Sri Lanka’s extreme money printing spells economic disaster
Sri Lanka’s continuation of extreme money printing since 2020 up to now has been exerting pressure on the exchange rate and inflation to a great extent and it is high time for the Central Bank (CB) to apply the brakes on this process, economic experts warned.
The CB has printed Rs.1.62 trillion during the period January 2020 to March 2022 and this was 23 times more than the money printed during the 62-year period of 1952 to 2020, CB data showed.
It has resorted to record money printing of Rs. 188.61 billion within 18 days during the period February 28, 2022 to March 18, 2022.
These figures clearly indicated the massive amount of money printed under the present regime, a senior economist said adding that if money is printed and released over and above the required amount, the result will be the increased demand for goods and services creating inflationary pressures in the economy.
Experts noted that reckless money printing may lead to a hyperinflationary situation where the people will have to face unbearable price increase in goods and services.
Under such a situation, a large amount of money is required to purchase goods and services and to meet other payment obligations, they said adding that “the Central Bank should print money only to match the value of overall transactions in the economy”.
University of Colombo Professor in Economics Sirimal Abeyratne told the Business Times that if the inflation goes above 50 per cent then the country will have to face a hyperinflationary situation.
Such situations are created not only by money printing but also the global economic situation, exchange rate pressure and supply chain disruptions, he explained.
The country is facing an essential commodity shortage and high prices, so it is opportune to control the money printing without allowing it to increase inflationary pressure, Prof. Abeyratne added.
Sri Lanka will have to increase investments and exports taking prudent policy decisions at this critical moment but resorting to money printing will definitely affect the economy, he warned.
Former Governor of Uva, Southern and Central Provinces Rajith Keerthi Tennakoon said that that the present economic crisis cannot be tackled by extreme money printing as it will lead to hyper-inflation.
One-time executive director of polls monitoring centre- CaFFE, Mr. Tennakoon said that Sri Lanka is now moving to a critical situation similar to Brazil and Argentina in 1980’s due to economic stagnation, low GDP growth, and high money printing and extreme inflation.
Sri Lanka is currently experiencing preliminary stages similar to that of Indonesia and Zimbabwe financial crisis.
The country’s food shortage is worse than the era of queues during the closed economy period of 1971-1977, he said adding that the present regime is very well aware of a further worsening of the economic situation due to disruption in supply chain and a severe food shortage ahead of the Sinhala and Tamil New Year.
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