1/4/2011

Presented by

Ajith Nivard Cabraal

Governor
Central Bank of Sri Lanka

4th January 2011

2011 IS THE FIFTH CONSECUTIVE YEAR THAT WE

ENUNCIATE OUR POLICIES, UP FRONT.

IT IS A YEAR WHERE THE PROSPECTS ARE BRIGHTER

THAN IN THE PREVIOUS YEARS…

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 1/4/2011

OUTLINE OF TODAY’S STATEMENT

1. Background and Introduction to the Road Map
2. Key Macroeconomic Developments in 2010
3. Financial System and Economic Environment in
2010
4. Macroeconomic Outlook and Monetary Policy
Strategy for 2011 and Beyond
5. Proposed Financial System Stability Policies for
2011 and Beyond
6. Policies to Strengthen the Economy in 2011 and
Beyond
7. Concluding Remarks

1. BACKGROUND AND INTRODUCTION

TO THE ROAD MAP

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 1/4/2011

THE GLOBAL RECOVERY IS CONTINUING AT DIFFERENT

SPEEDS ACROSS REGIONS…
• IMF estimates for growth in GDP GDP Growth for Selected Countries (2009-2010)
 World economy: 16
2009: -0.6% 14
12
2010: 4.8%
10
2011: 4.2% 8

Per cent
6
 Advanced economies: 4
2
2009: -3.2% 2009
0
2010: 2.7% -2
2010
2011: 2.2% -4
 Emerging & developing -6

United States
Germany
Bangladesh

Thailand
Canada

India

Malaysia
Australia

Singapore
France

Pakistan
Japan

Lanka

United Kingdom
economies:

SriLanka
2009: 2.5%

Sri
2010: 7.1%
2011: 6.4%
• Rising risk premia and falling risk
• The sovereign debt crisis in the
Euro Zone could hinder the appetite of investors could also
recovery slowdown the process

THE SRI LANKAN ECONOMY SHOWED STRONG GROWTH

MOMENTUM IN 2010…

• “Peace” dividend clearly

observed
• Impressive performance in all
key sectors in 2010
• Returned to the high growth
trajectory
• Improved business confidence
• Benign macroeconomic
fundamentals

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THE CENTRAL BANK SUCCESSFULLY DISCHARGED ITS TWO

OVER-RIDING AND VITAL RESPONSIBILITIES IN 2010…

ATTAINMENT OF ECONOMIC & PRICE STABILITY

• Low and stable inflation at mid-single digit levels for
two consecutive years as a result of appropriate
demand management policies and improvements on
the supply side
• Low interest rates and revived credit flows
• Stability in the exchange rate
• High overall economic growth together with
macroeconomic stability

THE CENTRAL BANK SUCCESSFULLY DISCHARGED ITS TWO

OVER-RIDING AND VITAL RESPONSIBILITIES IN 2010…

MAINTENANCE OF FINANCIAL SYSTEM STABILITY…

• Stable and sound financial system maintained
• Introduction of a deposit insurance scheme
• Positive investor sentiment that Sri Lanka’s financial
system will remain stable, while many advanced
economies struggle with financial institution failures

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VIEWS OF INTERNATIONAL ORGANISATIONS HAVE BEEN

POSITIVE…
• Remarkable progress has been made in respect of the IMF-SBA
programme. So far, Sri Lanka has received 5 tranches, totaling USD 1,275
million, out of the total facility of approximately USD 2,600 million.
• All targets set for end September and end December 2010 achieved.

June 28, 2010

Press Release No. 10/264

December 28, 2010 “Overall economic conditions remain strong, with GDP likely
Press Release No. 10/489 to grow by around 7½ percent this year… Performance under
the program is good, with all end-September performance
criteria met…”

INTERNATIONAL ORGANISATIONS ARE POSITIVE ON SRI

LANKA…
…. The Government’s development plan, as
described in the Mahinda Chintana is bold and
ambitious. It is good to be ambitious; it is the
right time for Sri Lanka to think big…..

…. I am pleased to be able to announce that

the (World) Bank’s recent creditworthiness
assessment has been concluded and that Sri
Lanka is now eligible for IBRD financing –
funding from the Bank’s non-concessional
window. IDA resources will continue…
Dr. Ngozi Okonjo-Iweala
Managing Director,
The World Bank
Colombo, 17th December 2010
10

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 1/4/2011

VIEWS OF INTERNATIONAL ORGANISATIONS…

…. The economy picked up strongly from the

beginning of 2010….

…The Stock market is vibrant, reflecting

strong confidence among both local and
foreign investors….

…..Political stability, improved credit

ratings, private sector revival, and
government infrastructure investment
underpin a strengthened economy….
Asia Development Outlook
2010 Update

11

AS WE PRESENT OUR POLICIES TODAY, WE ARE AWARE

THAT THE WORLD ECONOMY IS NOT YET ON A STABLE
FOOTING…

• Our projections are based on realistic assumptions and

intelligent estimates. However, there could be instances
where the best assessments could prove wrong
• Therefore, changes in developments in the global
situation which are different to assumptions may warrant
us to revisit our projections and strategies, and alter them
if deemed necessary
• Such changes, if any, will be communicated, along with
the rationale for such changes

12

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2. KEY MACROECONOMIC
DEVELOPMENTS
IN 2010

13

WE REAPED THE “PEACE” DIVIDEND…

• An estimated 8% Economic Growth Quarterly Economic Growth (2008 - 2010)

• Low and Stable Inflation 9

%
8.5
8.0
8
• Low Interest Rates 7 6.2
7.0
6.3 6.2
7.1

•
6
Historically High Foreign Reserves 5 4.3 4.2

•
4
Stable Exchange Rate 3
2.1
1.6
• Fiscal Consolidation 2
1
2008-

2008-

2008-

2008-

2009-

2009-

2009-

2009-

2010-

2010-

2010-

• Declining Unemployment Rate

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

• Rapid decrease in poverty

GDP and Sectoral Performance (Growth Rates)
• “Middle-income Emerging Market 10.0

Country” status 8.0

• Upgraded Sovereign Credit Ratings

Per Cent

6.0

4.0
• GDP reaches about USD 50 billion from
just USD 24 billion in 2005 2.0

0.0
2005 2006 2007 2008 2009 2010 (Est.)
Agriculture Industry Services Gross Domestic Product
14

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SHARP INCREASE IN GDP AT CURRENT PRICES AND AT

PURCHASING POWER PARITY (PPP) ADJUSTED PRICES…
GDP (at current prices) and PPP based GDP Per capita Income
120 6,000
102.5 5,026
96.5 4,769
100 92.2 5,000 4,589
85.2 4,274

80 4,000

60 49.3 3,000 2,389

40.7 42.0 2,014 2,053
40 32.4 2,000 1,634

20 1,000

0 0
2007 2008 2009 2010 Est. 2007 2008 2009 2010 Est.
GDP at current prices (USD Bn) GDP per capita (Current Prices/USD Units)
PPP based GDP at Current Internatioanl Dollar (Bn) PPP based GDP per capita (Current International Dollar/Units)

Source : World Economic Outlook Database - IMF

Price differentials between countries and deficiencies in the compilation of

GDP, especially in relation to non-traded goods, sometimes tend to distort the true value
of the economy. PPP based GDP makes an adjustment for such deficiency to some
extent…
15

COMMENDABLE PERFORMANCE IN ALL KEY SECTORS…

Agriculture: 6.3% annual growth expected
• Favourable weather conditions
• Attractive prices
• Improvement in support services
• Continuation of fertilizer support scheme
• Significant contribution from the Northern and Eastern provinces

Paddy Production & Yield (2005- 2010)

5,000 4.60
4,500
4,000 4.40
3,500 4.20
Production '000 mt

3,000
Yield per ha

2,500 4.00
2,000
1,500 3.80
1,000 3.60
500
- 3.40
2005 2006 2007 2008 2009 2010

Production 16
Average yield per ha

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COMMENDABLE PERFORMANCE IN ALL KEY SECTORS…

Industry: 8.7% annual growth expected
• Promotion of Small and Medium Private Sector Monthly Industrial Production
Volume Index
Enterprises (1997 = 100)
230
2008 2009 2010
• Improved infrastructure facilities 210

• Special programmes 190

Index
– “Gamata Karmantha – 300 Enterprise 170
Programme”
150
– “Vadakkin Wasantham”
– “Nagenahira Navodaya” Month

Power Generation (2005-2010)

• Recovery of domestic and external demand 7,000

• Increased share of hydropower generation 6,000

5,000
from 40% to 50%

Gwh
4,000

• Rapid expansion in the Construction sector 3,000

2,000
• Improved domestic business climate 1,000
0
2005 2006 2007 2008 2009 2010
(Proj)

Hydro Thermal & Other 17

COMMENDABLE PERFORMANCE IN ALL KEY SECTORS…

Services: 7.9% annual growth expected
• All sub-sectors performed well
Services Output and Growth (2005-2010)
• Wholesale and retail trade (7.4%) 1,600 9.0
8.0
• Transport and communication (11.9%) 1,200 7.0
6.0
Rs. Bn

Per cent

• Banking insurance and real estate (7.6%) 800

5.0

400 4.0
• Hotels and restaurant (36%) 3.0
- 2.0
• Tourist arrivals increased by 46% (up to 2005 2006 2007 2008 2009 2010
(Est.)
November) Output (Constant 2002 Prices) Growth (RHS)

Performance of the Ports (2005-2010) Subscribers to Fixed & Mobile Telephones

58 3.80 20
No. of Subscribers (Mn)

