The stabilisation and recovery of the country’s economy is currently the Central Bank of Sri Lanka’s (CBSL) key objective, CBSL Governor Dr. Nandalal Weerasinghe said.
Speaking at the International Conference on the Roadmap for Economic Recovery of Sri Lanka held in Colombo today (Nov 30), he attributed the ongoing economic crisis to an imbalance in macroeconomics such as large fiscal deficits and debt standstills.
Acknowledging the hike in inflation rates, Weerasinghe stated that although they rose to 70% last month, inflation rates are currently on a downward trend, thus preventing the hyperinflation Sri Lanka was heading towards.
The Central Bank Governor explained that due to the Government’s expanding budget deficits, the need to borrow funds both internally and later externally, when Sri Lanka’s access to global financing was lost, was created, thereby acting as the root cause of the country’s economic crisis.
He, however, assured that the necessary measures are being taken to recover the economy and stabilize the country’s external fiscal reserves, allowing for the importation of at least essential goods such as fuel and gas, so that people will no longer have to remain in lengthy queues.
In the stabilization process, CBSL’s first priority is to tighten the monetary policy in terms of increasing interest rates, the central bank chief explained, adding that this is how the situation has been managed thus far; by curtailing the demand for certain commodities, thus slowing down the economy.
Moreover, Dr. Weerasinghe added that the CBSL also aims to maintain price stability and a steady inflation rate, which was maintained at single digit figures such as 5% prior to this crisis.
Speaking about the 2023 Budget which is currently being debated at the Committee Stage in Parliament, the CBSL Governor was confident that the Bill would act as a supportive fiscal policy which would help curtail the Government’s deficit to a more sustainable level.
Further, with regards to the staff-level agreement Sri Lanka has reached with the International Monetary Fund (IMF), Dr. Weerasinghe stated that the next step in this regard is to obtain financing assurances from our bilateral creditors such as China, Japan and India.
He emphasized that this is a crucial stage, as it is only after obtaining these financing assurances will the IMF approve the policy package.
The CBSL Governor assured, however, that the difficult steps have already been taken, and that they have already begun easing the crisis.
“We need to continue moving in this direction”, he said, claiming that a mistake often seen in the past is that once the policy package or necessary relief is received, policy makers reverse certain policies or stray away from their decisions.
“This is what led us to this situation as well”, he said in this regard.
Weerasinghe sounded hopeful, however, claiming that in the face of one of the worst economic crises Sri Lanka has ever seen, both policy makers and the people have realized the need for clearer, tighter policies.
