Liberalising economy, a must to achieve growth, says CB Governor | Sunday Observer

Liberalising economy, a must to achieve growth, says CB Governor

Sri Lanka missed a golden opportunity in the early 1980s due to the communal violence that drove away Japanese investors whose investments would have put the country on a solid footing as some of our East Asian friends, said Central Bank Governor Dr. Indrajit Coomaraswamy was addressing a forum on ‘How could we move forward together’ organised by the Ceylon Chamber of Commerce in Colombo last week.

Urging everyone to search the internet to find out what happened to Malaysia and its neighbouring friends due to Japanese investments that transformed those economies to be great economies today, the governor said Sri Lanka has lost many opportunities even after the loss of Japanese investments. Japanese investors left Sri Lanka due to the unstable situation in the country triggered by communal violence in 1983.

“Being in the Silk route and with the geographical advantage of being close to major markets in the region we stand to benefit from these opportunities. So the prospects are great for Sri Lanka but we are not going to get anywhere if there is no harmony in the country,” the governor said, adding that if the country could get its act together it would benefit from the opportunities offered to it.

Stressing the need for peace and harmony in the country the governor said social disharmony will result in a high risk premium to the country as it will have to give away revenue to the investors.

“The question is how quickly could we liberalise the economy. A country cannot achieve a 5-6 percent growth rate depending on the domestic economy alone. You need to export, integrate with the rest of the world and be outward oriented. Without competition you get low quality products. However this does not mean opening up everything but over time we need to do it,” the governor said taking China as an example.

He said after Independence, Sri Lanka was only second to Japan in all economic indicators but today it is behind many Asian countries due to macroeconomic stress in not being  able to manage budget deficit and balance of payments and failing to build a Sri Lankan identity.

“The economy has demonstrated considerable resilience and continues to be resilient but that is not enough. We need to progress. Three months after the Easter attacks inflation was in target range, interest rates were coming down, held two bond issuances with low yields, recording a surplus in the current account for the first time this year, external position being strong with gross reserves reaching US$ 8.9 billion and debt servicing at a satisfactory level,’ the governor said.

However, low economic growth has been a major concern for the country which recorded an unsatisfactory growth of 3.2 percent last year. The growth forecast for 2019 even seems bleaker. The Central Bank revised down its growth forecast for the year following the exposure of the economy to the Easter Sunday attacks to 3 percent. The initial projections by the Bank was a growth rate between the 4-5 percent range.

“Growth remains muted. It is vital to get away from the macroeconomic stress of repeated budget deficit, BoP and exchange rate cycles. The Government and the Central Bank is has initiated steps to create a flexible exchange rate regime and forward looking and data driven monetary policy. The Monetary Law Act puts in place the flexible exchange regime policy. Cabinet approval has been obtained to give more teeth to the Fiscal Management Act. The Active Liability Management Act will help to raise money for debt management,” the governor said.

Ferial Ashraff, wife of former minister M.H.M Ashraff, said the Muslim community has been seen as perpetrators and even today the Muslims feel the same. After the Easter attacks Muslims did not know what happened and what one would get by causing harm to others. It is a tough time for the Muslims. They feel polarised and this has led to a lot of hatred and ill feeling.

“I feel that hatred against the Muslims was there before and the April 21 incidents brought to the open such feelings,” she said adding that all Sri Lankan must look at each other as Sri Lankans if the country is to move forward.