Sri Lanka embarks on difficult economic mission: Dr. Indrajit Coomaraswamy

Sri Lanka is only at the beginning of a very arduous and painful journey towards economic stability amidst a fiscal crisis and it is now being called upon to do something it has not been able to achieve to date, former Central Bank Governor Dr. Indrajit Coomaraswamy disclosed recently.

He said that the country has to stabilise the economy with prudent macroeconomic policies while introducing structural reforms that drive sustainable growth and higher value employment.

The low level equilibrium is being achieved at the expense of severe economic contraction. Growth is projected to contract by 8 to 9 per cent in 2022. GDP is not expected go back to its 2021 level till 2025 or 2026, he predicted.

The current level of economic contraction cannot be sustained for very long without disturbing social and political ramifications, he said adding that up to now, Sri Lanka has not been able to make significant headway towards the economic transformation needed to increase productivity and create an export driven high growth economy.

Delivering the Sujata Jayawardena memorial oration, Dr. Coomaraswamy, who restored the credibility of the Central Bank and brought professionalism back to the institution, elaborated on: “Economic

Crisis : Where are we, and where do we go from here ?”

This premier annual event of the Colombo University hosted for the 17th consecutive year by the Alumni Association of the University was held at the BMICH in Colombo this week in memory of its illustrious Past President the late Sujata Jayawardena who rendered immense service to the university.

While emphasising the independence of the monetary authority, he categorically stated that the Central Bank should not be considered as a state-owned development bank

Flexible inflation targeting (FIT) is expected to be embedded in the new Central Bank (CB) Bill. This will increase predictability and consistency while discouraging the type of fiscal dominance seen recently, he pointed out.

The new Bill will also prevent the

CB from participating in the primary auctions for Treasury Bills. This is the most destructive form of money printing.

After the Monetary Board banned the CB from participating in primary auctions in 2017, there were primary surpluses in the budget in 2017 and 2018.

He noted that that the International Monetary Fund’s (IMF) prescription for economic reforms is not pleasing and that the people will have to essentially curtail their investment and consumption, tightening their belts.

He said: “Going to IMF is like going to a doctor. You go there when you become sick. So you can’t then blame the doctor for giving medicines that’s bitter. That is what a doctor is intended to do.”

Dr. Coomaraswamy disclosed that Sri Lanka is discussing with the World Bank and the Asian Development Bank (ADB) to get loans of US$1.9 billion after a reform programme with the IMF is approved.

After the Monetary Board banned the CB from participating in primary auctions in 2017, there were primary surpluses in the budget in 2017 and 2018.