Movements                                                                                                      Exchange Rate Movements

                                                                                                                                  200                                                                                                                          180
          121                                                                                                                     195                                                                                                                          175
          119                                                                                                                     190                                                                                                                          170
                                                                                                                                  185                                                                                                                          165
          117                                                                                                                     180                                                                                                                          160
                                                                                                                            Rs./GBP
Rs./USD




                                                                                                                                                                                                                                                    Rs./EURO
                                                                                                                                  175                                                                                                                          155
          115
                                                                                                                                  170                                                                                                                          150
          113                                                                                                                     165                                                                                                                          145
                                                                                                                                  160                                                                                                                          140
          111
                                                                                                                                  155                                                                                                                          135
          109                                                                                                                     150
                                                                                                                                                                                                                                                               130
                                                                                                                                                          Jul-09




                                                                                                                                                                                              Jul-10




                                                                                                                                                                                                                                  Jul-11
                                                                                                                                        Jan-09




                                                                                                                                                                            Jan-10




                                                                                                                                                                                                                Jan-11
                                                                                                                                                 Apr-09



                                                                                                                                                                   Oct-09



                                                                                                                                                                                     Apr-10



                                                                                                                                                                                                       Oct-10



                                                                                                                                                                                                                         Apr-11



                                                                                                                                                                                                                                           Oct-11
                                  Jul-09




                                                                      Jul-10




                                                                                                          Jul-11
                Jan-09




                                                    Jan-10




                                                                                        Jan-11
                         Apr-09


                                           Oct-09


                                                             Apr-10


                                                                               Oct-10


                                                                                                 Apr-11


                                                                                                                   Oct-11




                                                                                                                                                                                                                                                                                       Jul-09




                                                                                                                                                                                                                                                                                                                           Jul-10




                                                                                                                                                                                                                                                                                                                                                               Jul-11
                                                                                                                                                                                                                                                                     Jan-09




                                                                                                                                                                                                                                                                                                         Jan-10




                                                                                                                                                                                                                                                                                                                                             Jan-11
                                                                                                                                                                                                                                                                              Apr-09



                                                                                                                                                                                                                                                                                                Oct-09



                                                                                                                                                                                                                                                                                                                  Apr-10



                                                                                                                                                                                                                                                                                                                                    Oct-10



                                                                                                                                                                                                                                                                                                                                                      Apr-11



                                                                                                                                                                                                                                                                                                                                                                        Oct-11
                                                                                                                                                                                                                                                                                                          32
AT THE SAME TIME, THE FISCAL CONSOLIDATION EFFORT
 CONTINUED, WHILE MAINTAINING PUBLIC INVESTMENT AT
 HIGH LEVELS…
                                                                         Overall Fiscal Deficit (as a % of GDP)               2011 Rev
                                                                2004     2005     2006    2007    2008     2009       2010       Est
• The overall fiscal deficit is                       0

  estimated to be below 7% of GDP                   -2

  in 2011, down from 8% in 2010,                    -4




                                      Per cent
  mainly due to expenditure                         -6

  containment policies                              -8          (7.5)
                                                                         (7.0)    (7.0)   (6.9)   (7.0)                         (7.0)
                                                                                                                      (8.0)


• Such consolidation is expected to
                                                 -10                                                       (9.9)

                                                 -12
  be achieved, even while                                   8
                                                                    Public Investment (as a percentage of GDP)
                                                                                                               6.8
  maintaining public investment at                          7              6.3      6.3     6.4
                                                                                                    6.0
                                                                                                                        6.4
                                                                                                                                 6.0
  6% of GDP in 2011                                         6
                                                                  4.8
                                                            5
                                                 Per cent
                                                            4
                                                            3
                                                            2
                                                            1
                                                            0
                                                                  2004     2005    2006    2007    2008        2009    2010      2011
                                                                                                                                Rev Est



                                                                                                          33
LEADING TO THE DEBT TO GDP RATIO ESTIMATED TO FALL TO 78%
 IN 2011, WHILE IN MANY COUNTRIES THIS RATIO HAS SOARED…
                                                                                          Selected Countries’ Debt to GDP ratios - 2010
                                                                                     250
                                                                                                                                                          220.0

                                                                                     200
                                                                                                                    142.8
                             Sri Lanka




                                                                          Per cent
                                                                                     150
                                                                                                                                               119.0
            Outstanding Government Debt (as a % of GDP)                              100    82.3 84.0
                                                                                                                                  94.9                                  92.9 96.3
                                                                                                                                                                                                                            81.9 75.5
                                                                                                                                                                                                                                                  94.4

           90                                                                                                                                                                                               60.1
                                                                                     50
           88   87.9
                                     86.2                                             0
           86




                                                                                                                       Greece




                                                                                                                                                                                                                                                    USA
                                                                                                                                                                          Portugal
                                                                                                                                                 Italy
                                                                                              France




                                                                                                                                                                                                                                 Sri Lanka
                                                                                                                                                            Japan



                                                                                                                                                                                             Singapore

                                                                                                                                                                                                                 Spain
                                                                                                          Germany




                                                                                                                                                                                                                                             UK
                                                                                                                                    Ireland
                       85.0
           84
                                            81.9                                                                    Estimates for 2011
Per cent




           82                 81.4
                                                                                 250                                                                  233.1

           80
                                                                                 200
                                                     78.2                                                        165.6
           78
                                                                                 150
                                                                                                                                  121.1




                                                               Per cent
           76                                                                                                                109.3                               106.0
                                                                                                                                                                                93.5                                                         100.0
                                                                                 100       86.8 82.6
                                                                                                                                                                                                                   78.2 80.8
                                                                                                                                                                                                   67.4
           74
                                                                                     50
           72
                2006   2007   2008   2009   2010   2011 Est.                          0




