The government has taken a judicious decision to allocate all proceeds from divestiture of public assets to be utilised purely for public debt management, the Central Bank governor said last week.
Addressing a seminar organized by the Sri Lanka Economic Association, Dr. Indrajit Coomaraswamy disclosed that foreign proceeds will be kept in the foreign exchange account while the rupee proceeds, earmarked for domestic debt management, will be maintained in a separate account.
“For the Hambantota Port money that has come in, it will find its way to a Deputy Secretary to the Treasury Account or the DST Account and that money will be kept there and used only for liability management,” Dr. Coomaraswamy said.
The governor emphasized that the whole of the US$ 1.1 billion which will eventually come in over the course of six months, as part of the Hambantota Port deal, will be credited into this account which will be maintained in the Central Bank and the money will be utilized exclusively for external liability management. “These are the ways in which the government is trying to build up buffers which can be used to address the challenging debt dynamics that is confronting the country,” said Dr. Coomaraswamy, at the seminar titled “Sri Lankan Economy: Future Policy Direction”.
The Central Bank governor advocated that the government should explore the possibility of giving teeth to the existing Fiscal Responsibility Management Act similar to countries such as New Zealand and Indonesia.
“The way to do it is to have very specific reasons to permit deviation from the targets set out in the FRMA. Such reasons could be natural disasters, severe depression or recession in the economy due to exogenous shocks etc,” he said. However, he added that in the case of deviation there should be a clear statement of how the path will be brought back so that the new targets are met again.