Central Bank: Economy on track despite political instability
Despite political uncertainty and policy confusion, the Central Bank (CB) is confident of managing the economy and massive US $4 billion debt servicing next year, raising funds through prudent financial instruments.
In a related move, CB Governor Dr. Indrajit Coomaraswamy on Saturday (November 10) met Mahinda Rajapaksa, the new Prime Minister and Finance Minister, and held productive discussions on domestic foreign exchange market and other monetary measures. A senior Deputy Governor, a Deputy Governor and former Governor Ajith Nivard Cabraal were present at the meeting, he confirmed to reporters on Wednesday.
He was briefing reporters on the economic policy review that the bank has been managing economic and financial system stability despite the country’s present political instability.
Parliament on October 26 – ironically the same day Prime Minister Ranil Wickremesinghe was sacked by President Maithripala Sirisena -, passed a resolution to raise US$1.75 billlion ( Rs. 310 billion) by way of loans in or outside Sri Lanka for“Active Liability Management” recently.
In order to stabilise Sri Lanka’s inflation at mid sin- gle digit level and maintain neutral monetary policy stance, the CB’s Monetary Board on Wednesday decided to increase the Standing Deposit Facility Rate (SDFR) by 75 basis points to 8 per cent and the Standing Lending Facility Rate by 50 basis points to 9 per cent.
The Governor expressed the belief that the country’s economic growth could be reached at the level of 4.5 per cent by the end of this year.
Dr. Coomaraswamy emphasised that it is important for any government in power to implement its policies without harming macroeconomic stability.
Some of the tax changes and revisions introduced by the present administration should have to be approved by Parliament by next January, he added.
Other changes such as the Telecommunications Levy, which has been implemented, would only have an impact of 0.03 per cent of GDP, he said adding that the Finance Ministry has introduced tax reductions while maintaining the 4.8 per cent budget deficit targeted for 2018.
He revealed that the country’s foreign debt repayment would double to a record $ 4 billion in 2019 from last year’s level.
The Bank is antici- pating foreign inflows to settle the $1.5 billion of sovereign bond repayments of two such international bonds within the first four months next year.
A sum of $ 1 billion has already been obtained from China Development Bank term financing loan facility, Dr. Coomaraswamy said.
It could be upscaled to $1.5 billion and this money will be received in February enabling the CB to repay the sovereign bond which is maturing in April, he disclosed.
A swap arrangement with the People's Bank of China which expired in September is to be renewed with more flexible terms.
CB officials and high officials of five commercial banks recently visited West Asia including Oman, Abu Dhabi and Qatar.
He noted that a senior CB official will meet counterparts of the Central Bank of Qatar for further negotiations on a currency swap.
The Bank of Ceylon, People's Bank and National Savings Bank (NSB), will be able to raise $750 million to $ 1 billion, through its contacts, he said.
NSB recently raised a $100 million loan facility supported by Commerzbank AG.
The facility was arranged jointly by Dubai- based Alpen Capital (ME) Ltd and NDB Investment Bank of Sri Lanka.
Another $ 650 million is lying in a CB account as the balance money of Hambantota Port Deal of $1.12 billion after paying previous loan installments out of it, he disclosed.
The CB is working towards a Panda and Samurai bond issuance before the end of the year.