54
Tonnes Mn

50 3.30 15
TEUs '000

46
42 2.80 10
38 2.30 5
34
30 1.80 0
2005 2006 2007 2008 2009 2010

Cargo Handling Container Throughput

18

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DECLINING UNEMPLOYMENT AND IMPROVING LABOUR

Unemployment Rate (1990-2010)
PRODUCTIVITY 20
18
16
14

Per cent
•
12
Unemployment rate 2010 Q3:5.2% 10
8
– Infrastructure development projects 6
5.2
4
– Reconstruction, Humanitarian and 2
0
Resettlement programmes

1990
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010-Q1
2010-Q2
2010-Q3
– Increased level of economic activity
Overall Labour Productivity (2005-2009)
– Steady increase in foreign employment 330

Output per person

320

(Rs.'000)
310

• Overall labour productivity has 300

290
improved 280
2005 2006 2007 2008 2009

Unemployment Rates of Advanced and

some emerging Economies -2010 Estd.
19.9
20
18
16
14 11.8
12 9.8
Per cent
9.7
10 8.0 8.3 8.2 7.9 7.5
7.1
8 6.2 6.2
5.2 5.1 5.0
6 3.6 4.1 3.5
3.3
4 2.1
2
0

19

EXTERNAL SECTOR REBOUNDED STRONGLY…

• Continued recovery of the global economy

• Increased earnings from exports
• Revival of tourism, expansion of freight and port
related activities
• Substantial increase in expatriate workers’
remittances
• Improved financial market conditions

20

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 1/4/2011

EXTERNAL OUTLOOK IMPROVED SUBSTANTIALLY….

• Graduated to ‘Middle-Income Emerging Market
Country’ status
• Continuation of IMF-SBA
• Sovereign ratings upgraded by all rating agencies
during the year

Rating Agency Current Rating Outlook

S&P B+ Stable

Fitch B+ Positive

Moody’s B1 Stable

21

FOREIGN CAPITAL INFLOWS CONTINUED TO BE SIGNIFICANT

• Third international sovereign bond was oversubscribed by more than 6

times

• USD 900 million surplus in the Balance of Payments (BOP)

• Gross official reserves reached USD 6.6 billion (6.1 months of imports)

• Sri Lanka rupee appreciated only gradually as the Central Bank absorbed
foreign currency to avoid excessive rupee appreciation

€ £

¥ $ 22

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 1/4/2011

EXPORT EARNINGS INCREASED...

• 13.3% annual growth expected Earnings from Exports 2009-2010

•
US$ million
Gradual recovery of export demand 900

• Better investment environment 800

700
• Removal of the marine war risk
600
premium on re-insurance
500
• Attractive prices 400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
• Industrial exports contributed 2009 2010

significantly
• Agricultural exports recorded a healthy
growth

23

SOUND EXPORT PERFORMANCE DESPITE CHALLENGING

CIRCUMSTANCES
Garments Exports to USA

• Despite the withdrawal of the US $ mn

140
GSP+ scheme since August 2010 130
and the sluggish recovery in 120
110
external demand, exports to all 100
major regions increased, including 90
80
garments exports. 70
60
• Benign macroeconomic conditions Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

and progressive industry initiatives 2009 2010

helped to withstand the

anticipated shock
Garments Exports to EU
US $ mn
200
180
160
140
120
100
80
60
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2010
24

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 1/4/2011

IMPORTS RECOVERED…
• 34.9% growth is projected for 2010
• Significant contribution from Intermediate Expenditure on Imports
goods US$ million
1,300
• Investment goods increased: reflecting the 1,200
1,100
rapid recovery of the economy, and future 1,000
expansion of economic activity 900
800
• Increased imports of non-food consumer 700
600
goods (supported by tax reductions) 500
400
• Import expenditure on petroleum Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2009 2010
products increased by about 46.7%

25

TOURISM REBOUNDED SHARPLY IN 2010….

• 45.7% increase in tourist arrivals during Jan.-Nov. (recorded highest
number and exceeded the annual target of 600,000)

• 61.4% increase in earnings to USD 501 million

Tourist Arrivals (2008-2010)

80 80
No. of Tourist Arrivals ' 000

70
Year-on-year % change

60
60
40
50
40 20
30 0
20
-20
10
0 -40
Jan-08

Jan-09

Jan-10
May-08
Jul-08

May-09
Jul-09

May-10
Jul-10
Mar-08

Nov-08

Mar-09

Nov-09

Mar-10

Nov-10
Sep-08

Sep-09

Sep-10

No of Tourist Arrivals Growth (%)

26

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REMARKABLE INCREASE IN WORKERS’ REMITTANCES

• Workers’ remittances expected to exceed USD 4.1 billion in
2010, up by 24% from previous year.

Workers’ Remittances (2004 - 2010) • Higher per capita remittances, due

4500
4,100 to better wages and increased
4000
skilled labour
3500 3,330

2,918
• Positive sentiment on domestic
US$ Mn.

3000
2,502 environment
2500
1,919
2,161
• Greater convenience in remitting
2000
1,564
1500

1000
2004

2005

2006

2007

2008

2009

2010 Est

27

INFLOWS TO THE SERVICES ACCOUNT AND WORKERS’

REMITTANCES CONTAINED THE CURRENT ACCOUNT DEFICIT…

• Current account deficit of 3.8% of Current Account Balance (2005 - 2010)

GDP is expected for 2010
0 0.0
-500
• Deficit in trade account substantially -1000
-2.0

offset by higher inflows of workers’ -1500 -4.0

Per cent

-2000
USD Mn.

remittances and surplus in the -2500

-6.0

services account -3000 -8.0

-3500
-10.0
-4000
• Inflows on account of emerging -4500 -12.0
services - computer and 2005 2006 2007 2008 2009 2010

information, BPOs, insurance, and Current Account Balance As a % of GDP (Right Axis)

business services, increasing

• Workers’ remittances to increase by

24%, the highest ever growth, to
USD 4.1 billion

28

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CURRENT ACCOUNT DEFICIT MORE THAN COVERED BY

CAPITAL AND FINANCIAL ACCOUNT SURPLUS...
Balance of Payments (2005 - 2010)
• A surplus of USD 2.7 billion recorded in the
4,000
Capital and Financial Account 3,000
2,000
• Foreign financial flows to the government 1,000
0

USD Mn
amounted to USD 3.6 billion -1,000
-2,000
– Long term project loans -3,000
-4,000
-5,000
– Capital grants -6,000
-7,000
– Proceeds from the sovereign bond issue 2005 2006 2007 2008 2009 2010 Proj.
Trade Balance Current Account Balance
– Investments in Treasury bills and bonds
• Foreign inflows to the private sector Inflows to the Government (2005 – 2010)
continued 4,000

• FDI is estimated to be around USD 500 3,500

million in 2010, a level lower than 3,000
expected, reflecting declining capital flows 2,500
globally USD Mn
2,000

• BOP reported an estimated surplus of 1,500

approximately USD 900 million in 2010 1,000

500

0 29
2005 2006 2007 2008 2009 2010

BALANCE OF PAYMENTS HIGHLIGHTS (USD MN.)

Item 2009(a) 2010(b)
Exports 7,085 8,029

Imports 10,207 13,772

Trade Balance (3,122) (5,743)

Services (net) 393 633

Income (net) (488) (350)

Remittances and Transfers (net) 3,005 3,608

Current Account Balance (212) (1,852)

Inflows to the Government (net) 2,209 2,080

FDI/ Inflows to the Private Sector (net) 153 486

Overall Balance 2,725 900

(a) Provisional
(b) Estimates

30

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SRI LANKA SUCCESSFULLY ISSUED THE THIRD SOVEREIGN

BOND OF USD 1 BILLION…

• The 10 year bond was Sovereign Bond - Amount & Yield (%)
US$ (Mn)
oversubscribed by over 6 1100 8.25
%
8.5
1000
times 900
800
8
700 7.4
7.5
600
• An indication of improved 500
400 7
300
investor sentiment 200
100
6.25 6.5

0 6
– With the ending of the conflict 2007 2009 2010
Amount Yield (%)
– Strong macroeconomic
fundamentals
Investor Mix
– Continuation of IMF-SBA facility
22.50%
• Coupon rate declined 52.50%
significantly 25%

United States Europe Asia 31

GROSS OFFICIAL RESERVES REACHED RECORD HIGH LEVELS….

