CENTRAL BANK OF

ANNUAL REPORT

OF THE MONETARY BOARD TO THE HON. MINISTER OF FINANCE

FOR THE YEAR

2014 Price per copy Counter sales – Rs. 400 per copy Despatch by ordinary mail – Rs. 650 per copy Despatch by registered mail – Rs. 675 per copy

Despatch abroad Air mail (1st Class) – US $ 40 per copy (Registered post) Air mail (2nd Class) – US $ 35 per copy (Registered post) Sea mail – US $ 25 per copy (Registered post)

ISBN 978-955-575-304-3 ISSN 1391-359X

Printed at Sharp Graphic House (Pvt.) Ltd. , No47, Old Kottawa Road, Pannipitiya, and published by the Central Bank of Sri Lanka, No:30, Janadhipathi Mawatha, 01. Arjuna Mahendran The Governor

Central Bank of Sri Lanka 30, Janadhipathi Mawatha Colombo 1, Sri Lanka

April 27, 2015

The Honorable Minister of Finance Ministry of Finance The Secretariat Colombo 01.

Dear Sir

Annual Report of the Monetary Board 2014

In terms of Section 35 of the Monetary Law Act (Chapter 422), within four months after the end of each financial year, the Monetary Board of the Central Bank of Sri Lanka is required to submit an Annual Report to the Honorable Minister of Finance on the condition of the Central Bank and a review of the policies and measures adopted by the Monetary Board during the financial year and an analysis of the economic and financial circumstances which prompted those policies and measures.

The Sixty Fifth Annual Report of the Monetary Board of the Central Bank, in respect of the year 2014, is submitted herewith in fulfillment of this obligation.

Yours sincerely,

CENTRAL BANK OF SRI LANKA THE MONETARY BOARD

AJITH NIVARD CABRAAL Governor

P. B. JAYASUNDERA Secretary to the Ministry of Finance and Planning

MRS. M. RAMANATHAN Appointed Member

NIMAL WELGAMA Appointed Member

N. A. UMAGILIYA Appointed Member

PRINCIPAL OFFICERS AS AT 31 December 2014 Deputy Governors B. D. W. ANANDA SILVA P. NANDALAL WEERASINGHE P. SAMARASIRI

Assistant Governors MRS. J. P. MAMPITIYA W. M. HEMACHANDRA S. LANKATHILAKE C. J. P. SIRIWARDANA (Secretary to the Monetary Board) MRS. R. DHEERASINGHE

K. D. RANASINGHE (On Release) S. S. RATNAYAKE

S. R. ATTYGALLE (On Release) H. A. KARUNARATNE C. P. A. KARUNATILAKE

D. WASANTHA DEPARTMENTAL HEADS

Bank Supervision Department MRS. T. M. J. Y. P. FERNANDO - Director S. K. RANASINGHE - Additional Director

Centre for Banking Studies C. N. WIJAYASEKERA - Director

Communications Department S. J. A. HANDAGAMA - Director T. M. Z. MUTALIPH - Additional Director

Currency Department MRS. C. M. D. N. K. SENEVIRATNE - Superintendent MRS. H. P. T. WIJESURIYA - Additional Superintendent MISS. S. H. GUNAWARDENA - Additional Superintendent

Domestic Operations Department R. A. A. JAYALATH - Director H. B. D. KARUNARATNE - Additional Director

Economic Research Department MRS. S. GUNARATNE - Director MRS. Y. M. INDRARATNE - Additional Director D. KUMARATUNGE - Additional Director MRS. K. N. N. M. BANDARA - Additional Director

Employees’ Provident Fund Department P. W. D. N. R. RODRIGO - Superintendent T. D. H. KARUNARATHNE - Additional Superintendent M. S. K. DHARMAWARDENA - Additional Superintendent A. G. U. THILAKARATHNA - Additional Superintendent

Exchange Control Department D. M. RUPASINGHE - Controller of Exchange R. R. JAYARATNE - Additional Controller of Exchange

Facilities Management Department U. H. E. SILVA - Director H. SRIYARATNE - Additional Director K. D. R. PIYATILLEKE - Additional Director

Finance Department P. V. L. NANDASIRI - Chief Accountant P. A. WIJERATNE - Additional Chief Accountant Financial Intelligence Unit H. AMARATHUNGA - Director D. K. WIJESURIYA - Additional Director

Financial Sector Research Department H. M. EKANAYAKE - Director H. P. G. S. RATNASIRI - Additional Director

Governor’s Secretariat Department MRS. K. DASSANAYAKE - Director

Human Resources Department MRS. K. GUNATILAKE - Director K. M. ABEYKOON - Additional Director

Information Technology Department MRS. R. A. S. M. DAYARATHNA - Director C. B. PATHBERIYA - Additional Director K. V. K. ALWIS - Additional Director

Internal Audit Department A. M. N. GUNAWARDANA - Director L. D. D. Y. PERERA - Additional Director

International Operations Department A. A. M. THASSIM - Director T. H. B. SARATHCHANDRA - Additional Director

Payments and Settlements Department MRS. R. B. WEERASINGHE - Director A. J. L. PEIRIS - Additional Director R. M. JAYAWARDENA - Additional Director

