No more sugar highs, says CB Governor
Short-term sugar highs which end up damaging all parts of the economy will not be created by the Central Bank any longer, its new Governor said after opening trading yesterday at the Colombo Stock Exchange.
“My colleagues in the Central Bank share this perspective. We don’t think there are quick fixes. I think trying to create sugar highs by artificially trying to boost asset markets or growth or anything else is not helpful,” Dr. Indrajit Coomaraswamy said. He said that distortions from artificial booms have no upside in the long run, and hoped that no one is expecting any quick fixes either.over the years Sri Lanka’s growth has been driven by large budget deficits which have been unsustainable and created balance of payment crises. This is the polar opposite from the current account surplus led by higher exports driven economic growth pursued by South East Asian economies.
The Central Bank last year cut rates to help Finance Minister Ravi Karunanayake fulfill the election promises brought through the populist interim budget, which helped spiral credit growth further out of control.
Dr. Coomaraswamy noted that the highly talented officials at the Central Bank will create a conducive environment by enabling the required services and regulations. By Chandeepa Wettasinghe
“Critical thing is to create the fundamentals to ensure that the economy grows, that companies are able to do their business and make their profits, that there is employment generated, which creates demand in the system. You have a virtuous cycle which is built on strong and sound fundamentals,” he said.
Dr. Coomaraswamy noted that while the view from the back view mirror is murky, the view from the windscreen shows a sun that is trying to come up.
“Why I said the sun is beginning to rise, and not shining yet, is because, number one, the government has embarked on a stabilization programme. Without stabilization, we can’t go ahead. The heart of it is fiscal consolidation. The government is really starting to get to grips with that,” he said.
Nevertheless the structural reforms predominantly surrounding revenue increase and highly politicized public enterprise reforms are politically challenging in Sri Lanka.
Secondly, Dr. Coomaraswamy said that the Prime Minister Ranil Wickremesinghe is due to make a statement on a 5-year economic plan in the coming weeks, which will create the framework for the future.
Wickremesinghe had unveiled a 5-year plan last November as well, and recently, Institute of Policy Studies Chairman Professor Razeen Sally had criticized the lack of a strong economic plan.
Dr. Coomaraswamy asked investors to not take his word for it in the matter.
“Of course, you have to make an independent assessment of the stabilization programme and fiscal management programme,” he said.