                                                                                                                    Greece
                                                                                            France




                                                                                                                                              Italy
                                                                                                                                                         Japan




                                                                                                                                                                                                                                              USA
                                                                                                                                Ireland




                                                                                                                                                                                                         Spain
                                                                                                                                                                                     Singapore




                                                                                                                                                                                                                                        UK
                                                                                                       Germany




                                                                                                                                                                    Portugal




                                                                                                                                                                                                                     Sri Lanka
                                                                     Source: IMF WEO September 2011 & MOFP


                                                                                                                                                                 34
THE RISK INDICATORS OF SRI LANKAN PUBLIC DEBT IMPROVED,
IN A TIME WHERE GLOBAL RISK HAS BEEN RISING…

                                                 Less       Moderately                Highly             Sri Lanka
Indicator
                                               Indebted      Indebted                Indebted              2011

Disbursed External Debt Outstanding/Gross
                                                <30%      >30% and <50%                >50%                36.0%
National Income

Disbursed External Debt Outstanding/Exports
                                               <165%      >165% and <275%             >275%               155.6%
of Goods and Non Factor Services

Total External Debt Service Payments/Exports
                                                <18%      >18% and <30%                >30%                 9.1%
of Goods and Non-Factor Services

External Interest Payments/Exports of Goods
                                                <12%      >12% and <20%                >20%                 2.9%
and Non-Factor Services


Net Present Value/Gross National Income         <48%      >48% and <80%                >80%               36.9% *

Net Present Value/Exports of Goods and Non-
                                               <132%      >132% and <220%             >220%              119.7% *
Factor Services

* Data for 2010                                             Source: Manual on Effective Debt Management, UN-ESCAP, 2006.




                                                                                                  35
THE CONTINUOUS UPGRADE IN INFRASTRUCTURE GREATLY
ENHANCED THE COUNTRY’S PRODUCTIVE CAPACITY…
– Road development projects
     •   The Southern Highway Project, (Stage 1 : completed and Phase 2 in progress)
     •   The Colombo - Katunayake Expressway (Completion by 2013)
     •   The Colombo Outer Circular Road Project (Completion by 2013)
– Power projects
     •   Upper Kothmale Hydro Power Plant will be commissioned shortly
     •   Norochcholai Coal Power Plant (Phase 1 : Completed, Phase 2 in progress)
     •   Uma Oya Hydro Power Project (Completion by 2014)
     •   Moragahakanda and Kaluganga Reservoir Projects (In progress)
     •   Sampur Coal Power Project will be commissioned by 2017

– Port development projects
     •   The South Colombo Harbour Project, (Phase 1 Completion by 2013)
     •   The Hambantota Port Development Project (Phase 1 : Completed)
     •   The Oluvil Port Development Project (Completion by 2012)
     •   The Galle Port (In progress)
     •   The Kankasanthurei Port (In progress)
– Several mega hotel projects, condominiums, shopping malls,
  development of North and East, and water supply projects
– On-going rural infrastructure development projects
     •   Gama Neguma, Maga Neguma, Small Irrigation Projects, Kirigammana projects, etc.
– Lighting Sri Lanka (Targeted 100% electricity coverage by 2013)

                                                                                           36
ON THE BACK OF SUCH INFRASTRUCTURE UPGRADE, PRIVATE
    SECTOR INVESTMENTS HAVE BEEN ON THE RISE…
•   New terminal at Colombo South Port:         •   197 Hotel projects and other Tourism
    US$ 500 mn project - just commenced             related projects
•   Petroleum exploration in the Mannar              – Shangri-La, Sheraton, Hyatt and Sun
    basin in progress                                  City
•   New industries at Hambantota Port           •   Universities/Hospitals
     – 4 new industries have received Cabinet        – Expansion of local universities and
       approval                                        private education opportunities
         • Sugar Refinery plant
                                                •   ICT, BPO projects, Hambantota Sports
         • Cement binding and bagging plant
                                                    City
         • Fertilizer complex
                                                •   Fisheries: deep sea fishing, cold
         • Petrochemical plant
                                                    stores
     – Many more industries in the
       pipeline: Warehousing, Vehicle
       Assembly, etc.
                                                                             37
THE CENTRAL BANK’S MONETARY POLICY STANCE IN 2011,
 WAS CAUTIOUS AND CONSISTENT, & DELIVERED STABILITY…
                                                   %               Policy Interest Rates of the Central Bank and
                                                                      the Average Weighted Call Money Rate
• Policy interest rates in 2011                   18   17.00
                                                         16.50
  remained unchanged after one                    14
                                                           14.75
                                                              13.00
  downward adjustment in January                       11.75
                                                        10.25
                                                                11.50
                                                                  11.00 10.50
                                                  10
  2011                                                         9.00
                                                                   8.50
                                                                              9.75
                                                                        8.00 7.50
                                                                                                9.50

                                                                                               7.25
                                                                                                   9.00      8.50
                                                                                                             7.00
                                                  6




                                                       Feb-09




                                                       Feb-10




                                                       Feb-11
                                                       Mar-09


                                                       Jun-09
                                                        Jul-09




                                                       Jan-10

                                                       Mar-10

                                                       Jun-10
                                                        Jul-10




                                                       Jan-11

                                                       Mar-11


                                                       Jun-11
                                                       Dec-08




                                                       Oct-09
                                                       Nov-09
                                                       Dec-09




                                                       Oct-10
                                                       Dec-10




                                                       Oct-11
                                                       Nov-11
                                                       Dec-11
                                                       May-09