Policy Review and Monitoring Department MISS. K. SARAVANAMUTTU - Director MRS. R. A. PERERA - Additional Director

Public Debt Department N. W. G. R. D. NANAYAKKARA - Superintendent and Registrar MRS. U. L. MUTHUGALA - Additional Superintendent M. Z. M. AAZIM - Additional Superintendent

Regional Development Department M. J. S. ABEYSINGHE - Director A. M. R. K. ATTANAYAKE - Additional Director MRS. D. V. S. DAYAWANSA - Additional Director Regional Offices Monitoring Department D. A. G. K. WIJETUNGA - Director V. BASKARAN - Additional Director

Secretariat Department M. I. SUFIYAN - Secretary B. W. JINASENA - Additional Secretary

Security Services Department S. WANIGASEKERA - Director B. L. J. S. BALASOORIYA - Additional Director

Staff Services Management Department E. A. HETTIARACHCHI - Director T. W. ARIYARATNE - Additional Director

Statistics Department A. R. K. WIJESEKERA - Director K. H. A. S. ARIYARATNA - Additional Director

Supervision of Non-Bank Financial Institutions Department J. P. R. KARUNARATNE - Director MRS. N. H. E. R. SIRIWARDENA - Additional Director

AUDITOR

W P C WICKRAMARATNE Acting Auditor General CONTENTS

PART I

Page 1. ECONOMIC, PRICE AND FINANCIAL SYSTEM STABILITY, OUTLOOK AND POLICIES 1.1 Overview … … … … 1 1.2 Macroeconomic Developments Stability and Policy Responses in 2014 … … … 2 Real Sector Developments and Inflation ... … … … 2 External Sector Developments ... … … … 7 Fiscal Sector Developments ... … … … 10 Monetary Sector Developments ... … … … 12 Financial Sector Developments ... … … … 15 1.3 Global Economic Environment and Outlook … … … … 17 1.4 Medium Term Macroeconomic Outlook … … … … 17 1.5 Issues and Policies … … … … 22

2. NATIONAL OUTPUT AND EXPENDITURE 2.1 Overview … … … … 29 2.2 GDP,GDP per capita and Gross National Product (GNP) … … … … 30 2.3 Sectoral Output, Policies, Institutional Support and Issues … … … … 33 Agriculture … … … … 33 Paddy … … … … 33 Tea … … … … 35 Rubber … … … … 35 Coconut … … … … 36 Minor Export Crops … … … … 37 Other Field Crops … … … … 37 Vegetables … … … … 38 Sugar … … … … 38 Fisheries … … … … 38 Livestock … … … … 39 Forestry … … … … 40 Agricultural Policies and Institutional Support … … … … 40 Industry … … … … 44 Mining and Quarrying … … … … 45 Manufacturing … … … … 45 Processing … … … … 45 Factory Industry … … … … 45 Factory Industry Production Index … … … … 46 Industrial Policies and Institutional Support … … … … 48 Cottage Industry … … … … 50 Electricity, Gas and Water … … … … 50 Construction … … … … 51 Services … … … … 51 Wholesale and Retail Trade … … … … 51 Hotels and Restaurants … … … … 52 Transport and Communication … … … … 53 Banking, Insurance and Real Estate … … … … 54 Government Services … … … … 54 Private Services … … … … 54 2.4 Expenditure … … … … 54 Consumption … … … … 55 Investment … … … … 57 Availability and Utilisation of Resources … … … … 58 Savings … … … … 59 3. ECONOMIC AND SOCIAL INFRASTRUCTURE 3.1 Overview … … … … 61 3.2 Economic Infrastructure Policies, Institutional Framework and Performance … … 62 Page Communication Services … … … … 62 Petroleum … … … … 63 Electricity … … … … 66 Road Development ... … … … 68 Road Passenger Transportation ...... … 69 Rail Transportation … … … … 70 Civil Aviation … … … … 71 Port Services ... … … … 72 Water Supply and Irrigation … … … … 73 3.3 Social Infrastructure Policies, Institutional Framework and Performance … … … 74 Health … … … … 74 Education … … … … 76 Housing and Urban Development … … … … 79 Poverty Alleviation and Safety Nets … … … … 80 Environment … … … … 81

4. PRICES, WAGES, EMPLOYMENT AND PRODUCTIVITY 4.1 Overview ... … … … 83 4.2 Prices … … … … 84 Price Movements and Contributory Factors … … … … 84 Colombo Consumers’ Price Index (CCPI) … … … … 84 Price Movements in the Food Category … … … … 84 Price Movements in the Non-food Category … … … … 87 Core Inflation … … … … 88 GDP Deflator … … … … 88 4.3 Wages … … … … 90 Public Sector Wages … … … … 90 Formal Private Sector Wages … … … … 90 Informal Private Sector Wages … … … … 91 4.4 Population, Labour Force and Employment … … … … 92 Population … … … … 92 Labour Force … … … … 93 Employment … … … … 94 Unemployment … … … … 97 Foreign Employment … … … … 99 Labour Relations and Labour Market Reforms … … … … 100 Labour Productivity … … … … 101

