- Q3 data encouraging for economy
By Madhusha Thavapalakumar
The third quarter (Q3) of 2020, which is also the first quarter of the year in which Sri Lanka did not endure a Covid-19-induced curfew or lockdown, came to an end last Wednesday (30), with several key economic indicators of the country showing signs of recovery.
Amongst these indicators, some have managed to bounce back to their pre-pandemic levels while a few have shown gradual signs of recovery. However, the tourism industry is yet to begin recovery due to the closure of the airport and the global restrictions on travel.
Largely recovered
Exports
The Export Development Board (EDB) and the Central Bank of Sri Lanka (CBSL) are yet to release September export statistics. However, Sri Lanka’s exports during the month of August 2020 recorded a dip of 19.2% to $ 947.7 million, as compared to the value of $ 1,033.3 million recorded during the same month of last year, according to EDB.
Despite the decline in exports, some products like coconut-based products, electrical and electronic components, spices and essential oils, and food and beverages recorded a positive growth of 22.88%, 8.32%, 19.4%, and 11.45%, respectively, during the month of August 2020 as compared to August 2019.
Meanwhile in July, Sri Lanka’s export earnings increased to $ 1,060 million from $ 1,020 million a month ago. July export earnings were in fact higher than the $ 999 million achieved in the same month last year.
According to EDB Chairperson Prabhash Subasinghe, export earnings went through a “V-shaped recovery” following the local outbreak of Covid-19. The export recovery momentum was carried into June from May, a month in which Sri Lanka earned $ 602 million, which was a huge improvement compared to the previous month of April in which earnings plummeted to $ 277 million, according to Customs statistics.
The Covid-19 outbreak in Sri Lanka came on 11 March, and the March merchandise export earning figures reflected this sudden disruption with only $ 646 million being earned for the month. This was a nearly 42% drop from the $ 1,112 recorded in March 2019.
Worker remittances
Worker remittances is the primary foreign exchange earner of Sri Lanka, which took a dramatic drop following the global pandemic as most of the migrant workers lost their jobs or were staying at home due to lockdown in their respective countries.
Nevertheless, worker remittances saw a growth in August as it recorded $ 664.5 million, recording nearly a 30% growth compared to the same month last year. In August 2019, Sri Lanka recorded only $ 518.2 million.
In the first eight months of this year, Sri Lanka managed to record $ 4.35 billion worker remittances compared to $ 4.41 billion during the corresponding period last year. Foreign remittances recorded an impressive growth of $ 702.1 million in July 2020, a growth of 24.9% compared to the same period last year. Worker remittances dropped to $ 375 million in April after most of the globe entered lockdown.
Signs of recovery
Sri Lankan rupee
The Sri Lankan rupee stood between Rs. 181 and Rs. 184 against the US dollar since late last year to 12 March this year, until the first Sri Lankan with Covid-19 was identified on 11 March. Since 13 March, the rupee saw a gradual depreciation until 9 April when it reached the Rs. 200 mark.
From 10 April to 14 May, the rupee hovered between Rs. 191 and Rs. 199 against the dollar. It should be noted that the country was reopened on 11 May after seven weeks of islandwide lockdown. Since then, the rupee has shown signs of recovery, as during the third quarter the rupee managed to stay within the range of Rs. 184-187 against the dollar.
Treasury bills and bonds held by foreigners
Treasury bills and bonds held by foreigners recorded a satisfactory Month-over-Month (MoM) growth in September, as it grew to $ 13.4 billion in end-September from $ 12.24 billion on 28 August.
Treasury bills and bonds held by foreigners witnessed $ 83 billion net outflow even before the end of the first half of this year, according to CBSL’s indicators. Treasury bills depleted at a rate higher than that of the time of the October constitutional crisis in 2018. Foreigners pulled out a whopping Rs. 28.12 billion worth of investments in Treasury bills and bonds in the first three weeks of March alone, which amounted to over 67% of the total net foreign outflow reported from 1 January to 20 March this year, which was Rs. 41.55 billion. During the curfew period from 20 March to 11 May, Rs. 39.9 billion in net foreign outflow was reported from Treasury bills and bonds held by foreigners.