                                                       Sep-09




                                                       May-10


                                                       Aug-10
                                                       Sep-10




                                                       May-11

                                                       Aug-11
                                                       Sep-11
                                                       Apr-09




                                                       Apr-11
• Weighted average call money rate
  continued to remain largely stable                       AWCMR                Repo              Reverse Repo               Penal Rate
  within the policy rate corridor
                                                                       Deposit Rates of Commercial Banks,
                                                  25                   Treasury bill yield and Monthly AWPR
• Market interest rates remained
                                                  20
  broadly stable.
                                                  15
                                       Per cent


• Slight increase in rates witnessed              10


  towards end of 2011                              5


                                                   0   Sep-07




                                                       Sep-08




                                                       Sep-09




                                                       Sep-10




                                                       Sep-11
                                                        Jan-07

                                                       May-07




                                                        Jan-08

                                                       May-08




                                                        Jan-09

                                                       May-09




                                                        Jan-10

                                                       May-10




                                                        Jan-11

                                                       May-11
                                                       Nov-07




                                                       Nov-08




                                                       Nov-09




                                                       Nov-10




                                                       Nov-11
                                                       Mar-07




                                                       Mar-08




                                                       Mar-09




                                                       Mar-10




                                                       Mar-11
                                                         Jul-07




                                                         Jul-08




                                                         Jul-09




                                                         Jul-10




                                                         Jul-11
                                                                      Average Weighted Prime Lending Rate - AWPR (Monthly)
                                                                      Average Weighted Deposit Rate - AWDR
                                                                      Average Weighted Fixed Deposit Rate - AWFDR
                                                                      Primary Market Yield on 91-day Treasury bills


                                                                                                          38
SRI LANKA STATUS
SRI LANKA STATUS
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SRI LANKA STATUS
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SRI LANKA STATUS

