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1. Economic Capsule
June 2017
246th Issue
Research & Development Unit

2. C O N T E N T S
ECONOMY & BUSINESS 
 Sri Lankan Economy: Fitch
 Sri Lanka Economy Grows by 3.8% in 1Q,2017
 External Sector Performance – 1Q, 2017
 Inflation
 Credit Growth
 Middle East Diplomatic Dilemma Adds Uncertainty to Migrant Workers and Remittances in the Region: CCC
 Sri Lanka Tops First Island Economy of the Future Rankings
 India’s ITC Group to Build Mid-market Hotel Chain with MMBL Leisure
 Debug Hospitality and Leisure launches Amber Collection in Sri Lanka
 Jetwing Lake Opens
 Waters Edge Breaks Ground for Extensive Expansion Project
 SL Invites Bids for Ferry Transport System in Colombo
 Sri Lanka - Land of Real Estate Opportunities: JLL
INTERNATIONAL
 FED Hikes Rates
 Asian central banks have cause to keep holding
rates while the Fed hikes
BANKING & FINANCE
 Commercial Bank named Best Bank in Sri Lanka for 7th time by FinanceAsia

3. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Banking & Finance

4. Commercial Bank named Best Bank in
Sri Lanka for 7th time by FinanceAsia
< Research & Development Unit >
Commercial Bank has been adjudged the Best Bank in Sri Lanka
by FinanceAsia at the magazine’s annual Country Banking
Achievement Awards for domestic banks.
This is the seventh Best Bank award conferred on Commercial
Bank by the prestigious Hong Kong based publication in the nine
years since the Bank became the first entity in Sri Lanka to
receive this coveted accolade in 2009.
The FinanceAsia Country Awards are based on the respective banks’ performance along
with key events of the year, financial results including profits, NPL ratios, provisioning,
return on equity, capital adequacy ratios, total assets, loans, deposits, branch network,
vision and long-term strategy, market position versus the nearest competitor, principal
sources of profit, and feedback of stock market analysts.

5. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Economy & Business

6. Sri Lankan Economy: Fitch
< Research & Development Unit >
Strengths Weakness
 GDP Growth Stronger than Peer Median
 Weak external buffers & High upcoming external
debt repayments
 Ongoing USD 1.5bn 3-year Program With IMF
Supporting Reforms; Fiscal Consolidation
Positive
 High government debt levels & high share of
foreign currency debt in total government debt
 Well-educated labor force; Ranks above ‘B’
median on UN Human Development Index
 High interest payments as a share of government
revenue
 Sri Lanka has a clean external debt service
record
Strengths & Weaknesses
Source: Fitch - Sri Lanka Sovereign Outlook, Sovereign and Banking Forum, June 2017 Cont…

7. Sri Lankan Economy: Fitch (cont…)
< Research & Development Unit >
Positive Negative
 Continued improvement in public finances
underpinned by a credible medium-term fiscal
strategy, including a broadening of the
government revenue base.
 Deterioration in policy coherence and credibility,
leading to a loss of investor confidence, or a
derailment of the International Monetary Fund
supported programme that leads to external
funding stress.
 Increase in foreign-exchange reserves
supported by smaller current-account deficits
and higher non-debt capital inflows.
 Reversal of fiscal improvements that leads to a
failure to stabilise government debt ratios.
Rating Sensitivities
Source: Fitch - Sri Lanka Sovereign Outlook, Sovereign and Banking Forum, June 2017

8. Sri Lanka Economy Grows by 3.8% in 1Q,2017
SL’s economy grew by
3.8 % in 1Q-17 with the
agriculture sector
shrinking 3.2 %, amid a
drought. Industry sector
and services sector grew
by 6.3% and 3.5%
respectively.
3.8%
Agriculture  3.2%
Industry  6.3% Services  3.5%
5.3%
Source: Department of Census and Statistics, Sri Lanka