• Reserves increased to USD 6.6 billion (equivalent to 6.1 months of
imports) by end 2010

Months of Imports
US$ bn Gross Official Reserves (Without ACU) and
8.0 Months of Imports 7.0

7.0 6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0

1.0 1.0

0.0 0.0
Jul-08

Jul-09

Jul-10
Jan-08

Apr-08

Jun-08

Oct-08

Jan-09

Apr-09

Jun-09

Oct-09

Jan-10

Apr-10

Jun-10

Oct-10
Mar-08

May-08

Aug-08

Nov-08

Mar-09

May-09

Aug-09

Nov-09

Mar-10

May-10

Aug-10

Nov-10
Feb-08

Sep-08

Dec-08

Feb-09

Sep-09

Dec-09

Feb-10

Sep-10

Dec-10

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

32

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INCREASED FOREIGN EXCHANGE INFLOWS EXERTED

PRESSURE ON THE RUPEE TO APPRECIATE...
Daily Sri Lanka Rupee/Dollar Exchange Rate Movements
• CBSL purchased foreign 125

currency to avoid excessive 120

rupee appreciation 115

Rs./USD
110
• The Rupee appreciated against the
105
US dollar by 3.1% in 2010
100
1-Jan-07 1-Jan-08 1-Jan-09 1-Jan-10
Daily Sri Lanka Rupee/Indian Rupee Exchange Rate
Movements
Rs. Central Bank Intervention in the Foreign Exchange
3 Market
US$ Mn
350.00
300.00
2.5 250.00
200.00
150.00

2 100.00
Jul-07

Jul-08

Jul-09

Jul-10
Apr-07

Apr-08

Apr-09

Apr-10
Jan-07

Oct-07
Jan-08

Oct-08
Jan-09

Oct-09
Jan-10

Oct-10

50.00
0.00

Nov 2010
Jan 2010

Mar 2010

Apr 2010

Aug 2010

Oct 2010

Dec 2010
Feb 2010

May 2010

Jun 2010

Sep 2010
Jul 2010
Supply Absorption 33

FISCAL CONSOLIDATION CONTINUED…

Budget Deficit (as a percentage of GDP)
• Budget deficit estimated to be 2010
Rev
8% of GDP in 2010, down from 2001 2002 2003 2004 2005 2006 2007 2008 2009 Est

9.9% in 2009 due to: 0.0

– Improved revenue collection -2.0

– Expenditure containment -4.0

policies -6.0

(6.9) (7.0)
-8.0 (7.3) (7.5) (7.0) (7.0)
(8.0)
• Debt to GDP ratio fell to an -10.0
(8.5)
(9.9)
estimated 84% in 2010 -12.0
(10.4)

34

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IMPROVEMENT IN REVENUE COLLECTION, CONTAINMENT OF

RECURRENT EXPENDITURE WHILE PUBLIC INVESTMENT IS
MAINTAINED AT THE DESIRED LEVEL
• A growth of 15% was recorded in revenue Govt. Revenue excluding grants as a percentage of GDP
collection during the first 10 months of
2010 18.0 15.5 16.3 15.8
14.9 14.5 14.6
16.0 1.7
1.8 1.6
14.0 1.6 1.7 1.7
• Almost all the categories of taxes, except 12.0
10.0
income tax and custom duties contributed 8.0 14.6
13.7 14.2 13.3 12.8 13.0
towards this revenue increase 6.0
4.0
2.0
• Total expenditure as a percentage of GDP 0.0
2005 2006 2007 2008 2009 2010 Rev
declined to 18.9% in the first 10 months of Est
2010 from 20.3% in same period of 2009 Non-tax Revenue Tax Revenue

Govt. Expenditure as a percentage of GDP

• Recurrent expenditure declined to 14.2% %
of GDP in the first 10 months of 2010 from 30.0
24.9 23.0
15.8% in the same period of 2009 25.0 23.8 24.3 23.5 22.6
5.8 5.6 6.1 6.7
20.0 5.7 6.3
• Capital investment will be maintained at 15.0
6.3% of GDP in 2010 10.0 18.6 18.2
18.1 17.4 16.9 16.7
5.0

0.0
2005 2006 2007 2008 2009 2010 Est
35
Capital and Net lending Recurrent

SEVERAL INFRASTRUCTURE PROJECTS ARE IN PROGRESS…

– Power projects
• Norochcholai Coal Power Plant (Phase 1 : Completed, Phase 2 : 2013)
• Upper Kothmale Hydro Power Plant (Completion by 2011)
• Uma Oya Hydro Power Project (Completion by 2015)
• Moragahakanda and Kaluganga Reservoir Project (Commenced)
– Road development projects
• The Southern Highway Project, (Completion by 2011)
• The Colombo - Katunayake Expressway (Completion by 2012)
• The Colombo Outer Circular Road Project (Completion by 2013)
– Port development projects
• The South Colombo Harbour Project, (Phase 1 Completion by 2012)
• The Hambantota Port Development Project (Phase 1 : Completed)
• The Oluwil Port Development Project (Completion by 2011)
– Several water supply projects
– On-going rural infrastructure development projects
• Gama Neguma
• Maga Neguma
• Small Irrigation Projects,
• Kirigammana projects
• Lightening Sri Lanka (Targeted 100% electricity coverage)

36

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DEVELOPMENT CONTINUED AT A RAPID PACE IN THE

NORTHERN & EASTERN PROVINCES...
• Rehabilitation and reconstruction of
infrastructure facilities in the conflict
affected areas

• Planned development programmes under;

– Vadakkin Wasantham (Uthuru Wasanthaya)
programme. Nearly Rs.300 billion of public
investment has been planned.

 CBSL facilitated over 21,000 loans through PCIs

– Nagenehira Nawodaya programme. Rs.200

billion had been allocated for public investment
for the period 2007-2010

 CBSL facilitated over 20,000 loans through PCIs

37

STEPS WERE TAKEN TO STRENGTHEN PUBLIC ENTERPRISES…

• Establishing the Ministry of State Resources and Enterprise
Development
• Improving the management of some major State Owned Enterprises
– CEB to operate at breakeven with increased hydropower and low cost coal
power generations
– CPC’s financial operations are to improve with reduced fuel subsidies to CEB
– Operational efficiency of SLTB and SLRs need to be improved.
– Financial performance of SriLankan Airlines and Mihin Air are improving
– Financial stability of state banks have become robust with improved
management and elimination of directed lending
– SLIC and Litro Lanka Ltd. to operate as government owned companies.

38

19
 1/4/2011

CENTRAL BANK EASED ITS MONETARY POLICY STANCE…

Policy Interest Rates of the Central Bank and
the Average Weighted Call Money Rate
• Inflation and inflation outlook 20

continued to be benign in 2009 18 17.00

16.50
16
and 2010 14.75

Per cent
14 13.00
12 11.75 11.50 11.00
10.25 10.50
9.75
•
10 9.50
Central Bank further reduced its 8
9.00
8.50
8.00 7.50 7.25
9.00

policy interest rates in 2010: Repo 6

29-Jul-09

27-Oct-09

24-Jul-10

22-Oct-10
31-Dec-08

26-Dec-09

21-Dec-10
24-Feb-10
30-Jan-09

30-Apr-09

29-Jun-09

25-Jan-10

25-Apr-10

24-Jun-10
31-Mar-09

26-Mar-10
1-Mar-09

28-Aug-09
27-Sep-09

26-Nov-09

23-Aug-10
22-Sep-10

21-Nov-10
30-May-09

25-May-10
rate by 25 bps and Reverse Repo Weighted Average Call Money Rate

rate by 75 bps Repo

Reverse Repo
Penal Rate

Deposit Rates of Commercial Banks,

• Weighted average call money rate Treasury bill yield and Monthly AWPR

continued to remain stable within 23

the policy rate corridor 21

19
17
15

•
Per cent

Market interest rates continued 13

11
9
to adjust downwards 7
5
3
Mar-08

Mar-09

Mar-10
Sep-08

Sep-09

Sep-10
Dec-07

Dec-08

Dec-09

Dec-10
Jun-08

Jun-09

Jun-10
39
Monthly AWPR AWDR T-bill yield (91-day) AWFDR

MONETARY DEVELOPMENTS WERE BROADLY CONSISTENT

WITH THE MONETARY PROGRAMME FOR 2010…

• Increase in the currency held by Reserve Money – Target Vs. Actual (2010)

the public resulted in Reserve 355

350
Money growing above the target 345
340
during the first half 335
Rs. bn

330
325

• In July, original projections revised 320

315

incorporating, 310
305
300

– Higher economic growth than initially Mar-10 Jun-10 Sep-10 Dec-10 Annual Avg

expected Targeted Reserve Money Actual Reserve Money

– Fiscal data as per the Budget 2010

approved in July

40

20
 1/4/2011

GROWTH IN BROAD MONEY SUPPLY DECELERATED…

Expansion of Monetary Aggregates
(Year-on-year Growth)
• Declining Net Foreign Assets (NFA) of %
30.00
the banking system and Net Credit to 25.00

the Government contributed to lower 20.00

20.64

15.00
monetary expansion 10.00
14.38

5.00

• However, by October, growth in credit 0.00

to the private sector picked up to (5.00)

(10.00)

20.3%

Mar-08

Jul-08

Oct-08
Nov-08

Mar-09

Jul-09

Oct-09
Nov-09

Mar-10

Jul-10

Oct-10
May-08
Jun-08

Aug-08

May-09
Jun-09

Aug-09

May-10
Jun-10

Aug-10
Jan-08

Apr-08

Jan-09

Apr-09

Jan-10

Apr-10
Dec-08

Dec-09
Feb-08

Sep-08

Feb-09

Sep-09

Feb-10

Sep-10
Reserve Money M2b

Average Weighted Lending Rates (2006 – 2010) Credit to the Private Sector (2004 – 2010)
% %
22.0 30
20.0
25
18.0
20
16.0
15
14.0
10
12.0
5
10.0
0
2006 Q1
2006 Q2
2006 Q3
2006 Q4
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
2008 Q4
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
2010 Q2
2010 Q3

2004 Q1

2004 Q3

2005 Q1

2005 Q3

2006 Q1

2006 Q3

2007 Q1

2007 Q3

2008 Q1

2008 Q3

2009 Q1

2009 Q3

2010 Q1

2010 Q3
-5

-10

41

HOWEVER, EXCESS LIQUIDITY IN THE MONEY MARKET

CONTINUED TO BE HIGH, POSING CONCERNS…

• The build-up of excess market liquidity has been partly due

to net absorption of foreign exchange by CBSL, to prevent
undue appreciation of the SL rupee.
• Several instruments were used to absorb excess liquidity
including;
o Repo using government securities borrowed under the bond
borrowing programme
o Sale of Central Bank Securities
o Foreign exchange swaps

