CB Chief expresses confidence in overcoming economic crisis by December

• Emphasises monetary, fiscal policies along with structural reforms to SOEs simultaneously to stabilise economy 
• Says if people can be patient with new Govt. on recovery measures, SL will have light at the end of the tunnel
• Opines irrespective of administration, CB will implement monetary policy ‘independently’
• Expects policy tightening was sufficient till 2023 to curtail inflation 
• Reveals SL will start negotiations with friendly nations like India and China to secure short-term bridge finance facilities 
• Points to available liquid external reserves in Central Bank almost ‘non-existent’
• Asserts funds were utilised to support import of some shipments of petroleum products, LP gas
• Noted it is Govt.’s responsibility to secure bridge financing facilities to import essential items for next three to four months
• Hopes India and China will support SL till IMF bailout will be available in Dec.

Central Bank Governor Dr. Nandalal Weerasinghe expressed confidence in overcoming the worst economic crisis by December if both monetary and fiscal policies along with structural reforms to the State-owned enterprises (SOEs) are tackled simultaneously.

“In my view, we have a clear program and a path. If we follow it by reaching the International Monetary Fund (IMF) and creditors — I’m confident that Sri Lanka could come out of the economic crisis within about four to five months. 

“I am confident that if Sri Lanka has a stable administration from tomorrow onwards, then we can make strong decisions by the administration and the Central Bank can extend support via the monetary policy — together we can come out of the crisis,” he said in an interview with CNN. 

However, the Governor pointed out that until the end of the year all Sri Lankans will have to go through a difficult phase to be able to overcome the economic crisis. 

“If people can be patient with the new administration on the recovery measures, we will have light at the end of the tunnel,” he added.

Dr. Weerasinghe also emphasised that irrespective of the administration, the Central Bank will implement the monetary policy “independently”.

In terms of tackling the macroeconomic imbalances, he explained that the support of the monetary policy alone was not sufficient, adding that it requires a combination of monetary and fiscal policies, along with the structural reforms in the SOEs simultaneously, to make a positive impact on the macroeconomic stabilisation process.

“Although certain monetary policies will have some impact on correcting the economy, to be able to achieve an overall macroeconomic balance – we need the support of fiscal policy as well as structural reforms in the SOEs,” he said.

When asked if the interest rates need to be further tightened to curtail the soaring inflation, the Governor asserted the Central Bank expect the policy tightening was sufficient till 2023 subject to their projections.

“These are the highest interest rates we have had ever in Sri Lanka’s history. Whether we need to further raise the interest rate in the future depends on inflation and recurrent expectations. What we think now is that the Central Bank has tightened the policy rates enough for the next 12 months. If we see the inflation is going beyond our expectations, we might have to tighten the policy rates further,” he explained. 

In addition, Dr. Weerasinghe said that Sri Lanka will start negotiations with its friendly nations like India and China to secure short-term bridge finance facilities till the IMF bailout package is issued in December. 

“This is a challenging time. The available liquid external reserves in the Central Bank are very low – almost ‘non-existent’, because whatever the amount we had was utilised to support the import of some shipments of petroleum products and some to the gas suppliers. The new administration should start approaching friendly countries for short-term financial facilities to ensure essential items for the public to operate their day-to-day activities smoothly,” he explained.

Noting that the previous Government has been able to secure some shipments of petrol and diesel for the next couple of weeks, the Governor noted beyond that, it was the responsibility of the new administration to secure bridge financing facilities to import essential items for the next three to four months, until Sri Lanka receives the bailout package from the IMF – probably somewhere in December. 

Dr. Weerasinghe was hopeful that India and China will continue to support Sri Lanka going forward in the next couple of months. 

“The negotiations with India depend on what the new administration will focus on. Also, we have requested China, to relax some of the conditions in one of the facilities Sri Lanka has obtained. If those two countries will agree or continue to support, then Sri Lanka can improve the situation until we go to the IMF,” he added.

Had there been political stability, Dr. Weerasinghe was of the view that Sri Lanka could have reached a staff-level agreement with the IMF by the end of this month.