The Central Bank continues maintaining the low interest rate regime in low-inflation environment for a sustainable economic recovery with inflation targeting, Central Bank Governor W.D. Lakshman said. The Census and Statistics Department has announced that the economy contracted by 3.6 per cent, lower than the projected 3.9 per cent, he told a media conference in [...]

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Central Bank Governor predicts 5.5- 6 % economic growth this year

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Prof, W.D. Lakshman

The Central Bank continues maintaining the low interest rate regime in low-inflation environment for a sustainable economic recovery with inflation targeting, Central Bank Governor W.D. Lakshman said.

The Census and Statistics Department has announced that the economy contracted by 3.6 per cent, lower than the projected 3.9 per cent, he told a media conference in Colombo on Thursday.

He disclosed that practical measures will help the economy to sustain the economic growth while maintaining inflation in the targeted 4-6 per cent range under the flexible inflation targeting framework.

Prof. Lakshman expressed the belief that Sri Lanka could meet its growth target of 5.5-6 per cent growth for this year.

“Credit to the private sector expanded notably thus far in 2021, reflecting the impact of growth-supportive policies. We are focused on keeping this moving forward and will remain vigilant of any supply side pressures that may emerge,” he added.

Growth of credit extended to the private sector gathered pace in February 2021. This impetus is expected to continue, supported by low lending rates, surplus liquidity in the domestic money market with the increase in lending to micro, small and medium enterprise (MSME) sector.

Credit to the public sector, particularly net credit to the Government, from the banking system continued to grow, resulting in a notable expansion of domestic credit and an acceleration of broad money growth.

The Central Bank’s involvement in the currency market has been minimal with its role largely limited to monitoring and issuing guidelines to banks, he reiterated. The country’s foreign reserves have come down to US$ 4.1 billion at the end of March, sufficient for three months of imports, he added.

He outlined the status of ever increasing worker remittances, tourism recovery and foreign investment which is anticipated from the Colombo Port City with the Government’s efforts on assisting local production towards a sustainable economic recovery.

IMF team now in Colombo continues consultations on technical assistance
Sri Lanka has dropped plans for a fresh bailout facility from the International Monetary Fund (IMF) but discussions are underway with the donor agency on technical assistance on public financial management, tax policy and administration etc.“The Government has decided not to pursue a new or ongoing IMF programme but to continue maintaining the close relationship with the Fund under standard consultation processes similar to many other member countries,” Central Bank Governor Prof. W. D. Lakshman disclosed.

He noted that a team of two IMF economists is currently in Colombo conducting annual Article 1V consultations with Sri Lankan authorities.

They will be assessing economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.

According to State Minister of Finance Ajith Nivard Cabraal, Sri Lanka is eligible to receive up to US$ 800 million to boost foreign reserves from the IMF as a part of a new allocation of Special Drawing Rights.

The Fund confirmed that it has received a request for emergency financial assistance from the Sri Lankan authorities to fight the COVID-19 pandemic. This was stated by IMF’s Director of the Communications Department, Gerry Rice responding to questions during a recent media briefing. “We did receive a request from the Sri Lankan authorities for emergency financial support to help fight the COVID pandemic,” the IMF spokesman said.

He stated that the assessment of that support has taken longer than for other countries due to “Sri Lanka’s daunting economic challenges and high public debt”.

“The $1.5 billion EFF arrangement approved in 2016 expired on June 2, 2020. Given that the final review under the arrangement was not completed, Sri Lanka could not avail of the last disbursement under the EFF, amounting to SDR118.550 million equivalents to around $.200 million,” he said.

 

 

Sri Lanka eyes West Asia funding as financial aid
Sri Lanka is exploring the possibility of securing funding from West Asia following discussions with relevant authorities in a latest mission to the Gulf region, Central Bank Governor Prof. W D Lakshman divulged.Some positive result relating to financial assistance could be expected within the next few weeks during this visit to that region to tackle the balance of payment issue, he told reporters.

So far, during 2021, on account of SLDBs and foreign currency loans from domestic banks, debt service payments of close to US $1.2 billion have been met.

He added that upcoming debt repayments are being met with more non-debt inflows and contingency plans were in place to raise necessary funding from donor countries including the Chinese Renminbi swap.

In May, a $693 million Sri Lanka Development Bond raised mainly from local investors is expected to mature and another $1 billion sovereign bond will be maturing in July this year. Sri Lanka is also finalising a $700 million loan facility from the China Development Bank soon, he disclosed.

Recently Prime Minister Mahinda Rajapaksa held discussions with Bangladesh authorities in a desperate effort to meet unprecedented foreign debt obligations.

 

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