Following the successful full payment of the maturing International Sovereign Bond, the Central Bank of Sri Lanka is expecting to rebuild reserves to a comfortable position by the end of August.
Arrangements have been made with the IMF, the Indian government, and the Bangladeshi government for support. The monetary policy shall remain a low-interest regime with the Central Bank looking to deliver a more stable exchange rate in the second half of the current government’s tenure.
CBSL Governor Prof. W D Lakshman expected second-quarter GDP growth to be in double digits given the low base effect caused by the COVID-19 pandemic. The rate of GDP growth for 2021 is expected to be 5%. Lakshman was speaking on 27 July to the Live at Hyde Park program on the Derana network.
The arrangement with the IMF will be from the Special Drawing Rights program that the IMF has created to help countries deal with the COVID-19 pandemic. Sri Lanka is expected to receive between US$ 750-800 million through the creation of these rights. The arrangement with the Indian government comes through a SAARC agreement that will bring in US$ 400 million. The agreement with Bangladesh is expected to bring in US$ 200 million.
The swap agreements are a short-term measure that will be complemented by the long-term export lead growth model of the government.
Lakshman suggested the government would take calculated moderate risks to open up the tourism sector in August which is expected to begin the revival of the sector.
Along with the tourism sector, other fields were also highlighted to bring in foreign exchange. The government is expected to bring in measures to formalize the current black market for gems and jewellery. The government will also hope to boost IT service exports above the US$ 1 billion mark. Lakshman said, “Imports for exports will be permitted.”
Though critical of some of the comments by the rating agencies, Lakshman noted that the government and the Central Bank were working to address some of their legitimate concerns. The government will aim to create a balanced current account.
Lakshman highlighted that the government over the last 40 years has been in about 16-17 IMF programs and still faces issues with a lack of a sustainable growth model and significant FX volatility. “We have resolved problems without the IMF intervention.”
“As seen in the manifesto adopted as government policy there will be an emphasis on domestic production and a halt on unessential imports. There will be a non-debt investment program.”
Lakshman noted that the success of the Bangladeshi reserve situation was built on FDI and that even Sri Lankan firms play a big role in their economy.
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