42

21
 1/4/2011

INFLATION REMAINED SUBDUED DURING THE YEAR…

• Annual average inflation reached 5.9% in December 2010, up from a
25 year low of end-year annual average inflation of 3.4% in 2009.
• Year-on-year inflation in December 2010 was 6.9%
• Core inflation was less volatile and declined to 6.3% on an annual
average basis
Movements in Inflation (2006-2010) Contribution to Inflation (2006-2010)
30
30
Year-on-Year 28.2
25
25
Annual Average 23.4 20
20
Per cent

Per cent
15

15 10
6.9
10 5

6.9 0
5 5.9
-5
0

Dec-10
Jul-06

Jul-07

Jul-08

Jul-09

Jul-10
Oct-06

Oct-07

Oct-08

Oct-09

Oct-10
Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Apr-06

Apr-07

Apr-08

Apr-09

Apr-10
Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10
Jun-06
Sep-06

Jun-07
Sep-07

Jun-08
Sep-08

Jun-09
Sep-09

Jun-10
Sep-10

Food and Non Alcholic Beverages Transport

Other Inflation, y-o-y (CCPI=2002)

43

THE PERFORMANCE OF THE CSE WAS

IMPRESSIVE…
• Price indices, Market Colombo Stock Exchange - Price Indices
capitalisation, Turnover and the number of 9,000
transactions reached record levels 8,000

7,000

• All Share Price Index (ASPI) crossed the 6,000

Index Points

5,000
7000 level in October 2010 4,000

3,000

• ASPI and Milanka Price Index (MPI) 2,000

increased by around 96% and 1,000

83.4%, respectively, during the year 0

Aug 27, 09

Nov 18, 09
Mar 31, 08

Jun 27, 08

Mar 11, 09

Mar 26, 10

Jun 28, 10
Dec 10, 08
Jan 26, 09

Dec 30, 09

Dec 10, 10
Apr 24, 09
Feb 14, 08

May 15, 08

Aug 7, 08
Sep 16, 08

Oct 8, 09

Feb 16, 10

May 13, 10

Aug 5, 10
Sep 16, 10
Oct 29, 08

Jun 8, 09
Jul 17, 09

Oct 28, 10
Jan 2, 08

• There were 10 IPOs during the year, and all ASPI MPI

were heavily oversubscribed. The IPOs

yielded Rs.5.34 billion

• Market capitalisation increased to

Rs.2.2 trillion at end December, from
Rs.1 trillion at end 2009

44

22
 1/4/2011

3. FINANCIAL SYSTEM AND

ECONOMIC ENVIRONMENT
IN 2010

45

STABILITY OF THE FINANCIAL SYSTEM IMPROVED...

• Domestic financial framework kept stable

• Profitability improved along with increased

economic activity given the improved
macroeconomic environment and growing
investor confidence

• Prudential and regulatory framework and

the surveillance mechanism further
strengthened

• New Finance Business legislation approved

by the Cabinet of Ministers

46

23
 1/4/2011

SIGNIFICANT RESILIENCE AND IMPROVEMENTS WERE

WITNESSED…
Capital Adequacy Ratio (%)
• Performance of financial %
(1998 - 2010)

institutions improved, leading 18

16
14.1 14.5
16.1
15.5

to:
13.4 13.3
14 12.8
12.6 12.3 11.9
11.4
12
10.4 10.5

– Improved asset quality 10

8

– Higher profitability 6
4

– Higher capitalisation levels 2

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20092010 Sep*

• Capital Adequacy Ratio (CAR) in %

Total Provisions to NPL Ratio, %
(2006 - 2010)
banks maintained at 16% 68 66.9
66 64.5
64

• Bank NPLs declined to 6.3% 62

60
60.9

58
56 55.0
53.0
54
52
50
2006 2007 2008 2009 2010 Nov*
47

A FEW NON-BANK FINANCIAL INSTITUTIONS WHICH

SUFFERED SET-BACKS IN 2009, RECOVERED STEADILY…
• Managing agents continued to manage Managing Agents
the weak institutions • Peoples Leasing Company Ltd.
• Merchant Bank of Sri Lanka
• Panel of Experts continued to advise
companies with liquidity issues Panel of Experts
• Mr. Arittha Wickramanayake
Nithya Partners
• Guarantee scheme introduced to
• Mr. H. M. Hennayake Bandara
facilitate bank loan facilities to RFCs and General
SLCs Manager, National
Savings Bank
• Mr. Ajith Devasurendra
• Weak FIs were required to restructure Deputy
their balance sheets and propose viable Chairman, Browns
Group of Companies
business plans • Mr. Nishan Fernando
Director, Odel Pvt. Ltd.
• All RFCs were required to obtain listings
on the CSE by June 2011.

48

24
 1/4/2011

BANK MINIMUM CAPITAL LEVELS INCREASED….

• Minimum capital requirement for new banks increased on a

staggered basis to reach the following levels by 2014:
– Commercial banks: Rs.5 billion
– Specialised banks: Rs. 3 billion
• Increased capital expected to provide a “cushion” for banks
to:
– Enhance contribution to the new growth sectors of the economy, and
– Absorb any unexpected losses.
• Required locally incorporated banks to obtain a listing in
the CSE by December 2011 to facilitate raising of capital in
a more transparent manner to improve market discipline

49

CREDIT GROWTH PICKED UP ALONG WITH AN

ENHANCEMENT IN CREDIT QUALITY…

• Credit to the private sector picked up as…

– Average reduction in lending rates during the
year was around 2% (In 2009: 2.7%)
– Reduction in the risk premia
– Efforts taken to reduce intermediation costs so
as to provide credit at affordable prices
– Central Bank requested all banks to reduce
interest rates, subject to the following
maximum rates:
o 14% p.a. on Housing loans
o 24% p.a. on Credit card advances

• Gross NPL ratio declined to 6.3% from 8.5%

• Net NPL ratio declined to 2.8% from 4.2%

50

25
 1/4/2011

STABLE MACROECONOMIC ENVIRONMENT ENABLED SOME

RELAXATION OF PRUDENTIAL MEASURES APPLICABLE TO
BANKS…
• Considering the reduced risk and the improvement of
asset quality, the general provision of 1% against
performing loans and loans in the special mention
category imposed in November 2006 was relaxed, w.e.f.
1st October 2010

• The general provision is to be reduced on a staggered

basis, by 0.1% each quarter so as to reach 0.5% by 31
December 2011

51

RISKS THAT COULD ARISE FROM OUTSOURCED BANKING

BUSINESS OPERATIONS WERE MITIGATED…

• Directions were issued to require

banks to develop comprehensive
and clear policy on
outsourcing, business continuity
management and monitoring, and
control of outsourced activities

• Regulator to carry out assessment

of outsourcing arrangements by
banks periodically

52

26
 1/4/2011

INTERNATIONALLY ACCEPTED RISK MANAGEMENT

FRAMEWORK WAS GIVEN SPECIAL ATTENTION…

• Preparatory work done to implement Pillar 2 under Basel II –

Supervisory Review Process

53

MANDATORY DEPOSIT INSURANCE SCHEME WAS

INTRODUCED…

• Scheme expected to:

– Help maintain public confidence in the financial system in times of
uncertainty and/or crisis
– Safeguard interests of small depositors
– Discourage unauthorised deposit taking activities

• All licensed banks and registered finance companies are members

• A premium of 0.10% - 0.15% levied on eligible deposits
• A Deposit Insurance Fund managed by the Monetary Board
• Depositors will be compensated up to a maximum of Rs.200,000
per depositor, beginning 1.1.2012

54

27
 1/4/2011

FITNESS AND PROPRIETY ASSESSMENT OF KEY BANK STAFF

EXTENDED…

• Bank officers holding senior and key management

positions are to be assessed for fitness and propriety
• This will ensure that:

– Banks are operated and managed by fit and proper persons

– Banks operate in a safe and sound manner

55

AMENDMENTS TO BANKING ACT PROPOSED…

• Proposed amendments to the Banking Act will strengthen

the Central Bank’s capacity to supervise bank dominated
financial groups on a consolidated basis, with particular
attention to:
– Intra-group transactions and exposures
– Risk concentrations
– Corporate governance
– Capital levels

• Regulations are also being framed to regulate mergers and

acquisitions of Licensed Banks

56

28
 1/4/2011

NEW FINANCE BUSINESS ACT PROPOSED…

• It will replace the present day Finance Companies Act. The

new Act will also:
– Provide effective mechanisms to deal with unauthorised deposit-
taking
– Enhance regulatory and supervisory powers relating to Finance
Companies

57

MICRO-FINANCE BILL FORMULATED…

• All microfinance institutions will be required

to obtain a registration and conduct their
business according to stipulated standards

• This would help prevent:

– Wastage and /or abuse of financial
resources in the micro sector
– Corruption and /or failures in
implementing micro level projects

58

29
 1/4/2011

MASSIVE PUBLIC AWARENESS CAMPAIGNS CONTINUED…

PUBLIC WERE REGULARLY WARNED OF:

• Danger and risk of

depositing or investing
funds in non-registered
institutions

• Participating in prohibited
schemes including pyramid
schemes

59

PAYMENT AND SETTLEMENTS SYSTEMS FURTHER

STRENGTHENED…

• Licenses were issued to 17 service providers of payment

cards
• Credit card operational guidelines issued
• Second phase of on-site supervision of LCBs completed for:
– Business Continuity Plans (BCP)
– Disaster Recovery Systems (DRS)

60

30
 1/4/2011

ELECTRONIC TRANSACTIONS MADE MORE CONVENIENT…

• SLIPS upgraded to:
i. Provide same day settlement facility
ii. Accommodate high volume transactions
iii. Move to an online system
• Provisional approval granted to a mobile operator
to implement a custodian account based mobile
payment system
• Mobile payment system implemented to facilitate
retail payments
• New guidelines prepared to be issued shortly, to
facilitate Electronic Fund Transfer system
• Provision of Intra-day Liquidity Facilities (ILF)
automated
• Real Time Gross Settlement (RTGS) system
upgraded

