- Global economy seeing continued volatility; ECB indicates further monetary easing possible; growth in emerging markets tempering; net foreign outflows from EMs this year first time in 27 years; effect of China slowdown (rate cuts again recently) and US fed rate hike expectation.
- Sri Lanka 2015 growth likely to be around 6.0% or just below; mixed signals from CBSL (see 6.1.).
- Credit to both private and government continued to quicken in August (see 3.); August saw highest private sector credit growth in 34 months; in October CBSL held interest rates steady for a 6th consecutive month.
- Net domestic financing in H1 2015 outstrips full year 2014, almost 2x more than same period last year.
- Exports across all major sectors continued decline, with a August YoY decline of nearly 20% and a 3.4% decline for Jan-Aug period compared to the same period last year.
- Growth in worker remittances, which Sri Lanka often relies on to counter the trade deficit slowed to 3.3% in August. H1 2015 remittance growth was just 2.2% compared to 10.5% in the same period last year.
- Consumer imports continue to be a main source of the widening trade deficit, up 39% in H1 2015 compared to last year; may temper down after new curbs on vehicle imports. Foreign outflows have weakened the reserve position; RBI swap arrangement has ended, unclear on an extension/new swap.
- This week, Government raised a US$ 1.5 billion 10-year bond in international markets at 6.85%, narrowed from the 7% price guidance. But carries a premium of 477 basis points above the US benchmark; higher than the 398 basis points in the last issue in May.
- The bond should ease pressure on domestic borrowing and temporarily buoy the foreign reserve position. But fiscal and BOP outlook is worrying, and hopes are pinned on the Nov 20th Budget for reforms on spending and revenue.