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SL economic indicators show steady recovery in February – FCR

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Sri Lanka’s Economic Indicators show steady recovery for February 2024 said First Capital Research (FCR).

Gross official Reserves strengthened further during the month of January-24to USD 4.5 billion. Inflows from multilaterals totaling to +USD 700 million during December-23 together with the FX purchases carried out by the CBSL positively contributed towards the growth in reserves during the period.

“Going forward, we expect Sri Lanka to reach gross official reserves of USD 5 billion in 2024E and USD 6.0 billion in 2025E backed by the positive current account balance and inflows from multilateral agencies.”

Private sector credit continued to improve during the concerned period, recording a +1.3% MoM growth to LKR 7.4 billion in December 2023.Upon completion of DDO, Sri Lanka successfully completed negotiations with the bilateral creditors including EXIM bank of China and Official Creditor Committee (OCC) which was co-chaired by India, Japan and France (as chair of the Paris Club), paving the way to receive the 2 nd tranche of the IMF extended fund facility of USD 337.0 million. According to official sources, Sri Lanka is expected to sign a MoU with Paris Club within weeks.

Presently, the Government of Sri Lanka is conducting discussions with the private creditors (ISB bond holders and China Development Bank) to restructure USD 16.5 billion of debt and aims to complete negotiations within 6-months. CCPI inflation decreased to 5.9% in Feburary-24 from 6.4% in January-24, caused by a decrease in non-food inflation, whilst food inflation was marginally up.

“However, our CCPI expectations for 2024 year end is anticipated to remain in the single digit territory and the expected band with no significant threat perceptible on price levels in the period ahead.”

The Business Cycle Indicators (BCI) spiked by 27 points on December-23 and closed at 85. The main cause for the improvement in confidence is securing the IMF 2nd tranche while gaining ground on EDR efforts.

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