5. EXTERNAL SECTOR DEVELOPMENTS AND POLICIES 5.1 Overview … … … … 103 5.2 External Trade Policies and Institutional Support … … … … 104 5.3 Trade in Goods, Trade Balance, Terms of Trade and Direction of Trade … … … 107 Export Performance … … … … 107 Import Performance … … … … 110 Trade Balance … … … … 112 Terms of Trade … … … … 113 Direction of Trade … … … … 115 5.4 Current and Capital Account … … … … 116 Trade in Services … … … … 116 Transport Services … … … … 116 Travel and Tourism … … … … 120 Telecommunications, Computer and Information Services … … … 122 Primary Income … … … … 123 Secondary Income … … … … 123 5.5 Current Account Balance … … … … 124 5.6 Capital Account Balance … … … … 124 5.7 Financial Account … … … … 124 Direct Investment … … … … 124 Portfolio Investment … … … … 125 Equity and Investment Fund Shares … … … … 125 Debt Securities … … … … 126 Page Other Investment … … … … 126 Currency and Deposits … … … … 126 Loans … … … … 126 Trade Credit and Advances and Other Accounts Receivable/Payable … … 128 Reserve Assets … … … … 128 5.8 Balance of Payments … … … … 128 5.9 International Investment Position … … … … 129 Direct Investment Position … … … … 130 Portfolio Investment Position … … … … 130 Other Investment Position … … … … 130 Currency and Deposits … … … … 130 Loans … … … … 130 Trade Credit and Advances … … … … 131 Other Accounts Receivable/Payable and Special Drawing Rights … … … 131 Reserve Asset Position … … … … 131 5.10 External Debt and Debt Servicing … … … … 132 External Debt … … … … 132 Foreign Debt Service Payments … … … … 133 5.11 Exchange Rate Movements … … … … 134 Nominal and Real Effective Exchange Rates … … … … 136 Developments in the Domestic Foreign Exchange Market … … … … 136

6. FISCAL POLICY AND GOVERNMENT FINANCE 6.1 Overview … … … … 137 6.2 Fiscal Policy Direction and Measures … … … … 138 6.3 Government Budgetary Operations … … … … 142 Revenue and Grants … … … … 142 Revenue … … … … 142 Grants … … … … 145 Expenditure and Net Lending … … … … 145 Key Fiscal Balances … … … … 149 Financing the Budget Deficit … … … … 149 6.4 Government Debt and Debt Service Payments … … … … 151 Government Debt … … … … 151 Debt Service Payments … … … … 153 Outstanding Debt of Major Public Nonfinancial Corporations … … … 155 6.5 Budgetary Operations in Sub National Governments ... … … … 155 Policy Direction and Measures of Sub National Governments … … … 155 Budgetary Operations in Provincial Councils … … … … 156

7. MONETARY POLICY, MONEY, CREDIT AND INTEREST RATES 7.1 Overview … … … … 159 7.2 Monetary Policy … … … … 160 7.3 Developments in Money and Credit … … … … 162 Money Market Liquidity … … … … 162 Reserve Money … … … … 163

Narrow Money (M1) … … … … 165

Broad Money (M2b) … … … … 166

Broad Money (M4) … … … … 169 7.4 Interest Rates … … … … 170 Money Market Rates … … … … 170 Deposit and Lending Rates … … … … 171 Yield Rates on Government Securities … … … … 173 Yield Rates on Corporate Debt Securities … … … … 174 7.5 Future Developments, Challenges and Outlook … … … … 174

8. FINANCIAL SECTOR PERFORMANCE AND SYSTEM STABILITY

8.1 Overview … … … … 177 8.2 Performance of Financial Institutions … … … … 178 Page Banking Sector … … … … 178 Business Expansion … … … … 178 Assets and Liabilities … … … … 179 Risks in the Banking Sector … … … … 180 Resources … … … … 182 Supervisory and Regulatory Developments … … … … 184 Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) … … … … 187 Business Growth … … … … 187 Assets and Liabilities … … … … 187 Risk Management … … … … 189 Resources … … … … 189 Action against Unauthorised Conduct of Finance Business … … … 190 Supervisory and Regulatory Developments … … … … 190 Primary Dealers (PDs) in Government Securities … … … … 194 Exposure to Risk and Risk Management … … … … 196 Market Participation … … … … 196 Unit Trusts (UTs) … … … … 196 Insurance Companies … … … … 198 Superannuation Funds … … … … 200 8.3 Performance of Financial Markets … … … … 202 Money Market … … … … 202 Domestic Foreign Exchange Market … … … … 203 Government Securities Market … … … … 203 Corporate Debt Securities Market … … … … 206 Commercial Paper … … … … 206 Corporate Bonds … … … … 206 Equity Market … … … … 206 8.4 Development Finance and Access to Finance … … … … 208 8.5 Financial Infrastructure … … … … 210 Payment and Settlement Systems … … … … 210 Credit Information … … … … 212

