Sri Lanka to be a current account surplus economy by 2016: CB Governor
Monday, 19 August 2013 00:00
By Kinita Shenoy
Central Bank Governor Ajith Nivard Cabraal on Friday expressed confidence that Sri Lanka will be a current account surplus economy by 2016.
“Sri Lanka has put into motion certain factors into so that the economy undergoes a gradual structural shift, with the five hub concept as discussed in this year’s roadmap. We have already seen signs of that with the current account deficit being moderated, which will continue over the next few years. Our view is that Sri Lanka, after the next four years, will become a current account surplus economy. The fact that we have set up the five hubs concept means that there will be new ventures that will cause inflows into the country,” Cabraal said delivering the keynote address at Standard & Poor’s ‘Sri Lanka: A Global Perspective’ seminar yesterday.
The Governor also emphasised the need to implement the Central Bank tagline and strike a balance between growth and stability.
He extrapolated further on the nature of the country’s economic growth: “The Mahinda Chinthana development plan envisions an 8% growth, while we have been used to a comfortable 4.5% for the past 60 years or so. For a country that has sometimes taken 17 years to double per capita income, this is a huge transformation. The savings within the country were seen to be insufficient to grow at that rate, so other measures had to be undertaken.”
He added that a conscious decision was taken to enter a new phase of development and a new trajectory; a new way to do business and manage the economy. At least 30-32% investment was required to achieve this growth. Based on existing savings, Sri Lanka could comfortably raise 24% including Government investments of 6%, which still leaves about 6% to be raised.
He further added that if the country were to improve production, it could increase by another 1.5%. That still leaves about 4.5%, which could only be garnered through foreign capital. However, he clarified that FDI is not the only instrument to attract investment into a country. He mentioned that the Central Bank took a slightly broader view where foreign investment per se was necessary, but it could come in the form of infusions of capital in the loan/bond market. A platform was created with the express intention to invite foreign capital into the country. FDIs would provide about 2% of this capital.
Cabraal wrapped up with some closing remarks on the maintenance of sustainability, saying: “We have to ensure our house is always kept in order. We have had four and a half years of single digit inflation, and next year, we plan on targeting mid-single digit inflation between 4-5%, which is a commitment to both the local and international communities. Sustaining this and growth means that we would have to make a collective effort to remain vigilant, have innovative ideas, and focus on our balance sheet.”