  • 2. 2012 IS THE SIXTH CONSECUTIVE YEAR THAT WE COMMUNICATE OUR PLANS FOR THE FORTHCOMING PERIOD 2
  • 3. TODAY’S STATEMENT WILL BE IN 7 PARTS… 1. Background and Introduction to the Road Map 2. Key Macroeconomic Developments in 2011 3. Developments in the Financial System in 2011 4. Macroeconomic Outlook and Proposed Monetary Policy Strategy for 2012 and Beyond 5. Proposed Strategies for Financial System Stability for 2012 and Beyond 6. Policies to Strengthen the Economy in 2012 and Beyond 7. Concluding Remarks 3
  • 4. 1. BACKGROUND AND INTRODUCTION TO THE ROAD MAP A quiet peek into history is always useful… 4
  • 5. SRI LANKA INTRODUCED OPEN ECONOMIC POLICIES FROM 1978… • Adoption of more market oriented policies promoting greater private sector participation in economic activity • De-regulation of interest rates • Relaxation of exchange controls • Removal of price controls • Elimination of quantitative restrictions on imports • Foreign banks permitted to open branches in the country • Establishment of new domestic private banks • Adoption of export market oriented industrial policy • Promotion of private sector and foreign investments 5
  • 6. FURTHER RELAXATION OF POLICY MEASURES TOOK PLACE FROM 1990 TO 2005… • Extensive privatisation programme • Medium term budget deficit reduction programme • Liberalisation of current account transactions in 1994 • Gradual liberalisation of capital account, commencing 1997 • Independently floating exchange rate policy, commencing 2001 • Export oriented industrialisation policy further strengthened • Tax reforms and incentives to encourage private sector investments 6
  • 7. FROM 2006 ONWARDS, POLICY MEASURES WERE BASED ON THE MAHINDA CHINTANA… • Transforming the country into an • Fiscal consolidation and prudent debt economic hub in the region management • “Inclusive growth” policy and many • Foreign investment policy directed towards incentives to promote the SME sector attracting large scale strategic investments and Local entrepreneurship • Emphasis on export of high value added • Balanced Regional Development promotion manufactured products • Emphasis on the development of the • Export oriented industrialisation Northern and Eastern Provinces policy further strengthened • Strong focus on Food Security • Monetary Policy and Exchange Rate Policy implemented to facilitate stability • Address infrastructure bottlenecks by implementing a mega infrastructure • Expansion of domestic banking activities to development drive regional areas including the North and East • Relaxation of exchange control regulations • Strengthen the banking sector and capital to address the Savings and Investment gap market • Tax reforms and incentives to encourage private sector investments 7
  • 8. MAHINDA CHINTANA: VISION FOR THE FUTURE ENVISAGES THE TRANSFORMATION OF SRI LANKA INTO AN ECONOMIC HUB IN SOUTH ASIA AND DOUBLING OF PER CAPITA INCOME TO US$ 4,000 BY 2016… Aviation Hub  Second international airport at Mattala  Modernisation of the Bandaranaike International Airport (BIA) Maritime Hub and building of second runway at the BIA  Colombo Port – Container mega hub  Development and upgrading of domestic airports Commercial Hub  Hambantota Port – Free port-service,  Position Colombo as a regional logistics and  Establish Sri Lanka as the industrial and multi-purpose services hub and as a hub for budget airlines foremost centre in the region in the provision of commercial services,  Galle Port – Cruise shipping centre International banking and  Trincomalee – Port-related industries international investments  With growth of ports and tourism, Sri Lanka’s  Oluvil Port – Commercial and fisheries South Asian commercial sector will develop naturally  Kankasanthurei & Point Pedro – Regional ports Economic Hub Energy Hub  Develop renewable Knowledge Hub energy sources  Target IT literacy and internet access for all  New oil refinery at Hambantota  Creation of knowledge-based jobs  Oil exploration and production – 3 sea basins (offshore)  Commence degree programmes have been identified directly targeting foreign students (Mannar, Cauvery, Southern Waters)  Accredited foreign universities to set up university  Develop oil trade-related ancilliary services colleges in Sri Lanka including gas 8
  • 9. 2. KEY MACROECONOMIC DEVELOPMENTS IN 2011 Since the start of the global crisis in 2007, each year seems to be more challenging than the previous one… “The world has moved from a troubled multi-speed recovery … to a new and more dangerous phase.” Robert Zoellick - President, World Bank “During the past year, the Central Bank of Sri Lanka took courageous decisions that were based on its core objectives. The Bank took advantage of the structural changes that were emerging in the economy. It also made the necessary interventions to fashion the country’s economic journey on a “fast track” basis” 9
  • 10. THE PROTRACTED EUROZONE DEBT CRISIS AND LOSS OF CONFIDENCE HAS SLOWED THE GLOBAL RECOVERY… % GDP Growth estimates (%) 8 • Estimates of World Economic 6 growth 4  World economy: 2 2010: 5.1% 0 2009 2010 2011 2012 2013 2014 2015 2016 2011: 4.0% -2 2012: 4.0% -4  Advanced economies: -6 World Advanced economies Emerging and developing economies 2010: 3.1% 2011: 1.6% 16 GDP Growth of Selected countries (2010-2011) 2012: 1.9% 14 12  Emerging & developing 10 Per cent economies: 8 6 2010: 7.3% 4 2 2010 2011: 6.4% 0 2011 -2 2012: 6.1% France Bangladesh Japan India Canada Germany United States Australia China Pakistan Spain Thailand Korea Malaysia Sri Lanka Singapore United Kingdom Source : IMF, WEO Database, Sep 2011 10