PART II

ACCOUNTS AND OPERATIONS OF THE CENTRAL BANK OF SRI LANKA 1-100

PART III

MAJOR ADMINISTRATIVE MEASURES ADOPTED BY THE MONETARY BOARD IN 2014 1-70

PART IV

MAJOR LEGISLATIVE ENACTMENTS OF 2014 RELATING TO THE FUNCTIONS AND OPERATIONS OF THE CENTRAL BANK AND BANKING INSTITUTIONS IN SRI LANKA 1-4 STATISTICAL APPENDIX

SPECIAL STATISTICAL APPENDIX PART I – TABLES

Page

1. MACROECONOMIC PERFORMANCE POLICIES

1.1 Macroeconomic Performance (2010-2014) … … … … 2 1.2 Aggregate Demand and Savings Investment Gap at Current Market Prices … … … 3 1.3 Gross National Product by Industrial Origin at Constant (2002) Prices … … … 4 1.4 Global Economic Developments and Outlook ... … … … 17 1.5 Medium Term Macroeconomic Framework … … … … 18

2. NATIONAL OUTPUT AND EXPENDITURE

2.1 Sectoral Composition in Gross Domestic Product by Industrial Origin at Constant (2002) Prices … … … … 30 2.2 Paddy Sector Statistics … … … … 34 2.3 Agriculture Production Index (2007-2010=100) … … … … 36 2.4 Trends in Principal Agricultural Crops … … … … 37 2.5 Fish Production … … … … 38 2.6 Livestock Sector Statistics … … … … 39 2.7 Factory Industry Production Index (FIPI) 2010=100 … … … … 46 2.8 Aggregate Demand … … … … 55 2.9 Composition of Private Consumption Expenditure at Current Market Prices … … … 56 2.10 Investment and Employment in Enterprises Registered under Board of Investment of Sri Lanka (BOI) and Ministry of Industry and Commerce (MIC) … ... 58 2.11 Total Resources and Their Uses at Current Market Prices ... … … 59 2.12 Consumption, Investment and Savings at Current Market Prices … … ... … 60

3. ECONOMIC AND SOCIAL INFRASTRUCTURE

3.1 Government Investment in Infrastructure … .... … … 62 3.2 Telecommunication Sector Performance ... … … … 62 3.3 Petroleum Sector Performance … ... … … 65 3.4 Electricity Sector Performance … ... … … 67 3.5 Salient Features of the Transport Sector … ... … … 70 3.6 Performance of Port Services … ... … … 72 3.7 Water Supply by National Water Supply & Drainage Board … … … … 73 3.8 Salient Features of Health Services … ... … … 74 3.9 Salient Features of General Education ... … … … 77 3.10 Salient Features of University Education ... … … … 78 3.11 Salient Features of Tertiary and Vocational Education and Training … … … 79 3.12 Divineguma Welfare Programme - Number of Beneficiary Families and Value of Grants … … 81

4. PRICES, WAGES, EMPLOYMENT AND PRODUCTIVITY

4.1 Changes in Price Indices … ... … … 85 4.2 Contribution to Annual Average Inflation by Sub-category ...... … 85 4.3 Retail Prices of Key Imported and Domestically Produced Items … … … … 86 4.4 Revisions to Key Items with Administered Prices (2012-2014) … ... … … 87 4.5 Sectoral Deflators and GDP Deflator … ... … … 89 4.6 Wage Rate Indices … ... … … 91 4.7 Informal Private Sector Daily Wages by Sector and Gender ... … … … 92 4.8 District-wise Population and Density … ... … … 93 Page 4.9 Household Population, Labour Force and Labour Force Participation … … … 94 4.10 Employment by Economic Activity … ... … … 94 4.11 Status of Employment … ... … … 97 4.12 Public Sector Employment … ... … … 97 4.13 Unemployment Rate (Unemployed as a percentage of Labour Force) … … … 98 4.14 Departures for Foreign Employment … ... … … 99 4.15 Foreign Employment Departures by Destination … ... … … 100 4.16 Strikes in Private Sector Industries … ... … … 101 4.17 Labour Productivity by Major Economic Sectors … ... … … 101

5. EXTERNAL SECTOR DEVELOPMENTS AND POLICIES

5.1 Balance of Payments Analytical Presentation (BPM6 Presentation Format) … … … 104 5.2 Composition of Exports … … … … 109 5.3 Composition of Imports … … … … 111 5.4 Volume of Major Imports … … … … 112 5.5 Trade Indices … … … … 114 5.6 Current and Capital Account (BPM6 Presentation Format) … … … … 119 5.7 Performance in the Tourism Sector … … … … 120 5.8.A Financial Account (BPM6 Presentation Format) … … … … 125 5.8.B Financial Account (BPM6 Presentation Format) … … … … 127 5.9 Major Projects Financed with Foreign Borrowings during 2014 … … … … 128 5.10 International Investment Position (BPM6 Presentation Format) … … … … 129 5.11 Gross Official Reserves, Total Foreign Assets and Overall Balance … … … 132 5.12 Outstanding External Debt Position (BPM6 Presentation Format) … … … 133 5.13 External Debt Service Payments … … … … 134 5.14 Exchange Rate Movements … … … … 135