61

INTEGRITY OF FINANCIAL ENVIRONMENT SAFEGUARDED…

• MOUs signed by our Financial Intelligence Unit (FIU) with FIUs of

Australia, India, Belgium, Solomon Islands and Bangladesh for sharing of
information
• Amendments made to:
– Financial Transaction Reporting Act (FTRA)
– Prevention of Money Laundering Act (PMLA)
– Convention on the Suppression of Terrorist Financing Act (CSTFA)
drafted and comments to be obtained from legal
authorities, international organisations
• Draft rules prepared in relation to KYC/CDD for:
– Money Changers
– Primary Dealers and
– Leasing industry

62

31
 1/4/2011

CURRENCY MANAGEMENT IMPROVED…

• Third money museum at the
Bank's Southern Provincial Office
opened in May 2010
• Special Commemorative Coin to
mark the 60th anniversary issued
• Conduct awareness programmes
on the security features of
currency notes to identify
counterfeit notes
• Campaign launched to promote
clean note policy

63

PUBLIC DEBT MANAGEMENT WAS FURTHER STRENGTHENED…

• Improved investor confidence, high liquidity and low
inflation expectations resulted in a downward shift in the
yield curve
• The yield curve extended up to a 10 year horizon
• Debt/GDP ratio in a downward path
Sri Lanka: External Debt Sustainability Indicators (a) Secondary Market Yield Curve
Moderately
Indicator Highly Indebted Less Indebted
Indebted
13%
1. External Outstanding Debt / GNP × 12%
2. External Outstanding Debt / × 11%
per cent

3. External Debt Service Payments/ XGS × 10%

9%
4. External Interest Payments/ XGS ×
8%
5. NPV/GNP × 7%
6. NPV/XGS × 0 1 2 3 4 5 6
Maturity Period (Years)
(a) Based on 2010 provisional data.
Indicators are based on the Manual on Effective Debt Management, UN-ESCAP, 2006 End Dec 09 End Dec 10
XGS : Exports of Goods and Non-factor services

64

32
 1/4/2011

STEPS TAKEN TO UPGRADE SRI LANKA’S SOVEREIGN RATING …

• Appointed a Sovereign Ratings Expected Sovereign Ratings
70
Committee (SRC) with representatives 60
BBB-

from government, Central Bank and 50

BB+

BB
business associations to upgrade the 40

Rating
BB-
30
country’s sovereign rating to 20
B+
minimum investment grade of BBB- or 10
0
higher. 2010 2011 2012 2013 2014

• Appointment of three international Year

sovereign ratings advisors in respect

of the three rating agencies Rating Agency Rating Advisors

• In September 2010, three ratings S&P Royal Bank of

Scotland
agencies gave Sri Lanka a favourable
Fitch HSBC
foreign currency rating.
• Moody’s invited for sovereign rating Moody’s Bank of America
– Merrill Lynch

65

FOREIGN EXCHANGE TRANSACTIONS GREATLY FACILITATED…

• Exchange Control Department continued to play the role of
facilitator of foreign exchange transactions
• Several measures to relax foreign exchange transactions
implemented
 Permission granted to Sri Lanka residents to:
o Open and maintain bank accounts abroad
o Enter into forward contracts in foreign currency
 Margin requirements against advanced payments removed
 Suspension of pre-payment of import bills lifted
 Different foreign currency investment accounts unified
 Foreigners permitted to invest in rupee denominated Debentures
issued by local companies
 Sri Lankan resident individuals, corporates and unincorporated bodies
permitted to invest in equity of overseas companies
 Local companies permitted to borrow abroad
 Insurance companies permitted to invest a part of their assets abroad

66

33
 1/4/2011

IMPROVEMENTS TO MANAGEMENT OF EMPLOYEES’

PROVIDENT FUND Total number of Accounts (Mn)
• Size of the fund grew by 17% to
Rs.885 billion
• EPF diversified its portfolio in 2010
and increased investments were
made in the equity market. Through
such investments, EPF earned
significant realised and unrealised Growth of the Fund (Rs. Bn)
capital gains 1000
769
885

800
• Continued project to assign members 653

Rs.Bn
560
600 490
with unique identification number. 400
427

• Real-time registration of members 200

2005 2006 2007 2008 2009 2010
began in November 2010.
• Initialised electronic imaging of EPF Interest Rate paid to members (%)

records
• More than 2.1 million active members

67

FACILITATED DEVELOPMENT IN THE NORTHERN AND EASTERN

PROVINCES Northern Province

• Set up two provincial offices in Jaffna and Credit Line No. of loans Total
Trincomalee to facilitate credit programmes granted (Rs mn)

• Strengthened ongoing special credit lines by Awakening North 12,826 1,724

allocating additional funds for refinance to Prabodini 3,193 158

support the resumption of economic SARUSARA 4,200 1,251
activities. Abiwurdhi 517 121

• Facilitated the disbursement of loans through Provincial 190 250

PFIs under the special loan schemes Development
“Awakening North” and “Resumption of Saubagya 92 110
Economic Activities in the Eastern Province.” Total 21,018 3,614

• Provide support to IDPs to regain lost Eastern Province

economic and social status by providing Credit Line No. of households Total
appropriate and adequate facilities, market benefitted (Rs mn)
linkages and know-how. SARUSARA 4,650 1,400

• Conducted a comprehensive socio-economic Prabodini 9,689 418

survey of the Jaffna District to obtain Abiwurdhi 513 184

post-conflict baseline data pertaining to the Eastern 5,473 810
strengths and capabilities and challenges development
Provincial 36 21
faced by the people in the North development
Post tsunami credit 117 42
lines
Total 20,748 2,875

34
 1/4/2011

FINANCIAL INCLUSION WAS ACTIVELY PROMOTED TO MOVE

TOWARDS BALANCED REGIONAL DEVELOPMENT
• Policy decision to expand bank branch network across the country,
and in particular, in the Northern and the Eastern provinces leading
to 9.1 branches for every 100,000 individuals (global median is 8.4
branches for every 100,000)
• Banks required to open two branches outside Western Province for
each branch established in the Western Province
Expansion of Financial Services:
Item 2009 2010
Total North &
East only
Bank Branches 1847 1904 214
Other Banking Outlets * 890 924 99
ATMs 1876 1972 167
RFC 289 354 39
SLC 145 164 19

* Excluding Student savings units

69

HIGH PRIORITY GIVEN TO COMMUNICATING WITH THE PUBLIC…

• Timely and regular
communication enabled the
Central Bank to manage market
expectations effectively
– Public lectures, seminars and
workshops
– A series of lectures at
universities
– Regular release of information
– Immediate press releases on
policy changes
– Press Conferences and
Interviews conducted on all
matters of importance
70

35
 1/4/2011

Awareness Programmes
Data Releases
• Educational Seminars – 38
• For Students – 16 • Weekly Economic Indicators – 52
• For Teachers – 08 • Monthly Economic Indicators – 12
• For Business community – 14
• Visits of local and foreign teams to
CBSL for discussion

Media Releases
• Newspaper Advertisements
(All three languages) - 490
• Press Releases issued
(including Daily press
releases, Exchange Rates, Oil
Prices , SLIBOR and others) -
1722
• Media Conferences/Seminars
- 27
• Media Interviews - 35 Web Communications
• Gazette notifications - 15
• Average visitors to web (per
day) - 140,000 71

STEPS TAKEN TO IMPROVE THE “DOING BUSINESS”

ENVIRONMENT…
• High priority given to improving
investment climate for the
private sector

• World Bank’s “Doing Business

Index” places Sri Lanka at 102
out of 183 countries; Steps
being taken to improve this
ranking to 30, by 2016
• Central Bank published “A Step
by Step Guide to Doing
Business in Sri Lanka”
Areas considered in preparing
the Doing Business Index
1. Starting a business
2. Dealing with
construction permits
3. Registering property
4. Getting credit
5. Protecting investors
6. Paying taxes
7. Trading across borders
8. Enforcing contracts
9. Closing a business
72

36
 1/4/2011

4. Macroeconomic Outlook and

the Monetary Policy Strategy
for 2011 and Beyond

73

FACTORS IMPACTING MONETARY POLICY…

Monetary policy is generally determined in the context of:

• Underlying trends in monetary aggregates…

• Likely domestic or external shocks
• Expected Macroeconomic developments

That is because such trends, developments and

shocks, largely lead to changes in prices in an economy.

74

37
 1/4/2011

IN THAT CONTEXT, WHAT WOULD BE THE KEY DEVELOPMENTS

THAT ARE EXPECTED IN THE MEDIUM TERM?

