Page 55 - Management Digest Udyama Vol 1 Isuue 2

Thereby we expect some to LKR -205Bn. With the Government’s spending spree continuing,
investments to materialize from the quantitative easing program has also continued as CBSL Holdings
2022E onwards as we estimate reached a new high exceeding LKR 1.2Tn.
USD 950Mn, still falling below
the USD 1Bn mark. Credit growth to remain at 12%:

Foreign Reserves to slip to The accelerated credit growth situation is likely to slow down over
dangerously low levels: the next 2-3 month with the negative liquidity situation in the country.
However, we believe the private sector credit growth target of 12% can
With the inability to rollover bulk be reached for 2021E. In addition, we maintain that credit growth is
of the debt amidst the limited likely to remain around the 12% mark in 2022E as well with bulk of the
borrowings options and lower growth likely to take place during 1H2022.
FDI flow translates to Balance of
Payment deficits of USD 2.1Bn in Inflation to rise as Cost Push Inflation:
2021E and USD 789Bn in 2022E.
Though there is an improvement, Inflation has been broadly in the targeted range of CBSL of 4.0%-
the Balance of Payments is still 6.0% so far. With Sri Lanka being an import-dependent country, the
in deficits, further deteriorating continuous depreciation of the currency is expected to cause cost-push
the foreign reserve position. We inflation. We expect inflation to start trending upwards to a range of
expect foreign reserves to fall to 5.0%-7.0% by the 1H2022. Since inflation is led by cost increases
dangerously low levels of USD adjustment of monetary policy may not impact inflation, however, it
3.5Bn by Dec 2021 and USD may support stabilization of the currency.
3.0Bn by Jun 2022.
DEBT, Sri Lanka’s primary concern:
CBSL Holdings skyrocket;
Liquidity dries up: Sri Lanka’s debt obligations are rising at a rapid pace. The Rupee and
Dollar Bond obligations alone, which includes International Sovereign
Government’s strategy to boost Bond, Sri Lanka Development Bond and Rupee Bond maturities,
the economy via infrastructure amounts to a near LKR 1Tn (USD values translation at LKR 200.0)
spending continues for yet for 2021E and above LKR 1Tn for 2022E. Out of the overall debt
another year despite the obligations, foreign debt repayments are a major concern considering
inadequate Tax Revenues to the dwindling of foreign currency reserves. Foreign Currency debt
the Government coffers and the repayment for the next 12 months amount USD 7.0Bn compared to
additional spending requirements USD 2.8Bn of reserves as at Jul 2021.
resulting from the pandemic
situation. As a result, Sri Lanka Chart: Foreign Currency Debt for next 12 months amounts to USD
is expected to record the 2nd 7.0Bn
consecutive double digit (10%+)
budget deficit in 2021E before
some possible improvements
in the coming years. The mega
deficits are massive strain to the
system as credit soars led by the
public requirement for credit.
However, with the lower interest
rate environment the private
sector credit has also recorded
a significant improvement in
the recent months recording
YTD growth of 8%. Amidst the
significant demand for credit, the
liquidity in the system dried up.
Further SRR hike of 2% was also
given by the CBSL implemented
on 1st Sept resulting in liquidity
turning negative amounting

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