  • 11. THE BELIEF THAT THE WORLD ECONOMIC GROWTH WOULD CONTINUE TO BE SLUGGISH IN 2012 IS GAINING GROUND… • The Central Bank’s own projections and policy propositions have been based on assumptions and judgments, which would need to be modified in line with emerging developments in the global as well as Sri Lankan economy. • Naturally therefore, any deviations in trends in the economy would be watched even more closely, and policies and strategies altered, going forward… 11
  • 12. NEVERTHELESS, ASIA’S IMPORTANCE IN THE GLOBAL ECONOMY HAS BEEN STEADILY RISING… Asia’s Share of Global GDP, 1700-2050 Source: Asia 2050 – Realising the Asia Century, ADB 2011 12
  • 13. IN THIS SCENARIO, THE SRI LANKAN ECONOMY HAS ACHIEVED A HIGH GROWTH PATH… • The growth in 2011 is estimated at 8.3% • Sovereign Credit Ratings, Doing Business Index, FDI, etc. on the rise • First time in history to record over 8% growth in two consecutive years • Continuation of fiscal consolidation process • GDP ESTIMATED TO EXCEED US$ 59 BILLION & GDP PER CAPITA TO REACH US$ 2,830 • Lowest unemployment rate of 4.3% • Inflation steadied at mid-single digit level • Significant reduction in poverty • Comparatively low interest rate environment Real GDP Growth • Savings and investments on a steady growth 9 7.7 8.0 8.3 8 path 6.8 7 6.0 • External trade on a buoyant path 6 Per cent 5 • Foreign reserves preserved at a comfortable 4 3.5 level 3 2 • Stable exchange rate 1 0 • Some pressure on BOP was observed 2006 2007 2008 2009 2010 2011 Est 13
  • 14. THE SERVICES SECTOR CONTRIBUTION TO THE GROWTH WAS SIGNIFICANT… Services Sector and GDP Growth Services sector estimated to grow by 8.6% in 2011 10 • Services sector growth was 8.7% for the first 8 three quarters of 2011 6 • Healthy growth in consumer demand for Per cent 4 services with increasing real income level in the country 2 • Wholesale and retail trade, port operations, 0 2007 2008 2009 2010 2011 Proj. cargo and container handling, post and Services GDP telecommunication, banking, insurance and Performance of the Ports real estate continued to expand 66 4,500 • Transport and communication grew with 62 58 4,000 gradual integration of Northern and Eastern 54 3,500 Metric Tonnes mn. 50 Provinces with the rest of the economy TEUs '000 46 3,000 42 38 2,500 • Services estimated to 34 30 2,000 contribute about US$ 34 billion 2006 2007 2008 2009 2010 2011 to the GDP (58%) Cargo Handling (Proj.) Container Throughput (Right Axis) 14
  • 15. THE INDUSTRY SECTOR RECORDED THE HIGHEST SECTORAL GROWTH… Industry sector estimated to grow by 10.1% in 2011 Industry Sector Quarterly Growth Rates (2009-2011) • Industry sector growth was 10.5 % during the 12.0 first three quarters of 2011 10.0 Growth Rate (%) • Increased demand from both domestic and 8.0 external sectors 6.0 4.0 • Manufacturing, mining and quarrying, 2.0 electricity, gas and water and construction 0.0 sub-sectors recorded higher growth rates Quarter 1 Quarter 2 Quarter 3 Quarter 4 • Factory industry grew by 8.4 % during the first 2009 2010 2011 Est three quarters of 2011 mainly due to export Factory Industry Quarterly Growth Rates (2009-2011) market oriented industries, despite global 10.0 economic slowdown 8.0 Growth Rate (%) • Food, beverages and Tobacco industries 6.0 performed exceptionally well 4.0 2.0 • Industries estimated to contribute about 0.0 US$ 18 billion to the GDP (30%) Quarter 1 Quarter 2 Quarter 3 Quarter 4 2009 2010 2011 Est 15
  • 16. THE AGRICULTURE SECTOR GROWTH WAS AFFECTED, BUT RECOVERED… Agriculture sector is estimated to grow by 2.0% in 2011 5,000 Paddy Production • Sector contracted by 1.8% in the first half 4,500 of 2011 due to adverse weather 4,000 3,500 Production mt. 3,000 • Fertilizer support programme and high 2,500 prices in first half of 2011 helped 2,000 1,500 production of export agriculture 1,000 500 • Rubber production and prices remained - 2006 2007 2008 2009 2010 2011 2012 strong Proj. Production of Tea, Rubber and Fish • Coconut production recovered • Fish production for Jan-Oct 2011 recorded an increase of 15.5% • Agriculture estimated to contribute about US$ 7 billion to the GDP (12%) 16
  • 17. UNEMPLOYMENT DECLINED WHILE LABOUR PRODUCTIVITY INCREASED…. Unemployment Rate (%) • Unemployment rate declined to 4.3% in first 8.00 half of 2011 7.00 6.5 6.0 – Continued employment generation was due 6.00 5.2 5.7 4.9 to reconstruction, infrastructure development 5.00 4.3 and expansion of economic activities 4.00 – Increase in share of employment in micro 3.00 entrepreneurship category 2.00 1.00 – Sharp drop in unemployment among the age 0.00 group of 15-24 years 2006 2007 2008 2009 2010 2011 H1 • Overall labour productivity, measured by GDP per worker, is continuing to improve Unemployment Rates of Advanced and Some – Industry and Service sectors recorded growth in Emerging Economies - 2011 Est. productivity 20.7 22 500 Labour Productivity by Sector 450 16.5 17 400 Per cent Rs. '000 per person 350 12 300 9.5 9.1 7.6 7.4 7.8 250 6.7 6.0 6.8 6.46.2 200 7 5.0 4.9 4.0 4.3 3.33.2 3.4 150 2.3 100 2 50 France Malaysia Australia China Japan Switzerland Czech Rep. Greece Indonesia New Zealand Sweden Korea Spain Singapore Sri Lanka UK Canada Germany USA Pakistan 0 -3 2005 2006 2007 2008 2009 2010 2011 Overall Agriculture Industry Services 17
  • 18. AT THE SAME TIME, POVERTY ALLEVIATION HAS BEEN GIVEN SERIOUS ATTENTION... Poverty Headcount Index Poverty HCI 35 (% of population) Sector 2006/07 2009/2010 30 28.8 25 22.7 Sri Lanka 15.2 8.9 per cent 20 15.2 15 Urban 6.7 5.3 8.9 10 Rural 15.7 9.4 5 0 Estate 32.0 11.4 1995/1996 2002 2006/2007 2009/2010 Source : Department of Census and Statistics Source : Department of Census and Statistics 18