6. FISCAL POLICY AND GOVERNMENT FINANCE

6.1 Summary of Government Fiscal Operations … … … … 139 6.2 Economic Classification of Government Revenue … … … … 143 6.3 Economic Classification of Expenditure and Lending Minus Repayments … … … 146 6.4 Functional Classification of Expenditure … … … … 149 6.5 Sources of Domestic Financing … … … … 150 6.6 Outstanding Central Government Debt (as at end year) … … … … 152 6.7 Government Debt Service Payments … … … … 154 6.8 Central Government Debt Indicators … … … … 154 6.9 Outstanding Debt of Major Public Nonfinancial Corporations (as at end year) … … 155 6.10 Budget Outturn for Provincial Councils … … … … 156

7. MONETARY POLICY, MONEY, CREDIT AND INTEREST RATES 7.1 Recent Monetary Policy Measures … … … … 161 7.2 Developments in Monetary Aggregates … … … … 164

7.3 Sources of Reserve Money and Broad Money (M2b) … … … … 165 7.4 Classification of Outstanding Loans and Advances Granted by Commercial Banks … … 167 7.5 Maturity Analysis of Outstanding Credit to the Private Sector by Commercial Banks … … 168

7.6 Sources of Broad Money (M4) … … … … 169 7.7 Selected Money Market Rates … … … … 171 7.8 Movements of Interest Rates … … … … 172

8. FINANCIAL SECTOR PERFORMANCE AND SYSTEM STABILITY

8.1 Total Assets of the Major Financial Institutions … … ... … 178 8.2 Distribution of Banks and Bank Branches ... … ... … 179 Page 8.3 Composition of Assets and Liabilities of the Banking Sector ... … ... … 179 8.4 Composition of Deposits of the Banking Sector ... … ... … 180 8.5 Composition of Statutory Liquid Assets of the Banking Sector … ... … … 182 8.6 Profits of the Banking Sector … ... … … 182 8.7 Composition of Regulatory Capital of the Banking Sector … … … ... 183 8.8 Distribution of Branches of LFCs & SLCs by Province … … … … 187 8.9 Composition of Assets and Liabilities of the LFC & SLC Sector … … ... 187 8.10 Composition of Income and Expenses of the LFC & SLC Sector … ...... 189 8.11 Composition of Regulatory Capital of the LFC & SLC Sector … … … ... 190 8.12 Performance of Primary Dealers … … … ... 194 8.13 Performance of the Unit Trust Sector … … ... … 197 8.14 Performance of the Insurance Sector … … … ... 199 8.15 Performance of the EPF and the ETF ... … ... … 200 8.16 Money Market Transactions ... … ... … 202 8.17 Annualised Primary Market Weighted Average Yield Rates of Treasury Bills … ... … 204 8.18 Yield Rates of Government Securities ... … ... … 204 8.19 Performance of the Share Market ... … ... … 207 8.20 Transactions through Payment Systems ... … ... … 210 PART I – CHARTS

Page 1. MACROECONOMIC PERFORMANCE AND POLICIES

1.1 Quarterly Real GDP Growth … … … ... 3 1.2 Savings and Investment (as a Percentage of GDP) … … … ... 4 1.3 Annual Unemployment Rate … … … ... 6 1.4 Year-on-Year Inflation … … … ... 7 1.5 Balance of Payments … … … ... 9 1.6 Revenue, Expenditure and Overall Fiscal Deficit (as a percentage of GDP) … … ... 11 1.7 Central Government Debt (as a percentage of GDP) … … … ... 11 1.8 Year-on-Year Growth of Money and Credit to the Private Sector … … ... 14 1.9 Policy Interest Rate Corridor and Selected Market Interest Rates … … … … 14

2. NATIONAL OUTPUT AND EXPENDITURE

2.1 Annual Growth Rate … … … ... 33 2.2 Rice: Supply and Demand … … … ... 34 2.3 Value Added in Manufacturing Sector (2002 Constant Prices) … … … ... 45 2.4 Factory Industry Production Index … … … ... 46 2.5 Composition of Factory Industry Production Index (FIPI) - 2014 … … … ... 47 2.6 Foreign Direct Investment of BOI Enterprises (USD million) … … … ... 57 2.7 The Economy in 2014 (at current prices) … … … ... 59

3. ECONOMIC AND SOCIAL INFRASTRUCTURE

3.1 Telephone Penetration … … … ... 62 3.2 Average Price of Crude Oil (Brent) in the International Market and Crude Oil Import Price of CPC … … … ... 64 3.3 Electricity Generation Mix … … … ... 66 3.4 Average Tariff and Cost of Electricity … … … ... 67 3.5 Container Handling, Transshipment Volume and Ship Arrivals … … … ... 72 3.6 Government Expenditure on Health and Education … … … ... 76 3.7 Poverty Head Count Ratio (Per cent) … … ... … 80 3.8 Number of Divineguma Beneficiary Families and Expenditure … … ... … 80

4. PRICES, WAGES, EMPLOYMENT AND PRODUCTIVITY

4.1 Colombo Consumers’ Price Index (2006/07=100) … … … ... 84 4.2 Trends in Labour Force and Unemployment (2010–2014) … … ... … 98

