www.combank.lk

1. Economic Capsule
May 2022
Research & Development Unit
304th Issue

2. CONTENTS
ECONOMY, BUSINESS & DEVELOPMENT
 Commercial Bank appoints Sanath Manatunge as MD/CEO
 ComBank adjudged ‘Best Corporate Bank’ & ‘Best Retail Bank’ in Sri Lanka
 CBC Performance 31.03.2022
ECONOMY, BUSINESS & DEVELOPMENT
 Sri Lanka tax revisions
 Fitch Downgrades Sri Lanka to 'RD‘
 JPMorgan backs Sri Lanka bonds on bets that crippling crisis to ease
 IMF – Sri Lanka talks
 SL picks Lazard and Clifford Chance to advise on debt restructuring
 Inflation – NCPI April 2022
 Central Bank imposes 100% cash margins on select imports
 JAAF confident industry resilience will realize USD 6Bn target of 2022
 Sri Lanka in talks with India for USD 1bn swap, expects USD 1.5Bn from Asian Clearing Unit
ECONOMY, BUSINESS & DEVELOPMENT (CONT.)
 Tourism and Workers’ Remittances – Jan to Mar 2022
 News Snippets
GLOBAL OUTLOOK
 Looming global food crisis
 World Bank pledges USD 12bn to support low-income countries hit by
shortages
 Russian Rouble

3. Banking &
Finance

4. Commercial Bank Appoints New MD/CEO and COO
Research & Development Unit
The Commercial Bank of Ceylon PLC has announced the
appointment of Mr Sanath Manatunge as Managing
Director/ CEO and Mr Sellathurai Prabagar as Chief
Operating Officer with effect from 12th May 2022. Mr Sanath Manatunge
Mr Sellathurai Prabagar

5. ComBank adjudged ‘Best Corporate Bank’ & ‘Best
Retail Bank’ in Sri Lanka
Research & Development Unit
The Commercial Bank of Ceylon has won the titles of ‘Best Retail Bank Sri Lanka
2022’ and ‘Best Corporate Bank Sri Lanka 2022’ at the annual awards of the UAE-
based Global Business Review magazine, which recognizes and rewards excellence in
companies across sectors.
The Bank was presented these accolades on the basis of the conclusions of an independent research
team that reviewed its performance in 2021. Commercial Bank remained the benchmark and fastest-
growing private bank in Sri Lanka in the year of assessment and outperformed its competition with a
number of sector-leading performance indicators among the private banks in the country.
These included the highest market capitalization, highest gross income, highest profit before and after-
tax, highest value in total assets, highest value in gross loans, highest market share of loans, highest total
shareholder funds, highest operating income, highest total deposits, highest market share of deposits,
and the highest CASA ratio.

6. CBC Performance 31.03.2022
Research & Development Unit

7. CBC Performance 31.03.2022 (Cont.)
Research & Development Unit

8. Economy, Business
& Development
News

9. Sri Lanka tax revisions – First Capital Research
Research & Development Unit
The government has proposed certain tax reforms to be implemented over the
immediate and near term to increase revenue. Estimated revenue envisaged from
new measures is nearly Rs. 300 billion next year.
The following tax increases are to be implemented with immediate effect
•VAT rate to be increased from 8.00% to 12.00%.
VAT threshold to be decreased from LKR 300.0Mn to LKR 120.0Mn per annum.
VAT exemption granted for sale of Condominium Housing Units to be removed.
•Telecommunication Levy to be increased from 11.25% to 15.00%
Personal Income Tax
relief to be reduced from
LKR 3.0Mn to LKR 1.8Mn.
Withholding Tax on employment income to be mandatory. (w.e.f. 01 Oct 2022)
• WHT to be mandatory for all taxpayers (annual income exceeding Rs.1.8mn) and WHT paid on
interest (5%) and dividends (14%) to be considered as final payments. However, an exemption
will be granted for senior citizen interest income of 1.5mn rupees.
• WHT (5%) to be introduced on service payments exceeding LKR 100,000/month for individual
professionals.
• WHT (10%) on rent income (above 100,000)
Corporate Income tax to be
increased from 24% to 30%
Tax proposals are to be presented to and approved by parliament

