External factors healthy for growth, says CB Governor | Sunday Observer

External factors healthy for growth, says CB Governor

The economic growth rate for 2019 will be four percent, up from three percent last year, but yet below the potential of 5.7 percent growth anticipated for 2018, the Central Bank stated at its Monetary Policy Review on Friday.

Accordingly, economic growth is expected to reach its potential in the medium term benefiting from the low inflation environment, competitive exchange rate and appropriate policies to support investment. However, growth projections by the Central Bank for the year are below the 4.2 percent forecast by the Standard Chartered Bank. The World Bank forecasts growth this year for Sri Lanka to be four percent.

“Sri Lanka will be in a better place from exogenous factors due to the improvement in the global environment with regard to oil prices, the trade war between the US and China, the US Fed shifting to a more benign environment, reversing the flow of capital to emerging markets along with favourable domestic factors, such as low inflation and right policies to support investments,” Central Bank Governor, Dr. Indrajit Comaraswamy said.

However, according to a spokesman for the bank, the country is not without challenges as it grapples with a huge debt component of US$ 5.9 billion to be repaid by the year’s end. Debt repayment for the first quarter amounts to US$ 2.6 billion.

“Political uncertainty leading to policy uncertainty is dragging down economic growth. Predictability and consistency are essential factors for sustained growth,” the Governor said. The post-war growth momentum has slowed and remained below potential for the past three years. Projections are that economic growth will continue to remain subdued during the fourth quarter of 2018.

“The demographics of the post- war era has changed, but production levels have not grown. We have put the macro-economic framework in place. However, the budget is the main source of instability. Since 1950, only three years, including 2017 and 2018, recorded a surplus in the primary account,” the Governor said.

The country was to borrow from the Bank of China, the Reserve Bank of India (RBI) through the International Sovereign Bond and the money to raise the status of the money during the first quarter this year.

The Governor said on the swap arrangement with RBI, once the administrative process has been completed, the money will come in the next week.

“The ISB will take a little more time. Once that money comes, we will see how to raise the remaining amount from other sources,” the Governor said.

With regard to the program with the IMF, the Governor said the Extended Fund Facility Program with the donor will continue and added that discussions were held between the IMF delegation and senior officials of the Finance Ministry and the Central Bank last week.

“We will know the outcome of the discussion in a few days,” Dr. Coomaraswamy said.

The Governor said the Central Bank has commenced liquidation of CIFL and Standard Credit and Finance Limited.

‘The Central Bank has taken efforts to revive The Finance Company which has been insolvent for many years, but has not been successful. There has been one or two preliminary investors for TFC which is a strong brand. The brand name will help get investors to revive the company,” the Governor said.

The Monetary Board of the Central Bank decided to reduce the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of commercial banks by 1.00 percent to 5.00 percent from March, 1.

The Board also decided to keep the policy interest rates of the Central Bank unchanged. The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 8.00 percent and 9.00 percent.

Sri Lanka met the scheduled repayment of the maturing International Sovereign Bond of US $ one billion in January. By January end, gross official reserves stood at US $ 6.2 billion, which was sufficient to finance 3.4 months of imports.

Blurb: Economic growth is expected to reach its potential in the medium term benefiting from the low inflation environment, competitive exchange rate and appropriate policies to support investment.