5. EXTERNAL SECTOR DEVELOPMENTS AND POLICIES

5.1 Exports by Commodities - 2014 … … … … 108 5.2 Imports by Commodities - 2014 … … … … 110 5.3 Exports, Imports and Trade Balance … … … … 112 5.4 Terms of Trade and Trade Indices … … … … 113 5.5 Exports by Destination … … … … 116 5.6 Imports by Origin … … … … 116 5.7 Tourist Arrivals by Country - 2014 … … … … 120 5.8 Tourist Arrivals and Earnings from Tourism … … … … 121 5.9 Inflows to the Financial Account … … … … 124 5.10 Balance of Payments … … … … 129 5.11 Quarterly Gross Official Reserves and Total Foreign Assets … … … … 131 5.12 External Debt … … … ... 133 Page 5.13 Exchange Rate Movements … … … ... 135 5.14 Quarterly Inter-Bank Forward Transaction Volumes … … … … 136 6. FISCAL POLICY AND GOVERNMENT FINANCE 6.1 Major Fiscal Indicators (as a percentage of GDP) … … … … 138 6.2 Composition of Government Revenue – 2014 … … … … 142 6.3 Composition of Government Recurrent Expenditure – 2014 … … … … 147 6.4 Total Expenditure by Function – 2014 … … … … 148 6.5 Deficit Financing (as a percentage of GDP) … … … … 150 6.6 Sources of Bank Financing … … … … 150 6.7 Outstanding Central Government Debt … … … … 151 6.8 Composition of Outstanding Domestic Debt - 2014 … … … … 152 6.9 Composition of Outstanding Foreign Debt - 2014 … … … … 153 6.10 Currency Composition of Total Outstanding Debt - 2014 … … … … 153 6.11 Government Debt Service Payments (as a percentage of GDP) … … … … 154

7. MONETARY POLICY, MONEY, CREDIT AND INTEREST RATES 7.1 Policy Interest Rates and Average Weighted Call Money Rate … … … … 161 7.2 Rupee Liquidity in the Domestic Money Market and Liquidity Absorption … … … 163 7.3 Daily Currency in Circulation … … … … 163 7.4 Year-on-Year Growth of Monetary Aggregates … … … … 165 7.5 Annual Increase in Domestic Credit … … … … 166 7.6 Volume of Loans and Advances Granted to the Private Sector by Commercial Banks … … 167 7.7 Year-on-Year Growth of Credit to Key Sectors … … … … 167 7.8 Movement of Selected Market Interest Rates … … … … 171 7.9 Average Weighted Lending Rates by Type of Security … … … … 173 7.10 Secondary Market Yield Curve for Government Securities … … … … 173 7.11 Weekly Movement of Secondary Market Yields for Government Securities … … … 174

8. FINANCIAL SECTOR PERFORMANCE AND SYSTEM STABILITY 8.1 Off-Balance Sheet Exposures of the Banking Sector (as at end 2014) ... … … 180 8.2 Non-Performing Loans of the Banking Sector ...... … … 180 8.3 Provisioning for NPLs of the Banking Sector 181 8.4 Credit Exposure of the Banking Sector (as at end 2014) … … … … 185 8.5 Liquidity Ratios of the Banking Sector … … … … 182 8.6 Cumulative Maturity Gap as a percentage of the Cumulative Liabilities of the Banking Sector … … … … 182 8.7 Profitability Indicators of the Banking Sector … … … … 183 8.8 Capital Adequacy Ratios of the Banking Sector … … … … 183 8.9 Product-wise Accommodations of the LFC and SLC Sector … … … … 188 8.10 Non-Performing Advances and Provision Coverage of the LFC and SLC Sector … … 188 8.11 Profitability Indicators of the LFC and SLC Sector … … … … 189 8.12 Categorisation of the Unit Trust Sector in terms of the Net Asset Value … … … 197 8.13 Gross Written Premium of the Insurance Sector … … … … 198 8.14 ASPI, S&P SL20 Index and Daily Turnover at the CSE … … … … 207 8.15 Foreign Participation at the CSE … … … … 207 PART I - BOXES

1. Increasing Tax Revenue in Sri Lanka: Challenges and Policies … … … 20 2. Upgrading the National Accounts Compilation Process in Sri Lanka … … … 31 3. Direct Cash Transfers as an Alternative Method to Disburse the Fertiliser Subsidy … … 42 4. Launch of a Producer’s Price Index … … … … 89 5. Importance of Improving Female Labour Force Participation in Sri Lanka ... … ... 95 6. Improvements in External Sector Statistics in Sri Lanka … … … … 117 7. Recent Developments in the Global Regulatory and Supervisory Standards on Banks to Strengthen Financial System Stability … … ...... 185 8. Developing a Strategy for Financial Inclusion in Sri Lanka … … ...... 191 9. Real Estate Investment Trusts (REITs) … … ...... 205 10. Major Economic Policy Changes and Measures : 2014 … ...... 213

