Sri Lanka’s economy has been facing a challenge because of shrinking export earnings and foreign currency reserves falling to $1.7 billion which is sufficient for around two months of imports compared to more than 3.5 billion dollars in December 2007, although the Central bank defended the rupee to a great extent.
The Finance Ministry has taken stringent monetary measures to face the economic shock created due to global recession and has slashed the Treasury bill interest rate to 12 % from 20% and directed banks to follow suit by cutting interest rates, according to Minister of State for Finance Ranjith Siyambalapitiya.
In an interview with The Sunday Times FT, he noted that the local economic concept is being pursued and activated to face any future world food crisis or economic shocks. He emphasized the need to harness maximum benefits from bilateral trade agreements with the countries in the region such as India and Pakistan focusing attention on export diversification.
However, he added that the country’s economic growth is (positively) now running at 5.2 % and that inflation is currently around 2.9% . The overall budget deficit for 2009 is projected at 7 %, down from a provisional 7.7 % in 2008. He said, “Inflation, which decelerated to a single digit in February 2009, is projected to remain at a single digit level throughout 2009 and stabilise at a low level in the medium-term.”
Minister Siyambalapitiya added that a quantity based stringent monetary policy strategy with foreign exchange control measures in 2007 and 2008 has yielded desired results supported by declining international commodity prices. “ The government has been able to achieve these economic targets without opening the capital account and that itself was a great achievement,” he said.
Another significant action taken by the Finance Ministry was to reduce the Treasury bill interest rates. He said all banks have been directed to bring down interest rates for the benefit of small and medium scale industrialists. The minister expressed the belief that the country will be able to harness maximum economic benefits from the liberation of the north from the grip of the LTTE and the end to the war will enable substantial savings in the massive defence expenditure of $2 billion, he said. |
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