Ceylon Chamber of Commerce yesterday in a bold and welcome statement called on the business community to support Central Bank's independence and policy reform efforts.
It said the Monetary Policy Roadmap 2017 released by the Central Bank of Sri Lanka (CBSL) this week provides an encouraging outlook for the Sri Lankan business community. The Ceylon Chamber of Commerce is encouraged by the future plans of the CBSL with regards to monetary policy, price stability, financial system stability and institutional reforms.
The Roadmap 2017 announced a shift in monetary policy making, towards a flexible inflation-targeting framework away from the current money supply targeting framework. This will be a progressive and ambitious shift, but would need to be implemented over time.
Throughout Sri Lanka’s post-independence history, the dominance of fiscal imbalances in Sri Lanka has made independent and stable monetary policymaking challenging. As new research has shown, weak fiscal management can derail an inflation-targeting regime, and hurt the credibility of a monetary authority.
The moves to establish an independent public debt office or vest it within the Ministry of Finance can play a strong role in further strengthening Central Bank independence, as the current conflict of interest faced by the CBSL between being the banker to the government as well as managing interest rates needs to be resolved.
The Roadmap 2017 announced an important shift in thinking with regards to exchange rate management, from that seen in the past. The CCC supports the CBSL’s view that there should be greater flexibility in the LKR; for it to be determined by market forces but guarded against adverse speculation.
The CCC agrees with the Governor’s assertion that the strategy followed in the past of intervening in currency markets by using valuable international reserves is not sustainable. Not only had this strategy led to a severe depletion of reserves, but the overvaluation of the LKR hurt the competitiveness of our exports. Nevertheless, the CCC recognises that the Government would need to consider the impacts of a flexible LKR on imports of essential items. Cost of living concerns stemming from this should be tackled without resorting to an artificial defence of the LKR.
The Ceylon Chamber of Commerce welcomes the efforts by the Governor of the Central Bank and his team to place stronger emphasis on advanced analytics and forecasting tools to continually enrich monetary policy decision-making. Furthermore, steps being planned by the institution, as the banking regulator, to enhance supervision and early detection of risks, will support Sri Lanka’s ambitions of becoming a trusted and stable regional business centre.
The CCC is keen to work closely with the CBSL to modernise regulations that affect international business operations of its members, particularly with regard to foreign exchange control and transactions in the digital economy.
Ongoing and planned actions announced in the Roadmap 2017, if implemented in a timely and consultative manner, can help strengthen the confidence of all stakeholders in the CBSL, position Sri Lanka as a strong and resilient economy, and create a conducive stable macroeconomic environment for business to thrive. The CCC urges all stakeholders to support the plans outlined by the CBSL in the Roadmap 2017 and the Governor’s endeavours to successfully implement these plans.
Ravi takes dig at CB Chief and media for ‘Hospital and ICU’ story
Finance Minister Ravi Karunanayake yesterday took a fresh dig at Central Bank Governor Dr. Indrajit Coomaraswamy for his comments on Tuesday that the country having an IMF program was like being in hospital though not in the ICU.
“I don’t know whether the media misinterpreted what the Central Bank Governor said but I will like to respond that it was the Rajapaksa regime, with which Dr. Coomaraswamy was associated too, which killed the economy requiring it to be taken to the ICU and the current Government is working on strengthening the economy and perhaps taking it out from hospital,” Finance Minister said.
Karunanayake has been critical of the Central Bank and some of its officials for not doing their job properly, especially under the previous regime.
Noting that the economy was on track, Karunanayake said proof of this existed in the fact that Government revenue was rising strongly to Rs. 1.66 trillion from Rs. 1.46 billion in 2015 as opposed to the moderate growth recorded between 2012 (Rs. 1.06 trillion) and 2014 (Rs. 1.2 trillion).
“Yes it took us some time to improve on this effort as well as ensure the commencement of new investments and projects. But we want to do it right and clean,” Karunanayake added.
On Wednesday the Daily FT published the Governor’s remarks made at the presentation of the Central Bank’s Road Map for 2017 and beyond.
At the occasion, Coomaraswamy said: “In what is often termed the Asian century, Sri Lanka is the only country, other than Afghanistan, in the Asia Pacific region with an IMF program – having an IMF program is the economic equivalent of being in hospital. We are not in the ICU but clearly in hospital. The remedial treatment is known and it is encouraging that it has commenced. The International Monetary Fund (IMF) itself has recognised that progress has been made in stabilising the economy. Improved fiscal performance has been at the heart of this improvement. The honourable Finance Minister and his team deserve credit for this. However, the continuing challenge is to have the clarity of purpose, focus and determination to implement the necessary changes. It has to be a national effort.”