Borrowers saved billions!

Central Bank Governor Ajith N. Cabraal this week declared that borrowers especially the private sector collectively saved billions due to reduction in interest rates. “When you look at the lending profile of the entire financial sector in the country, banks had lent a total of Rs. 1,800 billion and financial institutions Rs. 200 billion.

This makes the country’s lending profile stand at Rs. 2 trillion. In that sense each reduction in the interest by one percentage point stands at the value of Rs. 20 billion. Therefore, during the past 14 months, all the borrowers in the country managed to save billions of rupees,” Governor Cabraal said.

He highlighted this benefit when he addressed the seminar titled ‘Outlook for Exports in 2011 and Beyond’ organised by the Exporters Association of Sri Lanka.

Delivering the keynote address, the Governor said that during the past five years, the Government had been involved in investing in various sectors, including ports, roads, energy and airports.

“We are now gaining the benefits from these investments, ever since the end of the war and especially during the past 14 months. The country is now experiencing an improvement in its overall indicators. During the past 14 months things have improved and all the indicators highlight sound macroeconomic conditions,” he revealed.

Cabraal continued: “After the presentation of the Budget, people are asking what relief the Government gave them. If you analyse the things that the Government has done during the past five-year period, you would notice what the Government has done. Most of the people don’t notice since it has happened gradually and therefore don’t take some aspects into consideration.”

The Governor asserted that exchange controls had been liberalised in great detail, pointing out that several years ago, if one were travelling overseas, one had to go to the Finance Ministry to get foreign exchange approved, which authority was later passed on to the Central Bank. Now with the liberalisation of exchange controls, banks have taken over that role and act as the authorised agents of the Central Bank.

Cabraal said that managing the exchange rate was the most difficult among the functions of the Central Bank.

“Managing the exchange rate is like when one person wants rain and another person wants sunshine at the same time. Therefore, it is the most difficult number that the Central Bank has to balance since different people want different things at any given time. So we made a decision by taking into consideration the national interest in this regard.”

The Central Bank Governor pointed out that the way forward for Sri Lanka’s exports was value addition and engaging in research and development activities in formulating new products. “We would like to see more and more value addition in every sector with regard to exports and private institutions should plan ahead on these lines.”

Pointing out that the Central Bank plans its activities for five years ahead, he said: “We would like to see more and more companies engage in research and development activities and the Government in its 2011 Budget has given high consideration into these areas, with a lot of incentives.”

“On the other hand, in 2011 and beyond, there will be more improvements in the country’s economic performance due to the fact that one-third of its land, the north and east, will start to give out its agriculture yield. In addition to this, two-thirds of the sea is also waiting to be harvested in the fishing industry. In the coming months and years, Sri Lanka will be approaching the US$ 4,000 per capita mark, which is achievable given the improving macroeconomic conditions,” he concluded.

Rain no ruin for economy - Cabraal

Central Bank Governor Ajith N. Cabraal said yesterday that prevailing adverse weather is not affecting the country’s economy and welcomed the rain which would be favourable inputs of the materials in the economy.

The current rain will not affect the economy at a drastic level other than creating a short term pressure. The good news is that the rain will bring energy sector to produce more electricity by using more hydroelectricity which would have an effect on the balance of payment and the GDP,” he said. Commenting on the high level IMF delegation currently in the country, Governor of the Central Bank said that their visit to the country was routine and that there was no significant development during the meeting with them.