10. Sri Lanka tax revisions (Cont.)
Research & Development Unit
Betting and Gaming Levy
•Annual levy for carrying gaming businesses to be increased from LKR 200.0Mn to LKR 500.0Mn
•Annual levy for betting to be increased from LKR 4.0Mn to LKR 5.0Mn (when carried through agents), from
LKR 0.6Mn to LKR 1.0Mn (when carried using live telecast facilities) and from LKR 50,000 to LKR 75,000 (when
carried without live telecast facilities).
•Tax on gross betting and gaming revenue to be increased from 10.00% to 15.00%.
Following tax reforms are to be implemented w.e.f. 01 Apr 2023
•Dividend paid by resident company to non-resident person to be liable for income tax.
•Tax holidays to be removed for Recycling of Construction Materials (10Yr), Business Commenced after TVET
Training (5Yr), Manufacturing of Boats & Ships (7Yr), Installation of Communication Towers (5Yr) and Letting
Bonded Warehouses/ Warehouses Related to the Offshore Business.
•Additional deduction granted for expenses related to Marketing and Communication to be removed.
•VAT exemption schedule to be reviewed and unproductive exemptions will be removed based on economic
benefit.
Tax proposals are to be presented to and approved by parliament

11. Research & Development Unit
Fitch Downgrades Sri Lanka to 'RD'
Fitch Ratings has downgraded Sri Lanka's Long-Term Foreign-Currency (LTFC) Issuer Default Rating
(IDR) to 'RD' (restricted default) from 'C'.
The downgrade follows expiry of the 30-day grace period on coupon payments that were due on 18
April 2022 on two international sovereign bonds.
On 12 April 2022 the Ministry of Finance made a statement that it had suspended normal debt
servicing of several categories of its external debts, including bonds issued in the international capital
markets and foreign currency-denominated loan agreements or credit facilities with commercial banks
or institutional lenders. Following this announcement, Fitch ratings downgraded the LTFC IDR to 'C' on
13 April 2022.
Factors that could, individually or collectively, lead to negative rating
action/downgrade:
Factors that could, individually or collectively, lead to positive rating
action/upgrade:
If the government announces plans to restructure or also
defaults on its local currency-denominated debt.
Completion of a commercial debt restructuring that Fitch
judges to have normalized the relationship with the
international financial community.
Source : Fitch Ratings

12. JPMorgan backs Sri Lanka bonds on bets that
crippling crisis to ease
Research & Development Unit
U.S. investment bank JPMorgan backed Sri Lanka’s crisis-hit government bonds, saying recent political
changes in the country should gradually improve its strains and help its talks with the International
Monetary Fund (IMF).
JPMorgan analysts said that “political stability should pave the way for bonds to move higher from near
all-time lows”.
Sri Lanka is officially now in default as a so-called “grace period” to make some already-overdue bond
interest payments expired on 18 May.
“We think this stability should result in both the IMF discussions and the process of appointing legal and
financial advisors moving forward,” JPMorgan added.

13. IMF – Sri Lanka talks
Research & Development Unit
The International Monetary Fund (IMF) said it requires sufficient assurance
from Sri Lanka of restoring debt sustainability during the debt restructuring
process in which the island nation has started appointing financial and legal
advisors in the latest talks with Sri Lanka which were concluded on 26 May
2022.
Key Points
 The discussions focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange
rate regimes; preserving financial sector stability; and structural reforms to enhance growth and strengthen governance.
 The IMF team made good progress in assessing the economic situation and in identifying policy priorities to be taken going forward .
 IMF welcomed the appointment of financial and legal advisors to engage in a collaborative dialogue with their creditors as an important step towards
restoring public debt sustainability.
 The IMF staff will continue to monitor the economic and political situation very closely.
 They will engage with the authorities to formulate concrete measures under an IMF-supported program, as well as broader stakeholders to support a timely
resolution of the crisis. Source : IMF
The new administration will formulate and implement a comprehensive economic reform programme soon based on technical
discussions with the International Monetary Fund (IMF), Finance Ministry sources said.
Sri Lankan authorities will be fast-tracking the procedure to agree on a financial facility (loan by mid-June) enabling it to seek
urgently needed funds from other donor countries and foreign lenders, they added.

