Sri Lanka shows resilience against Omicron - ICRA Lanka | Daily News

Sri Lanka shows resilience against Omicron - ICRA Lanka

Sri Lanka has shown resilience against Omicron so far with minimal interruption to economic activities at large. This is a critical factor to ensure better economic performance this year, says ICRA Lanka in their monthly outlook on Sri Lanka.

The government continues to rely on short-term financing such as swaps to address external sector imbalances. “Some government-to-government arrangements are also under discussion, which may help to ease the balance of payment pressure to some extent in the short term, once realised. The timing of such arrangements is unclear at the moment. However, the challenge facing the country still remains acute.”

Inflation is currently fueling some second-round effects. The GoSL in January announced the Rs 229 billion economic relief package which includes special allowance for selected vulnerable groups.

“This will further feed into the current inflationary spiral, given the shortages of essentials, as imports continue to be impaired by the current forex crisis. Current bull-run on oil may further aggravate the pressure on the balance of payment and the state- run utilities will be in a tough position to hold tariffs with weaker balance sheets of said institutions.

“Tourist arrivals are encouraging and will help improve the current account balance. Financial institutions may continue to factor inflation into pricing which will lead to further increase in retail lending rates. Sluggish global and domestic economic conditions together with tighter monetary policy may result in weaker credit demand in the first quarter of 2022,” the report says.

Looking back at December 2021, the reports says that the stock of T-bills held by the CBSL was on the decline for most part of the month except on December 29, when it jumped by over Rs 200 billion, likely the result of a provisional advance to the government.

Exponential recovery of tourist arrivals helped to generate around USD 120 million in receipts in December. Worker remittances were around USD 325 million, an improvement over the previous month.

With the disbursement of the Yuan swap with China, the official reserves increased to USD 3.1 billion. The stock market remained subdued in December after experiencing a sharp gain in the month before.The ASPI and S&P recorded 6.9% and 9.2% gains respectively. The index performance continued to be driven by a few selected shares. The detection of the Omicron variant within the country along with power outages caused the bourse to dip towards the end of the month.

Inflation rose to a new record level. Headline inflation increased to 12.1% while core inflation rose to 8.3% during the month of December (Y/Y). The stock market remained subdued in December after experiencing a sharp gain in the month before.

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