9. External Sector Performance – 1Q, 2017
< Research & Development Unit >
Category
(USD mn) (%)
Jan-Mar 16 Jan-Mar 17 Y-O-Y Change
Exports 2,739.2 2,774.3 1.3
Textiles and garments 1,369.3 1,275.8 -6.8
Tea 313.1 349.1 11.5
Imports 4,594.5 5,278.9 14.9
Fuel 485.7 882.1 81.6
Vehicles 231.6 191.9 -17.2
Trade Balance -1,855.3 -2,504.5 -35.0
Earnings from tourism 1,003.3 1,037.9 3.4
Workers’ remittances 1,793.4 1,733.7 -3.3
 The deficit in the trade account of the BOP increased to USD 828 mn in March 2017 from USD
617 mn in March 2016.
 Gross official reserves has improved to above USD 7.0 bn by mid-June 2017. Meanwhile, the
Sri Lankan rupee has depreciated against the USD by 2.3 % during 2017 up to 21 June.
Exports in 1Q-17, increased by
1.3% largely due to increases
recorded in agricultural exports
led by tea
Import expenditure in 1Q-17,
increased by 14.9% led by fuel
imports in the intermediate goods
category
Source: CBSL

10. Inflation
 Following the increasing trend in the first quarter of 2017, year-on-
year headline inflation, based on both CCPI & NCPI, moderated
during the months of April and May. Core inflation has also
displayed a similar trend.
 According to CBSL, as the impact of the revisions to the tax
structure and weather-related supply disruptions is expected to
dissipate in the period ahead, inflation is projected to moderate to
mid-single digits by the end of 2017.
 The growth of credit to the private sector continued to decelerate
gradually.
 According to CBSL, further deceleration in the growth of credit to
the private sector is anticipated, given the prevailing high lending
rates in the market.
Credit Growth
< Research & Development Unit >

11. Middle East Diplomatic Dilemma Adds Uncertainty to
Migrant Workers and Remittances in the Region: CCC
< Research & Development Unit >
The Middle East region contributed the largest share, of 53.7% (US$ 3,889 Mn), to worker
remittances in 2016. However the Middle East’s total worker remittances has been declining over
the years from 60.1%, in 2010, to 54%, in 2015.
In 2016, more than 80% of the total migrant employees were recruited by just 4 countries; The
Kingdom of Saudi Arabia, Qatar, United Arab Emirates and Kuwait.
Saudi Arabia, UAE, Bahrain and Egypt, recently severed diplomatic ties with Qatar, along with
closure of air, sea and land travel links to the country.
There are approximately 150,000 Sri Lankan migrant workers in Qatar, and reportedly they have not
been affected by this issue in the short run.
Considering that Qatar is highly reliant on imports from the region and the fact that Qatari Riyals is
being devalued due to the above mentioned Middle East countries selling off the currency, there
may be long term issues that may impact the economy.
However, the Qatar Finance Minister has stated that the sanctions will not impact Qatar greatly as
they have ample foreign reserves and will source their imports from other nations.
Source: CCC , EIU – June 2017, Economic Update

12. Sri Lanka Tops Island Economy of the Future
Rankings
< Research & Development Unit >
“Data shows that 2016 was a bumper year for Sri Lanka’s FDI, which increased nearly 147%
from 2015, to reach more than $ 2.8 billion in estimated totals for announced projects, though
some plans have been scaled back,” the report said.
Between 2012 and 2016, financial services were the leading sector by number of projects,
recording 43 investments. Food and tobacco, transportation and business services were the
country’s next biggest sectors for inward FDI across this period, each accounting for nearly 9%
of the country’s total, the report added.
Under the subsection ‘Food for thought’, the report noted the food and tobacco sector has
become a more prominent FDI sector in Sri Lanka, accounting for 6.5% of total FDI in 2012, and
rising to 16% in 2016. According to a report by the Sri Lanka Export Development Board
published in 2016, it is estimated that more than two million people are employed in the
sector.
Sri Lanka has topped the rankings of fDi Intelligence Magazine’s first-ever Island
Economy of the Future for 2017/18, with Cyprus and the Dominican Republic
ranking second and third respectively. The publication, is a subsidiary of The
Financial Times UK.
According to greenfield investment monitor fDi Markets, the South Asian
country attracted 172 inward investment projects between 2012 and 2016, the
highest of all countries included in the analysis.