14. SL picks Lazard and Clifford Chance to advise on
debt restructuring
Research & Development Unit
The Cabinet nod has been granted to appoint Bermuda-based
Lazard as financial advisor and London-based Clifford Chance LLP as
legal advisor to support the country’s external debt restructuring
exercise.
Task of the financial advisor
• Supporting the government in debt management
including evaluating the government debt stock
• Representing the government’s interest during
negotiations with creditors
• Arranging meetings with them
• Designing a mechanism and process to engage with
the International Monetary Fund (IMF) to improve
medium and long-term debt engagement and reform
strategies
Task of the legal advisor
•Advising the government on debt management strategies and
execution of such strategies while reviewing legal and
regulatory issues on debt management

15. Inflation – NCPI & CCPI
Research & Development Unit
Sri Lanka’s Year on Year inflation (YoY), measured under the National
Consumer’s Price Index (NCPI) recorded an all time high of 33.8% for
the month of April 2022 from 21.5% in March 2022.
The NCPI (Core) YoY inflation was recorded at 27.9% from 17.3% in
March 2022.
NCPI Inflation under food categories (YoY) rose to 45.1% from 29.5%
and non food categories rose to 23.9% from 14.5% from the
previous month.
Year on Year inflation (YoY), measured under the Colombo
Consumer’s Price Index (CCPI) recorded an all time high of 39.1%
for the month of May 2022 from 29.8% in April 2022.
The CCPI (Core) YoY inflation was recorded at 28.4% from 22.0% in
April 2022.
CCPI Inflation under food categories (YoY) rose to 57.4% in May,
from 46.6% in April and non food categories declined to 22.0% in
May from 30.6% in April 2022.
Source: DCS

16. Research & Development Unit
Central Bank imposes 100% cash margins on select imports
The Central Bank has imposed 100% cash margin on selected non-essential and non-
urgent imports.
The 100% non-interest bearing cash margin should be kept on the invoiced value of
imports, made under Documents against Acceptance (DA) and Documents against
Payment (DP) terms.
In the case of existing DAs and DPs covering the importation of goods covered by these
directions, no increase in the value of such DAs and DPs shall be permitted unless such
increase is covered by the cash margin deposits as required.
CBSL has also told banks not to grant any loan facilities to enable importers to place the
margin deposits in respect of these imports.
Source: CBSL

17. JAAF confident industry resilience will realize USD 6Bn
target of 2022
Research & Development Unit
The Joint Apparel Association Forum (JAAF)
affirmed the resilience of the industry augurs well
towards achieving its target of USD 6bn for 2022.
Earnings from textiles and garments increased by
10.8% in the first quarter to USD 1.5bn from USD
1.33bn in 2021.
In March earnings however fell by 0.6% to USD
464mn from USD 467mn compared to the same
period a year earlier, as per the latest external
sector performance report of the Central Bank.
The industry’s 2030 vision is to transform Sri Lanka into a global apparel hub, whilst the intermediate
goal is to increase annual export earnings to USD 8bn by 2025.

18. Sri Lanka in talks with India for USD 1 BN swap, expects
USD 1.5 BN from Asian Clearing Unit
Research & Development Unit
Sri Lanka is in talks with India for a one
billion US dollar swap, and another
USD 1.5 Bn is expected from deferred
payments under the Asian Clearing Union,
Central Bank Governor Nandalal
Weerasinghe said.
India has a already deferred about
USD 1.5 Bn dollars from payments due
under the Asian Clearing Union to India on
imports.
In addition Sri Lanka is discussing with India to get a swap facility from RBI of about US
dollars 1Bn. That is still at discussion level.

