Possible revision of growth rates: CB

Cheranka Mendis reporting from Vavuniya

The Central Bank may revise growth rates for Sri Lanka after the first quarter figures are finalised, which may see the projected statistics increasing from 8% to 8.5%.

Central Bank Governor Ajith Nivard Cabraal told reporters during a visit to Vavuniya that they were awaiting preliminary first quarter results and hope to see an 8% growth in its activities.

The Central Bank is anticipating an annual growth between 8% and 8.5%, the Governor said.

Assuring that the recent floods were only a momentary setback, Cabraal asserted that the real momentum for growth would kick off in the middle part of the year.

 “We have estimated 8.5% but will adopt a more conservative approach and say that the annual growth is likely to surpass 8%.” He stated that numbers could be revised based on the Q1 report.

Sri Lanka’s business buzz words ‘north and east’ are also playing their role and according to Cabral, are likely to increase their contribution to the country’s GDP. “The north contributed some 3.5% earlier on to the entire growth of the economy, whereas the east contributed 4.5%. It has increased to some extent and the north is likely contribute about 4.5%-5% of the total GDP while a similar slightly higher number will come from the east. This is how we measured it,” he said.

The Central Bank intends to bring its credit level and the changes in the economy to the notice of the investors, he added. An annual investor update will be done, Cabral said, adding: “We owe that to the investors. We will do an investor update so that they will know what path Sri Lanka is on.”

Sri Lanka’s US$ 1 billion sovereign bond is also expected to go on as a 10-year tenure and expects a yield “slightly below 6%”. Cabral stated that the bank now feels ready and well qualified to take on the hurdle and that a longer tenure would not be entertained because the credit would get tighter over the years. “We do not want to lock ourselves to a current credit number for a longer period.”

Cabral also acknowledged that exporters should stop complaining about the rupee appreciation and concentrate instead on increasing productivity levels. Commenting that exporters should ideally be grateful to the bank for intervening before the rupee strengthens, the Governor said that the Government had done what it could to increase productivity.

“No country can improve without improving their productivity levels. Sri Lanka should be lot sharper than the present level. With the removal of GSP+ the final results were that many companies had increased its overall productivity level,” he said.

“Exporters earlier paid 20% interest and today pay only 9-10%. The difference is a huge saving. The same could be said about the middle single digit inflation from the previous 20%. Banks are now lending a lot more than earlier, the ports and transport system has improved, overall security condition has improved and insurance premium in every aspect has come down. That is the productivity the Government has helped them to achieve.”

The Central Bank Governor commented that the rising oil prices would have little impact as long as it did not hit the US$ 105 a barrel mark. A barrel which went for US$ 98 yesterday is now at a manageable position and has been factored in by the bank.

Cabral stated that numbers had been factored in up until US$ 100 to 105 and if it moves beyond US$ 105, it would pose a challenge to the country. “The problem will then be serious,” he said, “If we can have an average price of about US$ 105 this year we should still be able to manage our current inflation numbers. Beyond that, that poses a challenge.”

The bank however has readied itself to take the necessary interventions to weaken the impact if it goes beyond what is anticipated.  

Cabral stated that the coal power plant that is soon to be commissioned would create bigger savings for the country. He stated that at present 45% of oil is used for electricity generation in the country and that with power being generated internally, imports of oil would decline as well.

“We are confident that the prices will not go out of hand. Earlier on we had no choice as we were buyers, however with power to be generated within the country, the impact will be less.”