Dr. Coomaraswamy expresses confidence over new moves by CB

Friday, 3 June 2022 00:30 - - {{hitsCtrl.values.hits}}

Says staff-level agreement with IMF likely in next four to five weeks
Stresses bridge financing key but multilateral agencies cannot repurpose till IMF deal is finalised
Hints at Sri Lanka getting as much as $ 6 b support from India
Insists painful yet critical structural reforms must be pursued to avoid future crises

Dr. Indrajit Coomaraswamy

Highly respected economist and former Governor Dr. Indrajit Coomaraswamy yesterday expressed

confidence in the policy measures taken by the Central Bank, whilst highlighting critical issues that need to be addressed for a long-term stable economy.

“The incumbent Central Bank Governor and the Monetary Board sent the right signals to the market with the firm policy directions. We can already see that there are positive responses and I can say that the monetary policy is going in the right direction to ensure stability,” he said at a webinar titled ‘Surviving the current economic crisis: Ex-Central Bankers in Dialogue’ organised by CBSL yesterday.

Noting that many criticised the policy direction for its impact on MSMEs, Dr. Coomaraswamy pointed out that it would otherwise cause hyperinflation which would affect every sector and have devastating consequences on the overall economy.

Dr. Coomaraswamy was of the view that Sri Lanka could reach a staff-level agreement within the next four to five weeks with the IMF, adding that a drawdown of funds needed progress on debt restructuring.

“A staff-level agreement could increase confidence to bring in foreign investment into capital markets, encourage more exporter conversions and remittances into official channels,” he said.

He also pointed out that these steps will ease the supply side pressure on the exchange rate at present and bring in stability in a gradual manner.

Dr. Coomaraswamy said bridge financing was a key element that Sri Lanka should work on, as multilateral agencies cannot repurpose till the IMF is finalised.

As per him, Sri Lanka could get as much as $ 6 billion from India through the previously agreed $ 4.5 billion credit line and another facility of $ 1.5 billion where the negotiations are still underway.

“There were some indications that Japan may provide some money. India has also sounded out Japan over funding for Sri Lanka during a meeting of Quad nations recently,” Dr. Coomarswamy said.

Former Central Bank Governor also highlighted that Sri Lanka needed to start negotiations with creditors to win adequate assurances that debt sustainability will be restored.

He said the Government will have to work on a social safety net to protect the vulnerable and poor with a ramped-up cash transfer.

Pointing out that Sri Lanka had always missed the opportunities to make structural changes, Dr. Coomaraswamy insisted on authorities making those painful, yet critical reforms to avoid severe recession in the future.

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