Financial Times

Central Bank to encourage more migrant remittances


The Central Bank (CB) announced that its monetary programme for 2009 is based on a growth of 5 to 6% and an annual inflation rate of around 9%. According to the Monetary and Financial Sector Policies for 2009 and beyond (Road Map) unveiled by CB Governor Ajith Nivard Cabraal on Friday, the recently introduced stimulus package is expected to uplift economic growth to around 6%. In accordance with the 2009 Budget, Mr. Cabraal said the overall budget deficit is expected to decline to around 6.5% of GDP from 7% in 2008. The decline is based on an expected increase of 21% in government revenue while expenditure and net lending is expected to increase by 17%.

Mr. Cabraal said the CB would continue its efforts to strengthen the regulation and supervision of banks and other financial institutions by placing greater focus on risk management in corporate governance. The year 2009 will be a challenging one for banks and other financial institutions as they strive to meet liquidity requirements under the strain of a global credit crunch, he said.

The sudden outflow of short-term foreign capital and non-availability of external financing during the global financial shock period confirmed the well known lesson that in times of turmoil, flight of capital to the advanced economies will take place quickly. This has led the CB to consider new and alternative ways of raising less volatile external finances. The CB will initiate several new measures to boost external reserves during early 2009 which would include entering the 'currency swap' arrangements with some central banks on a bilateral basis. Some central banks have already responded positively and the CB is currently negotiating such arrangements.

Mr. Cabraal said the CB is encouraging more foreign remittances to attract more steady foreign investments from Sri Lankan expatriates. For this purpose, the government and the CB will appoint a few commercial banks as lead managers to promote Treasury bills and bonds among Sri Lankan expatriates. They will also offer an additional 'bonus interest' to supplement the interest income provided by commercial banks to NRFC and RFC account holders and encourage Sri Lankans to bring in their foreign currency savings abroad by paying a reduced tax as the final income tax, if such inflows are subject to payment of income tax.

Implementation of the above measures and bilateral swap arrangements will boost external reserves well above the levels expected from the balance of payments surplus of US$350 million. Mr. Cabraal said such new measures are also likely to restore the external reserves to the same level as prevailing before the global financial crisis and the CB will work diligently towards such targets.

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