13. < Research & Development Unit >
SL Invites Bids for Ferry Transport System in
Colombo
Sri Lanka’s Megapolis Ministry has called for expressions of
interest to establish a ferry system in Colombo canals
through a public-private partnership.
The process is open to international and local investors and is
supported by PPP advisors from the Government of the
Netherlands, under a technical assistance initiative.
Three lines for passenger transport earmarked by the ministry are Wellawatte-Battaramulla (IW1),
Fort-Union Place (IW2), Mattakkuliya-Hanwella (IW3).
 Wellawatte-Battaramulla (IW1) is phase 1 and will intersect six main roads – Marine Drive, Galle Road, High
level Road, Baseline Road, Nawala Road and Parliament Road and has been identified as immediately
actionable.
 Fort-Union Place (IW2) will connect Fort and commercial areas in Union Place and will provide time savings
during peak time.
 Mattakkuliya-Hanwella (IW3) on the Kelani River will be an alternate mode for the low level corridor.

14. Sri Lanka - Land of Real Estate Opportunities: JLL
OFFICE MARKETS
Office Market Trends
• Lease transactions dominate the commercial
markets with outright purchases few and far
between.
• Information Technology(IT)/Information
Technology Enabled Services (ITeS) companies’
continuous expansion strategies require them to
move to larger space formats and, therefore,
they prefer the flexibility afforded by lease
contracts.
• Upcoming mixed use development projects like
Cinnamon Life and Shangri-La, located in the
CBD area, will inevitably increase the overall
supply of office space in Colombo.
• IT/ITes companies may move out of CBD areas
as rentals are high in these locations. Banking,
Financial Services and Insurance (BFSI)
companies may also retain only nominal
corporate office spaces in CBD, with back offices
relocating to more cost effective space in
secondary locations.
RETAIL MARKET
Retail Market Trends
• The Sri Lankan consumer is rapidly becoming more brand
conscious and demand for better quality goods and services is
driven by rising average incomes.
• Key occupiers of existing malls are apparel retailers, mobile and
accessory outlets and food and beverage operators.
• The retail market suffers from fragmentation and there is lack of
good quality mall spaces, that provide entertainment and leisure
facilities and adequate parking.
Colombo’s eight operational shopping centres account for
approximately 0.8 mn square feet of built-up area, and have
an average vacancy rate of less than 5%.
The city of Colombo is Sri Lanka’s most prominent commercial office destination.
Currently, the Colombo office market comprises nearly 1 mn square feet of Grade A stock
witnessing 95% occupancy levels.
< Research & Development Unit > Cont…
CBD – CBD of Colombo is the financial, business and
transportation hub of Sri Lanka.
SBD –SBD of Colombo is primarily residential with strip retail
activity along major transport corridors.
Source: Sri Lanka - Land of Real Estate Opportunities, JLL, May 2017

15. Sri Lanka - Land of Real Estate Opportunities: JLL (cont…)
Luxury Housing
< Research & Development Unit >
For a growing high and middle income population, luxury housing is a key
attraction in residential markets. Demand for such housing is derived from a
growing urban wealthy demographic. In addition to this, non-resident Sri Lankans
(NRSLs) keen to invest in their country of origin also drive demand.
Luxury Residential Trends
• Sri Lanka’s luxury residential market is
driven by resident Sri Lankans as well as
NRSL population.
• Majority of the luxury apartments are
located in Colombo 3, CBD.
• Currently over 3000 units are under
development and these projects are due
for completion between 2017-19
Hotel Supply
− According to the Sri Lanka Tourism Development Authority (SLTDA), Sri Lanka
has approximately 28,500 keys of which 67% is in the informal sector
constituting small luxury boutique hotels, unclassified hotels and
supplementary establishments.
− A large portion of the country’s hotel inventory is currently dominated by
domestic hotel chains such as John Keells, Aitken Spence and Jetwing Hotels
which have chains across the country while new International players have
started to enter the market particularly in Colombo, but also along the southern
coastal region in the resort sector.
Hotel Supply (cont…)
Cont…
−Colombo City hotels have
seen some pressure with the
entry of hotels in the budget
and midscale segments and
commercial growth has been
minimal, with the country
seeing limited foreign
investment and moderate
expansion in corporate
activity.
While Colombo has a diverse demand base, future growth in
the largely commercial-driven hotel sector will be linked to:
• Level of corporate growth and foreign investment
• A concentrated marketing effort
• Development of Colombo as a leisure destination
Source: Sri Lanka - Land of Real Estate Opportunities, JLL, May 2017