  • 19. THE EXTERNAL SECTOR DISPLAYED STRONG PERFORMANCE AMIDST THE SLOW PACE RECOVERY IN THE WORLD ECONOMY… • External trade in 2011 remained strong where both exports and imports expanded recording 51.6% of GDP, up from 44.4% in 2010 • Tourism on an accelerator (1.4% of GDP) • International investor confidence at high levels • Expatriate workers’ remittances continued to be the foremost foreign exchange earner, recording 8.8% of GDP, up from 8.3% in 2010 • Consolidation of ‘Middle-Income Emerging Market Country’ status 19
  • 20. A SIGNIFICANT INCREASE IN EXPORT EARNINGS WAS RECORDED DESPITE SLOWER GROWTH IN TRADITIONAL MARKETS… • Export earnings increased by over 23% with 1,000 Earnings from Exports continuous growth in exports to the EU and the 900 USA 800 • Export diversification in terms of markets and USD mn. 700 products 600 • Value addition was more price competitive 500 • Exports as a percentage of GDP: 17.7% 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 2011 Exports of Garments to the EU Exports of Garments to the USA 220 160 2009 2010 2011 2009 2010 2011 200 150 140 180 130 USD mn. USD mn. 160 120 140 110 120 100 90 100 80 80 70 60 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 20
  • 21. AT THE SAME TIME, IMPORTS EXPANDED AT AN EVEN FASTER PACE… • For the first 10 months of 2011, imports Expenditure on Imports expanded by over 50%, y-o-y 2,000 – Investment goods imports increased by over 60% 1,800 – Intermediate goods imports increased by over 51% 1,600 – Consumer good imports increased by over 47 % 1,400 US$ mn. 1,200 • The sharp rise in investment goods imports 1,000 was due to expanding infrastructure 800 development projects 600 • The bulk of the expenditure on intermediate 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec good imports was on account of petroleum imports with increases in both volume and 2009 2010 2011 price • Consumer goods were driven by motor vehicle imports and non-essential goods: Higher demand due to increased real incomes • Imports as a percentage of GDP: 33.9% 21
  • 22. IN PARTICULAR, PETROLEUM, MOTOR VEHICLES AND GOLD IMPORTS SURGED IN 2011… Imports (US$ mn) Growth Share of Category 2010 2011 Est. Rate (%) imports (%) 1. Consumer goods 2,870 4,137 44 20.7 Food and drink 1,642 2,108 28 10.5 Other consumer goods 1,228 2,029 65 10.1 Motor Cars, Cycles, Electrical Appl. 632 1,121 77 5.6 Other 596 908 52 4.5 2. Intermediate goods 7,496 11,234 50 56.1 Petroleum 3,019 4,505 49 22.5 Textiles and clothing 1,732 2,223 28 11.1 Other intermediate goods 2,745 4,056 64 22.5 Gold 82 600 632 3.0 3. Investment goods 2,909 4,550 56 22.7 Machinery and equipment 1,206 1,975 64 9.9 Transport equipment 582 990 70 4.9 Building materials 810 1,124 39 5.6 Other investment goods 312 461 48 2.3 Total Imports 13,451 20,021 49 100.0 22
  • 23. TOURISM ENTERED A HIGH GROWTH ERA… • Tourist arrivals poised to record 850,000 Tourist Arrivals 100 80 for 2011. Tourist arrivals 758,458 for Jan- 90 Nov 2011, an increase of 33% y-o-y No. of Tourist Arrivals ' 000 60 80 Year-on-year % change 70 • Earnings from tourism increased by 47% 60 40 to US$ 736 million & average spending 50 20 per tourist per night increased to US$ 97 40 0 30 from US$ 88 in 2010 20 -20 • Western Europe (37%), India (20%), East 10 0 -40 Asia (11%) and Middle East (7%) Nov-09 Nov-10 Nov-11 Sep-09 Sep-10 Sep-11 Jan-09 Jan-10 Jan-11 May-09 May-10 May-11 Mar-09 Mar-10 Mar-11 Jul-09 Jul-10 Jul-11 • As of November 2011, 197 hotel projects No. of Tourist Arrivals Growth (%) for 12,579 rooms are in the pipeline • Tourism as a percentage of GDP: 1.4% 23
  • 24. SEVERAL ADDITIONS TO TOURISM INDUSTRY ARE EXPECTED TO TAKE THE INDUSTRY TO THE NEXT LEVEL…. • More International Hotel Chains - Shangri-La, Sheraton, Hyatt, Sun City • 11 new airlines have registered since 2010 New air lines start after conflict ended in Sri Lanka 1.Gulf Air 5.China Eastern 9. Aerosvit Airlines 2.Oman Air 6. Finnair 10. Hainan Airlines 11. PIA – Pakistan 3. Flydubai 7. Nova Airways International Airlines 4. SpiceJet 8. Aeroflot • SriLankan Air Taxis now operate to 14 popular domestic tourist destinations • “Mirissa” has now established itself as the world’s top spot for watching Blue Whales… • The East coast and the Southern coastline are becoming major attractions for surfers and windsurfers • New Shipping lines − Top 20 shipping lines, which contribute to 80% of international trade, use the Colombo Port 24
  • 25. WORKERS’ REMITTANCES EMERGED AS THE FOREMOST FOREIGN EXCHANGE EARNER INDICATING A MAJOR SHIFT IN SRI LANKA’S EXTERNAL SECTOR… Workers’ Remittances • Workers’ remittances estimated to be 5500 5,231 around US$ 5.2 billion in 2011, up by 5000 27% from previous year 4500 4000 4,116 – As a percentage of GDP: 8.8% – As a percentage of total external US$ mn. 3500 3,330 2,918 3000 2,502 receipts: 18% 2500 1,919 2,161 Results mainly due to… 2000 • Attention to skilled labour migration 1500 1000 • Negotiations to increase average 2005 2006 2007 2008 2009 2010 2011 Est. wages and working conditions • Improved arrangements to channel remittances through banking sources • Positive sentiment on domestic environment • Diversification in terms of employment destinations 25