BROAD BASED ECONOMIC GROWTH

• Economic growth to be 8% to 9% over the next few years, with all
sectors contributing to this growth
• Rapid development in agriculture with increased productivity and
mechanisation
• Greater capacity utilization and capacity expansion as a result of the
development of infrastructure facilities
• Significant expansion in the services sector
• Productivity improvement with expansion of Infrastructure, Adoption
of Technology, Training and Skills Development

75

KEY DEVELOPMENTS EXPECTED

INVESTMENTS TO INCREASE...
• Investments to reach above 30% of GDP in the medium term
• Domestic savings to rise and to be at least 22% of GDP
• More foreign resources likely to be available through:
– Inward remittances,
– Foreign direct investments
– Foreign financing inflows to both the government and the private sector

76

38
 1/4/2011

KEY DEVELOPMENTS EXPECTED…

GRADUAL STRUCTURAL ADJUSTMENTS TO TAKE PLACE IN VARIOUS SECTORS…
• Some of structural issues being addressed
– Labour productivity
– Land availability issues
• More lands being made available for new investment projects and expansion

– Revival and better management of loss making key public enterprises

• Government Fiscal Consolidation
• Changing lifestyles and spending patterns with enhanced incomes
• Greater regional and global integration with ICT empowerment
• Country’s middle income status and its implications
• “Peace” dividend

77

KEY DEVELOPMENTS EXPECTED…

ENCOURAGING DEVELOPMENTS IN THE EXTERNAL SECTOR…
• Exports and Imports expected to maintain the upward momentum
• Earnings from services, particularly Tourism, Ports, ICT, and external and internal
trade expected to record significant increases
• Remittances expected to increase further from the current level of 8% of GDP in
the upcoming years
• Higher FDI inflows to reach around 2% of GDP, due to more conducive
environment
• BOP surplus likely to be around 1.5% of GDP
• International reserves to be at a comfortable level of around 5 to 6 months of
imports in the medium term
• Exchange rate to remain largely stable with a tendency to gently appreciate

78

39
 1/4/2011

MORE SPECIFICALLY, CERTAIN DEVELOPMENTS ARE EXPECTED

IN 2011…
HIGH LEVEL OF FOREIGN INFLOWS EXPECTED
• Improving investment climate
Foreign Direct Investments
• Relaxation of exchange controls 1200

•
1000
Focused fiscal incentives and
facilitation 800

US$ Mn.
600
• Long term inflows to the government
400
projected to be around USD 1.7 billion
in 2011 200

0
• FDIs and inflows to the private sector 2005 2006 2007 2008 2009 2010 Est. 2011 Proj.

expected to reach USD 1.5 billion

• Portfolio investments expected to
increase

79

KEY DEVELOPMENTS EXPECTED IN 2011…

ENCOURAGING DEVELOPMENTS IN THE PUBLIC SECTOR…

• Government announced Fiscal Consolidation Policy

Framework will support effective conduct of monetary policy
• More domestic funds to become available to the private
sector at competitive rates
• Reduction of taxes to release more funds for private sector
investments

80

40
 1/4/2011

KEY DEVELOPMENTS EXPECTED IN 2011…

FURTHER IMPROVEMENTS ON THE FISCAL FRONT

• Overall budget deficit is expected to decline further to 6.8%

of GDP and to around 5% of GDP in the medium term
• Government revenue and grants are expected to increase to
15.6% of GDP
• Expenditure and net lending is expected to decrease to 22.4%
of GDP
• Government recurrent expenditure is estimated to decrease to
16.1% of GDP
• Public investment is expected to be maintained at 6.5% of GDP

81

KEY DEVELOPMENTS EXPECTED IN 2011…

BUDGET 2011’S FOCUS ON DEVELOPING EFFICIENCY AND PRODUCTIVITY
WILL BEAR FRUIT…
• Major emphasis on:
– Financial sector
– Small and medium enterprises (SMEs)
– Telecommunications
– Tourism
– Value added exports
– Research and development

• Recent tax reforms should generate “feel good” factor and revenue improvements:
– Simplified the tax system
– Lowered the tax rates
– Broadened the tax base
– Improved tax administration

82

41
 1/4/2011

KEY DEVELOPMENTS EXPECTED IN 2011…

NEW CCPI (BASED ON 2006/07 SURVEY) TO COME INTO FORCE…

• More representative price index that reflects most recent changes

in consumption patterns

• Helps formulation and conduct of Monetary Policy

• More realistic index to assess current inflationary pressures as

well as inflationary outlook

• Need to rebase the CCPI every 5 years as consumption patterns

change rapidly

83

IN THIS SCENARIO, THE CENTRAL BANK’S CHALLENGE WOULD

BE TO MAINTAIN INFLATION AT AROUND MID-SINGLE DIGIT
LEVELS IN THE SHORT AND MEDIUM TERM...

• Demand pressures emanating from the new developments will

need to be held in check

• Significant price pressures have to be anticipated and intervention

will be needed to mitigate these pressures through both demand
management and favourable supply-side developments

CENTRAL BANK WILL THEREFORE HAVE TO CONTINUE TO MONITOR

MONETARY AND ECONOMIC DEVELOPMENTS CLOSELY AND RESPOND
APPROPRIATELY

84

42
 1/4/2011

AT PRESENT, MONETARY MANAGEMENT IN SRI LANKA IS

ESSENTIALLY GUIDED BY THE MONETARY TARGETING
FRAMEWORK…
• Reserve money is the Operating Target

• Broad money is the Intermediate Target

• Monetary Programme serves as the guide to monetary policy operations

HOWEVER, THE VAST STRUCTURAL CHANGES NOW TAKING PLACE IN THE

ECONOMY COULD RESULT IN SIGNIFICANT FLUCTUATIONS IN FINANCIAL
FLOWS AND CHANGES IN FINANCIAL HABITS OF PEOPLE AS WELL AS
CHANGES IN THE VELOCITY OF MONEY AND MONEY MULTIPLIER.
• In the face of such changes, it will be more challenging to stipulate EXACT
TARGETS for monetary aggregates.

85

HENCE, THE EXISTING FRAMEWORK NEEDS TO BE

SUPPLEMENTED BY A MORE DYNAMIC APPROACH
IF WE ARE TO SECURE A LOW AND STABLE LEVEL
OF INFLATION IN THE YEARS TO COME…

Accordingly, we will follow a dual approach:

an Economic Analysis and a Monetary Analysis

86

43
 1/4/2011

THE ECONOMIC ANALYSIS WOULD COVER...

• Aggregate demand and potential output
• Developments in the global economy
• Fiscal developments
• Exchange rate movements
• External trade and the balance of payments
• Developments in capital markets as well as other financial
markets
• Labour market conditions

For this analysis, rebasing the CCPI on at least the “2006/07

Household Income and Expenditure Survey” would be of vital
importance

87

THE MONETARY ANALYSIS WOULD COVER…

• Impact of various domestic and international shocks on the economy

• The sensitivity of the on-going Monetary programme to the above
shocks and the need to adjust it in order to deliver the overall policy
deliverables
• Possible changes in credit growth: Bank credit to the
Government, Public Corporations and the Private sector
• Money market liquidity and its control measures
• Impact of capital inflows, its impact on the exchange rates and money
markets
• Savings and investment patterns
• Developments in the financial system

88

44
 1/4/2011

AS PER OUR PROJECTIONS, THE MONETARY PROGRAMME

FOR 2011 ENVISAGES THE FOLLOWING…

• Anticipated GDP growth of around 8.5%

• GDP deflator of 6%

• BOP surplus in 2011 of around USD 350 million

• Net Credit to the Government to be about Rs.42 billion

• Credit to the private sector to expand by about 16%

• Broad Money and Reserve Money growth to be at around 14.5%

89

ON THAT BASIS, PROJECTED EXPANSION IN BROAD MONEY

IN THE MEDIUM TERM WOULD BE…

Projected Expansion in Broad Money (% change over previous year)

2010 2011 2012 2013

GDP Growth 8.0 8.5 9.0 9.5

GDP Deflator 7.0 6.0 5.5 5.0

Broad Money-M2b 15.0 14.5 14.5 14.5

(Annual Average)

90

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IMPLEMENTATION OF MONETARY POLICY WOULD BE ON A

MULTI-PRONGED APPROACH…

• Policy interest rates to be used as the key

policy instrument
• Interest rate corridor approach to be
continued
• Stability in call market rates to be
maintained
• Policy advice and intervention methods in
relation to the supply side will be offered
to the relevant authorities
• Exchange rate stability will be maintained

91

IN IMPLEMENTING MONETARY POLICY, WE WILL CONTINUE

TO SEEK VIEWS OF ALL STAKEHOLDERS…
• Consultative Committee on Monetary Policy will continue, thereby strengthening
the policy decision making process.
• Special thanks to the outgoing Chairman, Prof. A. D. V. de S. Indraratne and
Member, Mr. Yohan Perera.
• Warm welcome to Mr. Mahen Dayananda, the incoming Chairman.
• Other eminent members of the Monetary Policy Consultative Committee (MPCC)
for 2011 will be:
– Mr. Sohli Captain – Chairman, CEI Plastics Ltd.
– Mr. Cubby Wijetunge – Director & Chairman Emeritus, Nestle Lanka Pvt Ltd.
– Mr. Raja Senanayake – Chairman, SKM Holding Ltd.
– Mr. Preethi Jayawardane – Jt. Managing Director, Chemanex Ltd.
– Mr. Amal Cabraal – Chairman, Unilever – Sri Lanka
– Mrs. Nirmali Samaratunge – Co-Chairperson & Jt. Managing Director, Mackwoods (Pvt) Ltd.
– Mr. Sujeewa Rajapakse – Vice President, Institute of Chartered Accountants of Sri Lanka

92

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OUR CLOSE COMMUNICATION WITH ALL STAKEHOLDERS

AND THE PUBLIC WOULD CONTINUE…
Monetary Policy Announcement Dates for 2011
• The public will be kept Month Date of Announcement
informed of policy changes
January 11th Tuesday
and the rationale for such
February 8th Tuesday
changes to facilitate
March 8th Tuesday
informed decision making
April 19th Tuesday
by economic agents.
May 13th Friday

June 10th Friday

July 8th Friday

August 19th Friday

September 16th Friday

October 11th Tuesday

November 8th Tuesday

December 20th Tuesday

93

5.PROPOSED POLICIES FOR

FINANCIAL SYSTEM STABILITY IN
2011 AND BEYOND

94

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THE FINANCIAL SECTOR WILL BE FURTHER DEVELOPED AND

IMPROVED

• Emphasis will be on:

 Safety
 Stability
 New growth areas
 Innovative financing solutions
 Prudential framework
 Supervisory arrangements and
processes
 Surveillance framework

95

CONTINUOUS IMPROVEMENTS WILL BE CARRIED OUT, BASED

ON THE ISSUES THAT SURFACED DURING THE GLOBAL
FINANCIAL CRISIS:

• Refine “stress” testing approaches

• Improve supervisory cooperation across

regulatory agencies

• Enhance risk identification and early

warning systems

• Reinforce quick liquidity support and

resolution arrangements

• Strengthen financial safety nets

96

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RISK MANAGEMENT WILL BE GIVEN TOP PRIORITY…

• Guidelines will be issued to banks on

Integrated Risk Management

• Integrated risk management techniques

will be developed to:

– Closely monitor and manage risks

– Ensure availability of adequate
capital within banks and other
financial institutions to meet
unforeseen risks

97

A ROBUST AND EFFECTIVE SUPERVISORY MECHANISM IN LINE

WITH THE BASEL FRAMEWORK WILL BE IMPLEMENTED…

• Implement Internal Capital Adequacy Assessment Process

(ICAAP) and Supervisory Review Process (SRP) under Basel II –
Pillar 2. This will entail:

– Capital allocation enhancement for risks not captured under

Pillar 1

– Identification of explicit responsibilities of the banks’ directors

and the supervisors

• Move towards advanced approaches of Basel II

• Carry out appropriate reforms in line with Basel III

98

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THE ADOPTION OF INTERNATIONAL ACCOUNTING

STANDARDS WILL BE FACILITATED

• Adopt Sri Lanka Accounting Standards

(SLAS) 44 and 45 on financial
instruments by January 2012
(corresponding IAS 32 and 39)
• Adoption of the Sri Lanka Accounting
Standards (SLAS) 46 on related
disclosures (corresponding IFRS 7) will
also be facilitated
• Direction on margin trading of shares
by banks to mitigate exposure to equity
market and to introduce a risk
management system.

99

FINANCE COMPANY SECTOR WILL BE MONITORED EVEN

MORE CLOSELY…
• All Registered Finance Companies will be
required to list on the CSE by June 2011
– Facilitate mobilisation of capital funds

– Broad based ownership

– Enhance governance standards and disclosure

requirements

• RFCs will be classified into two groups:

- Those which are in full compliance with
all applicable laws, regulations and
directions and those which are not
- The separate groups will be published in
the newspapers on a quarterly basis,
commencing 1st July 2011.

100

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NEW MECHANISMS WILL BE DEVISED TO MONITOR AND

SUPERVISE DIVERSIFIED GROUPS WITH FINANCIAL INTEREST …

• Identify and monitor risks arising

from:
– Inter-connectedness of Financial
Institutions
– Related companies
– Business conglomerates

• Certain groups may have complex

and (sometimes) opaque structures

101

FOREIGN COLLABORATION WILL BE INCREASED…

• Supervisory culture and practices

will be made consistent with
international standards
• Since there is a increasing presence
of international banks in Sri Lanka
and local bank branches outside Sri
Lanka, Memorandum of
Understanding (MOU) with home
regulators of foreign banks and host
regulators of local banks in the
Asian region, will be developed by
end 2012

102

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“ACCESS TO FINANCE” WILL BE CONSIDERED AS A “BASIC

NEED” AND GIVEN SPECIAL ATTENTION…

• A fact-finding survey will be conducted in early 2011 to

address:
– Knowledge gap of people on banking and financial
matters
– Suggested remedial measures
• A wide ranging financial literacy programme will be
launched in lagging provinces
• 125 comprehensive financial literacy programmes will be
conducted in 2011

103

PUBLIC AWARENESS CAMPAIGNS ON UNAUTHORIZED FINANCE

ACTIVITY WILL BE CONTINUED…

• List of licensed banks & registered financial institutions will be published regularly
• Risks in investing & depositing in non-registered institutions and prohibited
schemes will be highlighted as already done
• A Customer Charter will be introduced in order to:
– Educate customers of financial institutions, of their rights and responsibilities
– Provide guidance to customers of banks & financial institutions, in transacting with such
organisations and as to what redress is available in the event of a violation of the rights of
customers

• Develop mechanisms to provide information to customers who require information

on:
– Processes and documentation involved
– Relevant fees and charges
– Risks and benefits of various products

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FURTHER IMPROVEMENTS WILL BE EFFECTED IN PAYMENT

SYSTEMS TO SAFEGUARD PUBLIC INTEREST…
• Develop higher level of supervision
of service providers
• Issue guidelines to regulate internet
banking services and mobile
payments
• Move towards a common ATM
Switch
• Move towards a common Debit Card
Switch
• Provide for online-encryption
security for payment cards

105

STRENGTHEN THE AML/CFT FRAMEWORK

• Existing laws will be amended to

match international standards
• Measures will be taken to finalise
the legal review process to fulfill the
identified gaps in the existing laws
(FTRA, PMLA, CSTFA relating to
ML/TF)
• Capacity of the Financial
Intelligence unit will be significantly
enhanced

106

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STEPS TO IMPROVE THE EFFICIENCY OF BANKS TO LOWER

INTERMEDIATION COST …
• The interest spread in today’s banking sector
is about 4.5%.
INTERMEDIATION COST
• It will be possible to lower the interest
spread to around 3.5% - 4.0% by end
2011, particularly given the stability in
interest rates
Current Desirable
• Reduced intermediation costs will need to be level level

achieved through:
– Operational efficiency
– Re-engineering business processes
2011 2016
– Cost effective and efficient customer
services
– Development of innovative products

107

THE CORPORATE BOND MARKET WILL BE FURTHER DEVELOPED

• So far, Bank loans and equity markets have been

main sources of financing.

• Development of the corporate bond market would

create a deeper, increasingly integrated and
competitive financial market.

• The deepening of the Corporate Bond market will:

– Improve the ability to balance debt
– Better manage the degree of leverage
– Reduce the impact of shocks arising from over-
dependence on any single form or source of
financing

108

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GLOBAL AND REGIONAL FINANCIAL LINKS WILL BE

STRENGTHENED…
• Develop the financial sector’s capacity to proactively respond to the
changing requirements of the economy, and support the next phase
of economic development of Sri Lanka

• Strengthen linkages with the global economy

• Provide the necessary support and guidance to the Presidential

Commission on Banking and Financial Services, which is to be set up
shortly.

• Gradually, realise Sri Lanka’s potential to become a regional financial

hub.

109

IN FORMULATING POLICIES FOR THE FINANCIAL SECTOR, WE

WILL CONTINUE TO SEEK VIEWS OF ALL STAKE HOLDERS…
• The Financial System Stability Consultative Committee (FSSCC) will
continue to contribute towards strengthening the financial system .
• FSSCC for 2011 will comprise the following members:
• Mr. R. N. Asirwatham - Chairman
• Mr. U Mapa – Financial Ombudsman, The Financial Ombudsman Sri Lanka (Guarantee) Ltd.
• Mr. S. N. Palihena – Former General Manager, Bank of Ceylon
• Mr. M. U. de Silva – Secretary-General, Sri Lanka Banks’ Association
• Mrs. L. K. Gunatilaka – Former Director SNBFI, Central Bank
• Mr. Ajith Devasurendra – Deputy Chairman, Browns Group of Companies
• Mr. Sanjaya Kulatunga – Director, Amba Research Lanka (Pvt) Ltd.
• Mr. Sujeewa Mudalige – President, Institute of Chartered Accountants of Sri Lanka (ICASL)
• Mr. S. Jeyavarman – CEO, National Asset Management Ltd.

110

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6.POLICIES TO STRENGTHEN THE

ECONOMY IN
2011 & BEYOND

111

VARIOUS AGENCY FUNCTIONS CARRIED OUT BY THE

CENTRAL BANK ON BEHALF OF THE GOVERNMENT WILL BE
CONSCIENTIOUSLY IMPROVED…

These are:
• Issuing and managing currency
• Managing the public debt
• Facilitating foreign exchange transactions
• Managing the Employees’ Provident Fund
• Promoting regional development

112

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A NEW CURRENCY SERIES WILL BE LAUNCHED IN FEBRUARY 2011…

• A new series of currency notes with
the theme of
development, prosperity and Sri
Lankan dancers will be launched
• Awareness programmes on the
security features of new currency
notes will be conducted to combat
counterfeiting
• Under the Clean Notes Policy a
country-wide programme to
educate the public on the proper
handling of currency will be
conducted, while soiled notes will
be removed from circulation

113

FOREIGN EXCHANGE RELAXATION MEASURES TO BE

IMPLEMENTED WITH EFFECT FROM EARLY 2011

• Permission for local companies and institutions and individuals

to invest in equity of companies incorporated abroad and
sovereign bonds issued by foreign governments
– Increased level of reserves enabled implementing these measures

– This would help long-term external sector stability

114

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FURTHER FOREIGN EXCHANGE RELAXATION MEASURES WILL

BE IMPLEMENTED IN 2011…

• Permission for insurance companies to invest up to 10% of assets

of general fund or technical reserve in foreign assets
– This would facilitate insurance companies to diversify their
investment portfolio and improve long term financial stability
• Introduction of Corporate Credit Cards / Travel Cards
• Permission to be granted to transfer funds in NRFC/ RFC accounts
among banks and among individuals
• Removal of the maximum limit on the balance of the Indirect
Exporters’ Foreign Currency accounts
• Relaxation of exchange control restrictions on investments in Unit
Trusts

115

FURTHER FOREIGN EXCHANGE RELAXATION MEASURES WILL

BE IMPLEMENTED IN 2011…

• Relaxation of restrictions on foreign investments in

education, travel agencies and shipping agencies
• Permission to be granted to residents to make payments to non-
residents in respect of purchase of real estate
• Permission for Sri Lankan students studying abroad to obtain
loans from banks in the country of study.
• Introducing special foreign currency accounts for
– Travel agents
– Airlines
– Local companies who undertake foreign contracts such as power
projects, building constructions etc. abroad
– Local companies which undertake foreign funded projects in Sri Lanka

116

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SPECIAL FOCUS TO BE ON EFFICIENT RESERVE MANAGEMENT

TO OBTAIN OPTIMUM RESULTS…

• The Foreign Reserves Management activities will be

expanded in scope and extent by:
- Implementing a state-of-the-art treasury management system,
- Multiple-shift working arrangements, and
- Provision of modern physical infrastructure
• Foreign reserves in the medium
term targeted to be maintained at
around 5 to 6 months import
equivalent level
• Accordingly, Gross Official Reserves
are projected to increase to around
US$ 10 billion by 2013.