STATISTICAL APPENDIX

Table NATIONAL OUTPUT AND EXPENDITURE

Gross National Product by Industrial Origin at Current Prices … … … … 1 Gross National Product by Industrial Origin at Constant (2002) Prices … … … 2 Gross National Product by Industrial Origin … … … … 3 Provincial Gross Domestic Product by Industrial Origin at Current Prices (2009-2013) … … 4 Resources and their Utilisation … … … … 5 Reconciliation of Key Aggregates at Current Market Prices … … … … 6 Gross Domestic Capital Formation at Current Market Prices … … … … 7 Composition of Private Consumption Expenditure at Current Market Prices … … … 8 Expenditure on Gross National Product at Current Market Prices … … … … 9 Gross Domestic Expenditure and Availability of Resources … … … … 10 Investment and Savings at Current Market Prices … … … … 11 Real National Income … … … … 12 Trends in Principal Agricultural Crops … … … … 13 Production of Tea, Rubber, Coconut and Other Export Agriculture Crops … … … 14 Annual Rainfall and Rainy Days … … … … 15 District-wise Performance of the Paddy Sector … … … … 16 Paddy Production … … … … 17 Performance of Other Field Crops … … … … 18 Land Cultivated under the Mahaweli Development Programme … … … … 19 Statistics of the Sugar Sector … … … … 20 Statistics on the Forestry Sector … … … … 21 Value Added in Industry (2002 Constant Prices) … … … … 22 Value Added in Industry (Current Prices) … … … … 23 Investment Approvals in Industry by the Board of Investment of Sri Lanka … … … 24 Realised Investments in the Board of Investment (BOI) Enterprises … … … … 25 Foreign Direct Investment of BOI Enterprises by Sector … … … … 26 Capacity Utilisation in Factory Industry … … … … 27 Employment in Selected State Owned Industrial Enterprises … … … … 28 Performance of Selected State Owned Industrial Enterprises … … … … 29 Regional Distribution of Industrial Enterprises … … … … 30 Factory Industry Production Index (FIPI) of Major Divisions … … … … 31 Factory Industry Production Index (FIPI) … … … … 32 Table

ECONOMIC AND SOCIAL INFRASTRUCTURE

Performance of Telecommunications and Postal Services … … … … 33 Performance of the Energy Sector … … … … 34 Salient Features of the Transport Sector … … … … 35 Performance of the Port Services … … … … 36 Salient Features of Government Health Services … … … … 37 Salient Features of General and University Education … … … … 38

PRICES, WAGES, EMPLOYMENT AND PRODUCTIVITY

Movement of the Colombo Consumers’ Price Index (2002=100) … … … 39 Movement of the Colombo Consumers’ Price Index (2006/07=100) … … … 40 Colombo Consumers’ Price Index (CCPI) (2002=100) … … … … 41 Colombo Consumers’ Price Index (CCPI) (2006/07=100) … … … … 42 Wholesale Price Index (WPI) … … … … 43 Average Retail Prices of Selected Food Items by Province 2013-2014 … … 44 Wholesale Prices of Selected Commodities … … … … 45 Wage Rate Indices (Government Employees) … … … … 46 Wage Rate Indices (Workers in Wage Boards Trades) … … … … 47 Average Daily Wages in the Informal Sector … … … … 48 Average Daily Wages of Informal Sector by Province 2013-2014 … … … … 49 Demography … … … … 50 Population by District … … … … 51 Labour Force Participation Rate … … … … 52 Status of Employment … … … … 53 Employment by Economic Activity … … … … 54 Labour Force Trends … … … … 55 Public Sector Employment … … … … 56 Foreign Employment … … … … 57 Employees’ Provident Fund … … … … 58 Employees’ Trust Fund … … … … 59 Strikes in Private Sector Industries … … … … 60

EXTERNAL SECTOR DEVELOPMENTS AND POLICIES

Central Bank Trade Indices – Value … … … … 61 Central Bank Trade Indices – Volume … … … … 62 Central Bank Trade Indices – Unit Value … … … … 63 Foreign Trade … … … … 64 Composition of Exports … … … … 65 Tea Exports, Sales and Prices … … … … 66 Volume and Value of Tea Exports … … … … 67 Country Classification of Tea Exports … … … … 68 Rubber Exports and Prices … … … … 69 Major Rubber Export Destinations … … … … 70 Country Classification of Garment Exports … … … … 71 Export Volume, Values and Prices of Major Coconut Products … … … … 72 Export Volume and Values of Other Agricultural Products … … … … 73 Selected Industrial and Mineral Exports … … … … 74 Imports by Major Categories … … … … 75 Compostion of Imports … … … … 76 Exports and Imports of Major Commodities … … … … 77 Table Direction of Trade - Exports … … … … 78 Direction of Trade - Imports ...... 79 Performance in the Tourism Sector … … … … 80 Some Indicators of the Regional Distribution of Tourism … … … … 81 Balance of Payments - Standard Presentation under BPM6 Format … … … … 82 International Investment Position - Standard Presentation under BPM 6 Format … … … 83 Services and Income … … … … 84 Workers’ Remittances … … … … 85 Outstanding External Debt ... … … … 86 End of Period Exchange Rates … … … … 87 Average Exchange Rates of Major Currencies and Monthly Indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) … ... … 88 Interbank Forward Market Transactions … … … … 89 Absorption and Supply of Foreign Exchange by the Central Bank … … … … 90