  • 26. WORKERS’ REMITTANCES AND INFLOWS TO THE SERVICES ACCOUNT SERVED TO CONTAIN THE WIDENED TRADE DEFICIT… • Deficit in trade account is now Workers' remittances and inflows to the Services a/c offset by: 6 5 − Higher inflows of workers’ remittances 4 USD bn. 3 − Surplus in the services account 2 • Inflows on account of emerging 1 services – transportation, computer and information, 0 2005 2006 2007 2008 2009 2010 2011 Est BPOs, insurance, and business Workers' Remittances Inflows to the Services A/C services, also increasing THIS NEW TREND SUGGESTS THAT NEW OPPORTUNITIES ARE AVAILABLE IN THIS REGARD IN THE FUTURE… 26
  • 27. FOREIGN CAPITAL INFLOWS CONTINUED TO BE SIGNIFICANT & PICKED UP MOMENTUM… • Fourth international sovereign bond in July 2011 was oversubscribed by 7.5 times • FDI exceeded US$ 1,000 million for the first time in history • Limit on foreign investment in Sri Lanka rupee denominated government securities relaxed from 10% to 12.5% • Further impetus provided to external financing by relaxation of private sector external financing • Gross official reserves being equivalent to cover about 4 months of imports • Exchange rate remained competitive and stable in a highly volatile external environment 27
  • 28. THE FOURTH SOVEREIGN BOND ISSUE CLEARLY RESONATED WITH INVESTORS… • The 10 year bond of US$ 1 bn was oversubscribed Investor Mix of 2011 Sovereign Bond Issue by over 7.5 times • Issue attracted highly diverse investor interest Europe 30% • ‘Best Sri Lanka Deal’ awarded for the US$1 billion 10-year sovereign bond by Finance Asia, for the second consecutive year • Highly competitive yield United States Asia 27% 43% Harmonised long-term interest rates (% p.a) (Period averages; secondary market yields of government bonds with maturities of close to ten years) Euro area Jul-11 Nov-11 Greece 16.2 17.9 Sovereign Bond Issues - Amount & Coupon Rate (%) Ireland 12.4 8.5 Portugal 12.2 11.9 Spain 5.8 6.2 Italy 5.5 7.1 Belgium 4.2 4.8 France 3.4 3.4 Austria 3.4 3.4 Netherlands 3.2 2.4 Finland 3.2 2.5 Germany 2.7 1.9 Sources: ECB and European Commission Jul-11 Nov-11 28 Sri Lanka 5.7 6.2
  • 29. AS A RESULT, GROSS OFFICIAL RESERVES REMAINED AT COMFORTABLE LEVELS, ALTHOUGH LOWER THAN AT THE BEGINNING OF THE YEAR… • Gross Official Reserves amounted to US$ 6.0 billion by end 2011 compared to US$ 6.6 bn by end 2010. Gross Official Reserves (Without ACU balances) and Months of Imports 7.0 9.0 8.0 6.0 7.0 5.0 6.0 US$ bn. 4.0 5.0 Months of Imports 3.0 4.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Feb-09 Feb-10 Feb-11 Jan-09 Jun-09 Jul-09 Jan-10 Jun-10 Jul-10 Jan-11 Jun-11 Jul-11 Mar-09 Mar-10 Mar-11 Nov-09 Dec-09 Nov-10 Dec-10 Nov-11 Dec-11 May-09 Aug-09 Sep-09 Oct-09 May-10 Aug-10 Sep-10 Oct-10 May-11 Aug-11 Sep-11 Oct-11 Apr-09 Apr-10 Apr-11 Gross Official Reserves (Right Axis) Months of Imports (Left Axis) 29
  • 30. DURING 2011, INTERNATIONAL RESERVES WERE ACCUMULATED TO HISTORICALLY HIGH LEVELS, AND ALLOWED TO DECLINE TOWARDS THE END OF THE YEAR… • Foreign reserves, stood at US$ 6.6 billion on 30 December 2010 and increased to a record high level of US$ 8.2 billion by mid August 2011, due to large-scale absorption of foreign exchange by the Central Bank • Thereafter, there was a draw down of reserves, mainly due to significant supply of foreign exchange to the market by the Central Bank • Yet, The current level of reserves is well above the level needed to: – Maintain confidence in the policies for monetary and exchange rate management including the capacity to intervene – Limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when private access to borrowing is slow – Assist the government in meeting its foreign exchange needs and external debt obligations • The current reserve level is also higher than the reserves level contemplated of 3.5 months imports equivalent, which was envisaged at the time of entering into the Stand-by Arrangement with the IMF 30
  • 31. THE CENTRAL BANK HAS BEEN CONFIDENT OF ITS STANCE IN THE SECOND HALF OF 2011, SINCE SUBSTANTIAL FOREIGN EXCHANGE INFLOWS ARE EXPECTED IN 2012… • Expected inflows in 2012 are well over US$ 25 billion:  Exports: US$ 12.5 bn Major Corporates’ capital from abroad: US$ 500 mn  Tourism: US$ 1.2 bn (1.8% of GDP) Special long term financing expected for  Expat Workers’ remittances: US$ 6.5 bn Petroleum: US$ 1.0 bn (9.8% of GDP) Long-term currency swaps: US$ 500 mn  Foreign Direct Investments: US$ 2.0 bn (2.9% of GDP) Net Stock Market inflows: US$ 500 mn  Commercial Banks’ Tier II capital: US$ 1 bn Net Treasury Bill & Bond inflows: US$ 500 mn 31
  • 32. AS A RESULT OF THE CENTRAL BANK POLICIES, THE EXCHANGE RATE IN 2011 DID NOT SUFFER UNNECESSARY VOLATILITY... • The Central Bank absorbed and supplied foreign currency to avoid excessive volatility in the domestic foreign exchange market and to maintain stability. • The Central Bank also accommodated the high growth driven demand for the increased import of intermediate and investment goods. • Overall, the Rupee depreciated against the US dollar by 2.6% in 2011 Daily Sri Lanka Rupee/US Dollar Daily Sri Lanka Rupee/Sterling Daily Sri Lanka Rupee/EURO Exchange Rate Movements Pound Exchange Rate Movements Exchange Rate Movements 200 180 121 195 175 119 190 170 185 165 117 180 160 Rs./GBP Rs./USD Rs./EURO 175 155 115 170 150 113 165 145 160 140 111 155 135 109 150 130 Jul-09 Jul-10 Jul-11 Jan-09 Jan-10 Jan-11 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Jul-09 Jul-10 Jul-11 Jan-09 Jan-10 Jan-11 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Jul-09 Jul-10 Jul-11 Jan-09 Jan-10 Jan-11 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 32