117

PUBLIC DEBT MANAGEMENT WILL BE STRENGTHENED FURTHER…

Projections of Outstanding Public Debt
• Debt portfolio will be further (2010 - 2016) (As a % of GDP)

restructured to reduce cost and risks.

• Steps will be taken to broaden and
diversify investor base.
• Lowering fragmentation to improve
liquidity and secondary market
operations
• Ensure a sound regulatory framework.
• Improve operations of the LankaSettle
and Primary Dealer Systems.
• Enhance secondary market trading of
Government Securities.

118

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MAKE EFFECTIVE USE OF THE LARGER POOL OF

RESOURCES AVAILABLE TO SRI LANKA …

• Funding from the World Bank’s concessional arm

– International Development Association (IDA)
• Funding from the World Bank’s non-concessional
window
– International Bank for Reconstruction and Development
(IBRD)
• Continued funding from Asian Development Bank (ADB)
• Bilateral sources such as JICA, China, India and Korea
• Appetite of various funds abroad to invest in Sri Lanka
• In addition significant inflow of FDIs are expected.

119

MANAGEMENT OF EMPLOYEES’ PROVIDENT FUND TO BE

FURTHER DEVELOPED

• Introduce a ‘Banking Model’

concept
• Project to assign members a
unique identification
number will be completed

120

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DEVELOP THE NEWLY PROPOSED PENSION FUNDS

• As proposed in Budget 2011, steps will be taken to

establish the new Employees’ Pension Fund to
provide post retirement pension benefits to
employees in the private and corporate sector.
• Steps will be taken to implement the proposed
Citizens’ Pension and Insurance Fund for the
informal sector, as proposed in Budget 2011.

121

REGIONAL DEVELOPMENT WILL CONTINUE TO FOCUS ON SMES…

• Promote Information & Communication

Technology based SMEs
• Facilitate service oriented SMEs in the
hospitality industry
• Conduct entrepreneurship development
training programmes to fill the knowledge gap
of existing and potential entrepreneurs in the
regions
• Introduce a new credit guarantee scheme to
mitigate credit risk to PFIs lending to SMEs

122

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NEW PROJECT OFFICES TO COORDINATE ACTIVITIES RELATED TO

POVERTY REDUCTION IN THE REGIONS TO BE ESTABLISHED…

• Further strengthen existing poverty focused credit lines

• Expand activities under “Prabodini” - Poverty Alleviation
Micro Finance Project (PAMP) II, to address:
– Poverty
– Regional inequality

• Five project offices to be set up in 2011 under PAMP II:

Jaffna, Vavuniya, Anuradhapura, Monaragala, Batticaloa

123

REDUCING POVERTY AND IMPROVING FINANCIAL INCLUSION….

• Overall focus to link low income people with banking sector

• Conduct financial literacy programmes among people who
currently are outside the formal financial sector.
• Target of 100 per cent financial inclusion by the year 2015
• Facilitate best practices to improve productivity and quality of
produce
• Establish market linkages for rural produce to enhance income
of producers
• Central Bank is planning to continue its series of Consumer
Finance and Socio Economic Surveys (CFS) in 2011/2012
covering the entire island for the first time since 1981/82.

124

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SUPPORT THE DEVELOPMENT OF THE FIVE STRATEGIC HUBS…

• Mahinda Chintana – Vision for the Future envisages
transforming Sri Lanka into a strategically important
economic centre, taking advantage of country’s
strategic geographical location and other …….
• The identified hubs are:
– Naval hub
– Aviation hub
– Commercial hub
– Energy hub
– Knowledge hub
• We will set up a Working Group to advise the relevant
authorities in the actions needed to achieve these
outcomes.

125

CONCLUDING REMARKS

126

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CENTRAL BANK OF SRI LANKA IS CELEBRATING 60 YEARS

OF OPERATIONS IN 2010/2011

• Sincere gratitude for those who

worked with us throughout these 60
years

• A book “Retrospect” was published in

August 2010

• A series of orations given by

prominent persons

• 46th SEACEN Governors’ Conference

will be held in February 2011

127

OUR GRATEFUL THANKS TO…

• Many have toiled with us to enable us to stand here and proudly
speak of our achievements
• His Excellency, President and Minister of Finance, Mahinda
Rajapaksa for the extraordinary contribution to our country and
our economy
• Former Deputy Ministers of Finance, Hon. Dr. Sarath
Amunugama, Hon. Ranjith Siyambalapitiya and Hon. Chandrasiri
Gajadeera
• The new Deputy Minister of Finance, Hon. Geethanjana
Gunawardena
• Attorney General, Hon. Mohan Pieris, PC, Auditor General, Legal
Draftsman, Members of the Audit Committee, Banks and other
financial institutions, media and all other stakeholders in the
financial system for their co-operation and contribution

128

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OUR GRATEFUL THANKS ALSO TO…

• The Monetary Board members, Dr. P. B. Jayasundera, Secretary to the
Treasury, Mrs. Mano Ramanathan, Mr. Nimal Welgama and Mr Neil
Umagiliya who are always at hand to discuss, advise and implement
• Deputy Governor, Mr. Dharma Dheerasinghe, Dr. D. S Wijesinghe, Deputy
Governor who retired from the bank in 2010 and Mr. P D J Fernando who
was appointed as Deputy Governor in 2010 for their commitment and
dedication
• Assistant Governors, Our Representative at the IMF, Heads of
Departments, particularly the Chief Economist and Director of Economic
Research and his staff for today’s effort, and all staff of the Central Bank
for their hard work and tremendous dedication.
• The Consultative Committees on Monetary Policy and the Financial System
Stability for the policy discussions and advise and the Sovereign Ratings
Advisory Committee.
• The Panel of Experts, Managing Agents of troubled Financial
Institutions, officers of the Ministry of Finance and Planning, officers of
other Ministries and institutions and all others connected with our
economy.

129

2010 HAS BEEN A SIGNIFICANT YEAR FOR THE CENTRAL

BANK
• Our Balance Sheet has reached a TRILLION RUPEE
value
• The Public Debt that we manage exceeds FOUR
TRILLION RUPEES
• The EPF we manage is about NINE HUNDRED BILLION
RUPEES
• The Foreign Reserves we manage is over SEVEN
HUNDRED BILLION RUPEES

We are happy that we have delivered value to the

country in all what we have done. But, we will be the
first to admit that there is a lot more to be done.
130

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2010 HAS ALSO SEEN THE DAWN OF A NEW ERA FOR

OUR COUNTRY…

• A full year of peace and stability

• The year has provided the space for rebuilding and
reconciliation and excellent platform to launch the
next phase of development
• We have seen a concerted effort being exerted
from all quarters of the economy
• The significant investment in infrastructure is
beginning to bear fruit

131

NOW, THE PRESIDENT AND THE GOVERNMENT OF SRI LANKA

HAVE STATED THEIR INTENTION TO ACHIEVE TWO MAJOR
GOALS IN THE COUNTRY’S DEVELOPMENT PROCESS…

• DOUBLE THE COUNTRY’S

PER CAPITA INCOME TO
US $ 4,000 BY THE YEAR
2016
• “BRAND” SRI LANKA AS
THE “WONDER OF ASIA”
WITH EXTRAORDINARY
ACHIEVEMENTS

132

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IN THAT BACKGROUND,
THE YEAR 2011 POSES A FORMIDABLE
CHALLENGE TO THE CENTRAL BANK
TO ENSURE THAT THE
ECONOMY OF OUR COUNTRY IS READY TO
SERVE THE NEEDS OF THE PEOPLE AND
TO TAKE SRI LANKA TOWARDS
THOSE AMBITIOUS GOALS WHILE
MAINTAINING ECONOMIC AND PRICE
STABILITY AND FINANCIAL SYSTEM STABILITY

133

WE, THE CENTRAL BANK OF SRI LANKA, ARE EXCITED

ABOUT THIS CHALLENGE BEFORE US…

• We understand the gravity of the responsibility placed upon

us by the people of this country
• We will endeavour to further strengthen the macroeconomic
factors within our control and commit to improve the
economic and financial environment
• We will fulfil our role in the giant leap that
the country will take towards greater
prosperity of its people.

134

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We thank all who are here today to share

with us, the path we plan to take in this
New Year.

We also wish to re-assure you that we look

forward to hearing the views of all
stakeholders of our economy, so that we
could refine and further improve our
policies and policy implementation.

135

2011

Let us
truly dedicate
ourselves to making
Sri Lanka the
“WONDER OF ASIA!”
WE WISH YOU A HAPPY AND
136
PROSPEROUS NEW YEAR!

68