FISCAL POLICY AND GOVERNMENT FINANCE Summary of Government Fiscal Operations … … … … 91 Government Revenue … … … … 92 Payments of the Government of Sri Lanka … … … … 93 Voted Expenditure of the Government of Sri Lanka – 2014 … … … … 94 Voted Expenditure of the Government of Sri Lanka – 2015 … … … … 95 Current Transfers to Public Corporations and Institutions … … … … 96 Capital Transfers to Public Corporations and Institutions … … … … 97 Acquisition of Financial Assets (Loan Outlays) … … … … 98 Financing of the Government Net Cash Deficit … … … … 99 Economic Classification of Government Revenue … … … … 100 Economic Classification of Government Expenditure and Lending Minus Repayments … … 101 Economic Classification of Government Fiscal Operations … … … … 102 Composition of Outstanding Government Debt … … … … 103 Ownership of Government Debt (as at end of the year) … … … … 104 Ownership of Treasury Bills … … … … 105 Ownership of Treasury Bonds … … … … 106 Ownership of Rupee Loans … … … … 107 Ownership of Outstanding Foreign Debt … … … … 108 Foreign Loans – 2014 … … … ... 109 Net Receipts of Foreign Assistance … … … … 110 Outstanding Central Government Debt (as at end of the year) … … … … 111 Budget Outturn for Provincial Councils … … … … 112 Consolidated Budget … … … … 113

MONETARY POLICY, MONEY, CREDIT AND INTEREST RATES

Currency Issued by the Central Bank (by Denomination) … … … … 114

Monetary Aggregates – M1 and M2 … … … … 115

Monetary Survey – M2 … … … … 116

Consolidated Monetary Survey – M2b … … … … 117

Financial Survey – M4 … … … … 118 Monetary Aggregates - Summary … … … … 119 Reserve Position of Commercial Banks … … … … 120 Money Rates: The Central Bank and Commercial Banks … … … … 121 Money Rates: Savings and Long Term Credit Institutions … … … … 122 Yield Rates on Government Securities … … … … 123 Table Commercial Banks’ Loans and Advances by Type of Security (End of Period) … … … 124 Commercial Banks’ Loans and Advances to the Private Sector … … … … 125

FINANCIAL SECTOR PERFORMANCE AND SYSTEM STABILITY Assets and Liabilities of the Central Bank … … … … 126 Assets and Liabilities of Domestic Banking Units (DBUs) of Commercial Banks … … … 127 Assets and Liabilities of Offshore Banking Units (OBUs) of Commercial Banks … … … 128 Assets and Liabilities of Non-Bank Financial Institutions … … … … 129 Savings and Fixed Deposits of Deposit-taking Institutions … … … … 130 Insurance Activities … … … … 131 Share Market Performance … … … … 132 Debentures Listed on the CSE in 2014 … … … … 133 Total Cultivation Loans Granted by the Lending Banks (Position as at 31 December 2014) … … 134 New Comprehensive Rural Credit Scheme – Loans Granted for Subsidiary Food Crops by the Lending Banks (Position as at 31 December 2014) … … … … 135 Operations of the Crop Insurance Programme – Paddy Sector (Position as at 31 December 2014) … … … … 136 Deposits and Advances of District Co-operative Rural Banks (2004 – 2014) and District-wise Classification for 2014 … … … ... 137 Deposits and Advances of District Co-operative Rural Banks’ Unions (2006 – 2014) and District-wise Classification for 2014 … … … … 138

SPECIAL STATISTICAL APPENDIX

Table 1. Real Sector:

Population and Labour Force … … … ... 1 National Output … … … ... 2 Prices … … … ... 3

2. External Sector: Balance of Payments … … … ... 4 Reserves, Total Foreign Assets, External Debt and Exchange Rates … … ... 5

3. Fiscal Sector:

Government Fiscal Operations … … … ... 6 Government Debt … … … ... 7

4. Monetary Sector:

Monetary Survey (M2) … … … ... 8 Interest Rates … … … ... 9 5. Socio-economic Conditions

Key Socio-economic Indicators in Sri Lanka -1953 - 2003/04 Based on Consumer Finances and Socio-economic Surveys ...... 10 Key Socio-economic Indicators by Province - 2003/04 Based on Consumer Finances and Socio-economic Survey ...... 11 Key Socio-economic Indicators by Province - 2012/13 Based on Household Income and Expenditure Survey … ...... 12 Key Socio-economic Indicators by Sector Based on Household Income and Expenditure Survey 2006/07, 2009/10 & 2012/13 … ...... 13

Definitions and Explanatory Notes on Statistical Tables

The following general notes supplement the footnotes given below the individual tables: 1. In an attempt to bring the material up-to-date, provisional figures are included in some tables. 2. Figures in some tables have been rounded off to the nearest final digit. Hence, there may be a slight discrepancy between the total as shown and the sum of its components. 3. Differences as compared with previously published figures are due to subsequent revisions. 4. Values indicated within parenthesis are negative values. 5. The following symbols have been used throughout:-

... = negligible - = nil n.a. = not available n.e.c. = not elsewhere classified n.e.s. = not elsewhere specified n.i.e. = not included elsewhere