  • 33. AT THE SAME TIME, THE FISCAL CONSOLIDATION EFFORT CONTINUED, WHILE MAINTAINING PUBLIC INVESTMENT AT HIGH LEVELS… Overall Fiscal Deficit (as a % of GDP) 2011 Rev 2004 2005 2006 2007 2008 2009 2010 Est • The overall fiscal deficit is 0 estimated to be below 7% of GDP -2 in 2011, down from 8% in 2010, -4 Per cent mainly due to expenditure -6 containment policies -8 (7.5) (7.0) (7.0) (6.9) (7.0) (7.0) (8.0) • Such consolidation is expected to -10 (9.9) -12 be achieved, even while 8 Public Investment (as a percentage of GDP) 6.8 maintaining public investment at 7 6.3 6.3 6.4 6.0 6.4 6.0 6% of GDP in 2011 6 4.8 5 Per cent 4 3 2 1 0 2004 2005 2006 2007 2008 2009 2010 2011 Rev Est 33
  • 34. LEADING TO THE DEBT TO GDP RATIO ESTIMATED TO FALL TO 78% IN 2011, WHILE IN MANY COUNTRIES THIS RATIO HAS SOARED… Selected Countries’ Debt to GDP ratios - 2010 250 220.0 200 142.8 Sri Lanka Per cent 150 119.0 Outstanding Government Debt (as a % of GDP) 100 82.3 84.0 94.9 92.9 96.3 81.9 75.5 94.4 90 60.1 50 88 87.9 86.2 0 86 Greece USA Portugal Italy France Sri Lanka Japan Singapore Spain Germany UK Ireland 85.0 84 81.9 Estimates for 2011 Per cent 82 81.4 250 233.1 80 200 78.2 165.6 78 150 121.1 Per cent 76 109.3 106.0 93.5 100.0 100 86.8 82.6 78.2 80.8 67.4 74 50 72 2006 2007 2008 2009 2010 2011 Est. 0 Greece France Italy Japan USA Ireland Spain Singapore UK Germany Portugal Sri Lanka Source: IMF WEO September 2011 & MOFP 34
  • 35. THE RISK INDICATORS OF SRI LANKAN PUBLIC DEBT IMPROVED, IN A TIME WHERE GLOBAL RISK HAS BEEN RISING… Less Moderately Highly Sri Lanka Indicator Indebted Indebted Indebted 2011 Disbursed External Debt Outstanding/Gross <30% >30% and <50% >50% 36.0% National Income Disbursed External Debt Outstanding/Exports <165% >165% and <275% >275% 155.6% of Goods and Non Factor Services Total External Debt Service Payments/Exports <18% >18% and <30% >30% 9.1% of Goods and Non-Factor Services External Interest Payments/Exports of Goods <12% >12% and <20% >20% 2.9% and Non-Factor Services Net Present Value/Gross National Income <48% >48% and <80% >80% 36.9% * Net Present Value/Exports of Goods and Non- <132% >132% and <220% >220% 119.7% * Factor Services * Data for 2010 Source: Manual on Effective Debt Management, UN-ESCAP, 2006. 35
  • 36. THE CONTINUOUS UPGRADE IN INFRASTRUCTURE GREATLY ENHANCED THE COUNTRY’S PRODUCTIVE CAPACITY… – Road development projects • The Southern Highway Project, (Stage 1 : completed and Phase 2 in progress) • The Colombo - Katunayake Expressway (Completion by 2013) • The Colombo Outer Circular Road Project (Completion by 2013) – Power projects • Upper Kothmale Hydro Power Plant will be commissioned shortly • Norochcholai Coal Power Plant (Phase 1 : Completed, Phase 2 in progress) • Uma Oya Hydro Power Project (Completion by 2014) • Moragahakanda and Kaluganga Reservoir Projects (In progress) • Sampur Coal Power Project will be commissioned by 2017 – Port development projects • The South Colombo Harbour Project, (Phase 1 Completion by 2013) • The Hambantota Port Development Project (Phase 1 : Completed) • The Oluvil Port Development Project (Completion by 2012) • The Galle Port (In progress) • The Kankasanthurei Port (In progress) – Several mega hotel projects, condominiums, shopping malls, development of North and East, and water supply projects – On-going rural infrastructure development projects • Gama Neguma, Maga Neguma, Small Irrigation Projects, Kirigammana projects, etc. – Lighting Sri Lanka (Targeted 100% electricity coverage by 2013) 36
  • 37. ON THE BACK OF SUCH INFRASTRUCTURE UPGRADE, PRIVATE SECTOR INVESTMENTS HAVE BEEN ON THE RISE… • New terminal at Colombo South Port: • 197 Hotel projects and other Tourism US$ 500 mn project - just commenced related projects • Petroleum exploration in the Mannar – Shangri-La, Sheraton, Hyatt and Sun basin in progress City • New industries at Hambantota Port • Universities/Hospitals – 4 new industries have received Cabinet – Expansion of local universities and approval private education opportunities • Sugar Refinery plant • ICT, BPO projects, Hambantota Sports • Cement binding and bagging plant City • Fertilizer complex • Fisheries: deep sea fishing, cold • Petrochemical plant stores – Many more industries in the pipeline: Warehousing, Vehicle Assembly, etc. 37
  • 38. THE CENTRAL BANK’S MONETARY POLICY STANCE IN 2011, WAS CAUTIOUS AND CONSISTENT, & DELIVERED STABILITY… % Policy Interest Rates of the Central Bank and the Average Weighted Call Money Rate • Policy interest rates in 2011 18 17.00 16.50 remained unchanged after one 14 14.75 13.00 downward adjustment in January 11.75 10.25 11.50 11.00 10.50 10 2011 9.00 8.50 9.75 8.00 7.50 9.50 7.25 9.00 8.50 7.00 6 Feb-09 Feb-10 Feb-11 Mar-09 Jun-09 Jul-09 Jan-10 Mar-10 Jun-10 Jul-10 Jan-11 Mar-11 Jun-11 Dec-08 Oct-09 Nov-09 Dec-09 Oct-10 Dec-10 Oct-11 Nov-11 Dec-11 May-09 Sep-09 May-10 Aug-10 Sep-10 May-11 Aug-11 Sep-11 Apr-09 Apr-11 • Weighted average call money rate continued to remain largely stable AWCMR Repo Reverse Repo Penal Rate within the policy rate corridor Deposit Rates of Commercial Banks, 25 Treasury bill yield and Monthly AWPR • Market interest rates remained 20 broadly stable. 15 Per cent • Slight increase in rates witnessed 10 towards end of 2011 5 0 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Jan-07 May-07 Jan-08 May-08 Jan-09 May-09 Jan-10 May-10 Jan-11 May-11 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Average Weighted Prime Lending Rate - AWPR (Monthly) Average Weighted Deposit Rate - AWDR Average Weighted Fixed Deposit Rate - AWFDR Primary Market Yield on 91-day Treasury bills 38