GOVT., CB FAILS TO POSITION ECONOMY

To face adverse consequences

The government and the Central Bank have not positioned the country’s economy to face adverse consequences of the US dollar becoming stronger, which were foreseeable for more than a year ago, former Central Bank governor Ajith Nivard Cabraal said yesterday.

He said all analysts were fully aware from a year ago that the US economy was strengthening and that the USD would be stronger from about July 2018 onwards.

“That outcome should have been anticipated by the Sri Lankan Government and the Central Bank, and steps taken to build up spaces in our own economy in general, and our Forex Reserves in particular, to meet the challenges that would emanate from it. If however, the Government and the Central Bank did not prepare for that situation and were “caught napping”, as they now seem to be admitting, they have only themselves to blame.

“The Average depreciation of the Rupee from 2005 to 2014 was 2.9% per year. The Rupee depreciated by Rs.29 over 9 years. Total Net Reserves applied by the Central Bank on intervening in the Forex market and defending the Rupee from 2006 to 2014 (9 years) was USD 4.9 billion. The Official Foreign Reserves increased from USD 2.5 billion to USD 8.2 billion over the same period. The Average depreciation of the Rupee from 2015 to now is 8.2% per year. In 2018 so far, the Rupee has depreciated by 11.6%. Total Net Reserves applied by the Central Bank on intervening in the Forex market and defending the Rupee from 2015 to now (about 3.7 years) was USD 6.5 billion. The Official Foreign Reserves have been almost flat at USD 8.4 billion, but declining as of now.

“The careful selection of countries by the Central Bank to support the “Depreciation against the USD is universal” contention is understandable, and the Central Bank cannot be faulted for submitting it. However, knowledgeable analysts know that such contention is not tenable.

As we all know, there are many currencies that have not depreciated against the USD over the past year. In fact, the Sri Lankan Rupee has depreciated against the Bangladesh, Zimbabwean and the Ethiopian currencies as well.

“Finally, this inept Government must be told to stop giving excuses and blaming the previous Government or other Foreign Governments for everything they can’t get right. If they can’t fix problems, they must give the Government to someone who can, and go without placing further burdens on people,” Mr. Cabraal said.