Nevertheless, this trend eased as since the reopening of Colombo on 11 May up to the third week of June, net foreign outflows from Treasury bills and bonds were just Rs. 1.6 billion. As at the end of the third week in June, Treasury bills and bonds held by foreigners amounted to Rs. 21.6 billion. During the period from 3 July to 29 July, Treasury bills and bonds reported a net foreign outflow of Rs. 3.65 billion.
The Colombo Stock Exchange (CSE) continues to suffer foreign outflows as in September alone it recorded a net foreign outflow of Rs. 8.08 billion compared to Rs. 8.06 billon a month ago. Net foreign outflows in the month of September and August were significant as net foreign outflows reported in July were Rs. 3.35 billion.
During the first quarter of this year, foreign companies’ inflow into the CSE was Rs. 30 billion while its outflow was Rs. 35 billion. Meanwhile, inflow from foreign individuals during this period was Rs. 416 million and outflow was Rs. 179 million. Overall, the first quarter reported net foreign outflow of Rs. 5.42 billion.
However, the CSE was closed for trading in the last two weeks of March, after the S&P SL20 Index, which includes the 20 largest companies by total market capitalisation listed on the CSE, dropped by 5% several times, triggering 30-minute halts in regular trading during the week that began on 16 March.
The following week it remained closed for four days with the Government declaring holidays. It was opened on 20 March, only to close shortly after opening. Since then, the CSE remained closed until 11 May, effectively not recording any flows into or out of the CSE.
Before opening for trading on 11 May, the CSE installed a new system under which the market would automatically close for the day if the S&P SL20 Index dropped by 10% or more. The week from 11 May to 15 May saw a number of trading halts, and Rs. 1.5 billion in foreign inflow was reported during the week while Rs. 5 billion in outflow was reported in the same period. Overall, Rs. 3.5 billion in net foreign outflow was reported during this particular week.
Meanwhile, at the end of the second week after reopening, foreigners bought stocks worth Rs. 1.6 billion, an improvement compared to the first week, while they sold stocks worth Rs. 1.5 billion compared to Rs. 5 billion the previous week.
During the third week after the reopening of the CSE, foreign purchases witnessed a drop compared to the week prior, as it was reported at Rs. 593.1 million, while shares sold by foreigners hiked to Rs. 3.9 billion that same week.
The following week, the first week of June, foreign purchases recovered to Rs. 1.2 billion while stocks sold by foreigners were valued at Rs. 1.5 billion. At the end of the second and third weeks of June, foreigners bought stocks worth Rs. 1.1 billion and Rs. 704.6 billion, respectively, while shares sold by them amounted to Rs. 4 billion and Rs. 3.3 billion, respectively.
However, despite the foreign outflows, CSE has recorded consistent gains of 31% in the All Share Price Index (ASPI) and of 27% in the S&P Index since reopening on 11 May 2020. The Securities and Exchange Commission (SEC) last week claimed that Sri Lanka is one of the markets that recovered the fastest from the impact of the coronavirus pandemic, in comparison to countries in the Asia Pacific region, recording positive price returns in US dollar terms.
“This reflects the strong confidence the investors have placed in the market and the future economic growth of the country. Significant contributions to turnover have been recorded in the Colombo, Gampaha, Kandy, Kurunegala, Galle, Kalutara, and Matara Districts,” it said.
Local investors have contributed to approximately 68% of the total market turnover.
Furthermore, The CSE has seen an over 63% increase in Central Depository System (CDS) account openings since the digitalisation of the end-to-end operations of the market on 17 September 2020, according to the SEC, which is another strong sign of local investor confidence in the market.
Long road to recovery
Tourism arrivals and earnings
Tourism came to a complete standstill following the closure of the Bandaranaike International Airport (BIA) on 18 March. It still remains at zero level up to date as authorities are yet to take a decision on reopening the airport.
Tourism arrivals stood at 1.9 million in 2019, compared to 2.3 million in 2018. This year, January arrivals were recorded at 228,434, a Year-on-Year (YoY) drop of 6.5%, while February arrivals were recorded at 207,507, a YoY drop of 17.7%. March arrivals dropped to 71,370 compared to the 244,328 arrivals during the same period last year.