With the revival of economic activity Sri Lanka will double its economic growth rate from the current 2.7% to 4.5% in 2020 and will further accelerate growth to around 6.5% with necessary reforms thereafter new governor of Central Bank, Prof. W D Lakshman told the Monetary Policy review meeting last Friday.
Prof. Lakshman who is the 15th Governor of CBSL said that inflation too would be maintained in the range of 4 to 6% in 2020.
“The country has been struggling with less than 5% growth for several years, and the growth has now slowed down to below 3 per cent. Although inflation has been contained from the demand side, weather related food price volatility and dependence on imported commodities constantly threaten cost of living.”
“Statistics on unemployment appear acceptable, but they hide issues such as underemployment, low labour force participation, high unemployment among educated youth, an ageing labour force, and low productivity.
These need to be addressed if the government is to realise its goal of eliminating poverty through effective utilization of labour resources.”
In the external sector, sluggish export performance, large trade deficits, persistent current account deficits, dependence on debt inflows in the absence of alternative levels of FDI inflows, as well as high foreign financing needs are major concerns.
“ In addition, we need to be watchful of developments in the global economy and financial markets as well.
In this context, we hope to engage with the IMF and other multilateral agencies while remaining within the framework of national policy to ensure that the country reverts to a sustainable path of reserve accumulation, a prerequisite for exchange rate stability as well.”
The government is aware of the need for fiscal consolidation and in addressing longstanding issues in the fiscal sector while supporting the revival of the economy.
“In the monetary sector, we have seen credit flows coming to virtually a standstill. Monetary and regulatory measures taken so far, as well as the measures that are being contemplated by the government, including the moratorium on capital repayments of bank loans by SMEs, supported by improving business confidence will result in an acceleration of credit flows in the period ahead.”
This will also help address the increased NPL ratios of the financial sector. In the present context of subdued growth and development, continuing prevalence of poverty pockets despite poverty alleviation policies of over several decades in the past, and prevalence of unemployment and under-employment at worrying levels, the fiscal and monetary authorities and decision makers in different real sectors of the economy are confronted with the challenge of searching and identifying alternative policy sets of greater efficacy than the neo-liberal policy set.
“I hope to be able to make my contribution in this search for alternatives, together with the other authorities. The monetary policy announcements made today, we hope, will be of positive impact, helping and supporting the various measures announced from time to time by fiscal and other authorities.
It is in this overall context that the Monetary Board decided to maintain its accommodative policy stance unchanged at the last meeting.
This is a time of important changes in Sri Lankan development policy and practice. Questions are being raised extensively about the validity and relevance of Washington Consensus type or neoliberal type policies to achieve the desired goals of inclusive, sustainable and shared development. This questioning may also apply to Central Banking nowadays.
He also made a reference to his immediate predecessor, Dr. Indrajith Coomaraswamy. “He has contributed a great deal to re-establish the Bank’s respect within our socio-economic system in general and the country’s financial community in particular.
Fitch Rating on Lanka, premature decision - Dr Weerasinghe
The Fitch Rating has rushed to change Sri Lanka’s rating without investigating true facts, said Dr. P. Nandalal Weerasinghe Senior Deputy Governor CCBSL.
”This is a pre mature decision.”
“However Fitch has not downgraded Sri Lanka, but changed the rating from Stable to Negative.” He said that though it is easy to change a rating in this manner it will take a longer time to revise it.
Such an action only on the premise of heightened political uncertainty, with no evidence of slippages in macroeconomic policies or fundamentals, cannot be justified. He however said that the other two international rating agencies have not changed their ratings on Sri Lanka.
CBSL to call for fresh bids to bail out The Finance
The Central Bank will call for fresh proposals to find an investor to bail out The Finance Company Deputy Governor H. A. Karunaratne said.
He said that earlier the CBSL did call for proposals from investors but there were no response. “This may be because the economic and political condition during that time was not conducive. “ We have now called for fresh proposals and expect a better response.”
He said that the proposals will only be open for a short time.
The Deputy Governor said that if this too fails CBSL will look at alternatives.
“The CBSL will also consider paying and settling depositors who maintain deposits for less than Rs 600, 000 initially.”
He said that Lanka Credit and Business Limited( LCB) came forward to revive the distressed finance company, City Finance Corporation Limited (CFCL), which was under the purview of the CBSL.
This landmark transaction was valued at Rs 1.3 billion and this could set as the benchmark case study for the revival of other distressed finance companies in Sri Lanka.
Earlier CBSL through their liquidity support scheme paid a maximum of Rs. 600,000 to some depositors of CIFL.
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