16. Sri Lanka - Land of Real Estate Opportunities: JLL (cont…)
< Research & Development Unit >
Hotel Supply (cont…)
JLL is tracking a hotel supply pipeline in Colombo of close to 4,500 rooms, largely concentrated towards the luxury segment and upper upscale
segments (branded hotels classification based on pricing and product).
With hotel inventory in Colombo expected to double over the next 3-4 year period, substantial efforts will be needed to boost both corporate and
leisure demand to keep pace with the rapid growth in supply.
The Leisure segment has seen promising growth, with the revenue of the top four listed hotel companies with resort assets across the country
demonstrating a 3% growth over 2014-15, despite substantial additions in the formal and informal sector.
While occupancy levels have shown fair growth over the last year, market Average Room Rates have also seen growth with the changing supply
composition, with new supply in the luxury and upper upscale segments entering the market.
With resort properties experiencing extremely high occupancy levels during peak season, there continues to be strong potential to develop in the
leisure segment.
Hospitality Trends
• Aggressive expansion plans by local leaders in the hospitality industry - John Keells, Aitken Spence, Jetwings, Amaya Leisure, Laugfs Holdings.
• With high levels of interest from international hospitality players including the Shangri-la Group, ITC Hotels, Starwood Hotels and Resorts,
Marriott International, Hyatt Hotels Corporation and Moevenpick Hotels, many major global hotel chains are looking to have a presence in the
country.
• The South-west coast is Sri Lanka’s best performing stretch and will continue to be the prime preference for mass market tourists.
• Increased destination marketing and a more varied hotel offering will help change Sri Lanka’s perception as a budget destination to one offering a
range of tourism experiences.
• Improving tourism infrastructure at leisure destinations and upcoming tourist circuits will boost Sri Lanka’s overall attractiveness as a leisure
destination, while specific measures to promote Sri Lanka as a MICE and entertainment destination are likely to see benefits in the long-term
Source: Sri Lanka - Land of Real Estate Opportunities, JLL, May 2017

17. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
International

18. < Research & Development Unit >
FED Hikes Rates
The Federal Reserve raised interest
rates on 14th June’17 for the second
time in three months and said it
would begin cutting its holdings of
bonds and other securities this year,
signaling its confidence in a growing
U.S. economy and strengthening job
market.
In lifting its benchmark lending rate
by a quarter percentage point to a
target range of 1.00% to 1.25% and
forecasting one more hike this year,
the Fed seemed to largely brush off a
recent run of mixed economic data. Source: USA TODAY

19. < Research & Development Unit >
Asian central banks have cause to keep
holding rates while the Fed hikes
 Asian central banks have not blinked since the Federal Reserve raised U.S. rates for the third time
in six months last week (14 June).
 New Zealand, Taiwan and the Philippines are all expected to hold rates on. Indonesia and Japan
stood pat, as Australia and India did earlier in June.
 China's central bank, which raised some interest rates after the Fed's March move, kept them
unchanged this time.
 Unlike in past Fed tightening cycles, Asia is much more reliant on China than on the United States.
 "There is a common thread and it is that China, Asia's economic engine, continues to stutter,"
according to Frederic Neumann, HSBC's co-head of Asian economic research in Hong Kong. "We
have more central banks on hold or even with an easing bias because China is weighing on demand
and the western world isn't strong enough to compensate for that."
 In 2016, U.S. trade with 10 top Asian partners rose by roughly 25 % from levels before the 2008-09
global financial crisis. But China's trade with the other nine grew almost 60 % in the same period to
$1.05 trillion. The United States' trade with those nine countries is about half as much. Source: Reuters

20. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC
The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information,
it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence
of using such information for whatever purpose. < Research & Development Unit >