19. Tourism and Workers’ Remittances – Jan to Mar 2022
Research & Development Unit
Workers’ remittances amounted to US dollars 318Mn during
March 2022, in comparison to US dollars 205 Mn in the previous
month and US dollars 612 Mn in the corresponding period of the
previous year.
The cumulative figure for the period of Jan-Mar 2022 was
USD 783 Mn, a 58.1% drop from the corresponding time period
of 2021.
Tourist arrivals were recorded at 106,500 in March 2022, compared to 96,507 arrivals recorded in the
previous month. India, the UK, Germany, Russia and France remained as the main source countries for
arrivals in March 2022.
Earnings from tourism for the period of Jan-Mar 2022 was USD 513 Mn when compared to USD 25 Mn
of the corresponding period for 2021
Source : CBSL

20. Research & Development Unit
News Snippets
Immigration starts promoting Golden Paradise Visa
The Department of Immigration and Emigration has begun
promoting the issuance of long-term residence visa issuance
mechanism online in a bid to attract foreign inflows.
The long-term resident visa program titled ‘Golden Paradise
Visa’ enables the issuance of residence visas for 10 years for
foreigners who deposit a minimum of USD100,000 in a
commercial bank recognized by the Central Bank of Sri Lanka.
The foreigners are eligible to withdraw USD 50,000 after the
first year but should maintain a minimum balance of USD50,000
for the rest of the granted timeline.
Summary of External Sector performance
Jan-Mar
2021
USD MN
Jan –Mar
2022
USD MN
Change
(%)
Merchandise
Exports
2,982 3,249 9.0
Textile and
Garment
1,334 1,477 10.8
Tea 338 287 -15.2
Merchandise
Imports
5,041 5,651 12.1
Fuel Imports 977 1,412 44.5
Trade balance -2,059 -2,402
Source : CBSL

21. Global
Update

22. Looming global food crisis
The Russia-Ukraine war is battering the global food
system which was already weakened by the COVID
19 pandemic, climate changes and energy shocks.
Antonio Guterres, the UN secretary general warned
on 18 May that the coming months threaten “the
spectre of a global food shortage” that could last for
years.
Source : The Economist
The high cost of staple food has already increased the number of people who cannot be sure of
getting enough to eat to 440Mn, a total of 1.6Bn. Nearly 250m are on the brink of famine.
If, as is likely, the war drags on and supplies from Russia and Ukraine are limited, hundreds of millions
more people could fall into poverty. Political unrest will spread, children will be stunted and people will
starve.

23. Looming global food crisis (Cont.)
Russia and Ukraine supply
28% of globally traded wheat,
29% of the barley,
15% of the maize,
75% of the sunflower oil
Wheat Crisis
Wheat prices, up 53% since the start of the year, jumped a further 6% on May 16th, after India said it would suspend exports because of an
alarming heat-wave.
China has said that, after rains delayed planting last year, this crop may be its worst-ever.
China and India are the top two wheat exporters in the world.
On top of that, a lack of rain threatens to sap yields in other breadbaskets, from America’s wheat belt to the Beauce region of France. The Horn of
Africa is being ravaged by its worst drought in four decades.
Rising wheat prices (as of 27 May 2022)
Source : Bloomberg Commodities

24. Looming global food crisis (Cont.)
Russia and Ukraine contribute about half the cereals imported by Lebanon and Tunisia;
for Libya and Egypt the figure is two-thirds.
Source : The Economist
Households in
Emerging
economies spend
25% of their
budgets on food
Households in Sub
Saharan African
economies spend
40% of their
budgets on food
In many importing countries, governments cannot afford
subsidies to increase the help to the poor, especially if they
also import energy—another market in turmoil.
Even before the Russian invasion the World Food Programme
had warned that 2022 would be a terrible year.

25. World Bank pledges USD 12bn to support low-income
countries hit by shortages
The World Bank plans to spend USD 12bn to support low-income countries hit by
shortages of food and fertilizers that have pushed prices higher since the Russian
invasion of Ukraine.
Sudan, where inflation has rocketed above 250%, is expected to be among the
countries that will benefit from the initiative, which the World Bank said should
alleviate shortages over the next 15 months.
The World Bank said the USD 12bn pledge would raise its overall commitment of
unspent funds to USD 30bn, from a budget of USD 170bn, as it seeks to prevent low-
income countries from being hit by famine and political unrest.

26. Russian Rouble
The rouble reached its highest level against the
dollar in four years, and against the euro in five
years. The Russian currency collapsed at the start
of Russia’s invasion of Ukraine, but has
strengthened on the back of government capital
controls to make it the world’s best performer so
far this year.
It has been boosted by the central bank raising
interest rates, Russian exporters being ordered to
convert 80% of their foreign currency into roubles,
and Russia demanding payment for its energy
supplies in roubles.

27. 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 >