Worst contraction of growth in Sri Lankan history expected this year – CBSL Governor

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The current aim is to provide essential goods such as fuel, gas and electricity to the people, and expecting the economy to grow this year is unrealistic, stated CBSL Governor Dr. Nandalal Weerasinghe. 

“The Sri Lankan economy may contract to its worst in its history this year, and there is no other choice.” stated Dr. Weerasinghe.

Foreign exchange which Sri Lanka was supposed to receive in export revenue and worker remittances dropped due to differences in the official exchange rate and the grey market exchange rate, a few months ago. These grey market remittances were again used to fund non-essential imports, noted CBSL Governor.

“With a measure to curb the grey market and non-essential imports, we are taking various measures including banning open accounts for imports. This would increase foreign exchange transactions through formal banking channels, which could be used to import essential goods,” noted the Governor.

As Sri Lanka officially announced suspension of debt payments last month, it does not need to look for USD 2.5 billion for debt repayment this year, however it needs to pay imports noted the Governor.

 “10 billion yuan Chinese swap , equivalent to USD 1.5 Billion cannot be used because of conditions like having three months import coverage, and 12 months debt service without default,” he said.

The Governor further noted that with Indian credit lines and diverted World Bank funds, payment were made for ships carrying essential goods, and expressed hope that queues for fuel would reduce gradually in two weeks.

When questioned on the amount of external fund facility Sri Lanka can obtain from IMF, the Governor said, “Based on a country’s estimated external financing requirement for three years, under normal conditions a member country can apply for 400% of quota, under exceptional conditions a country can receive 600% of quota. On that basis, Sri Lanka may receive approximately around USD 3 billion to USD 4.5 billion, while it’s difficult to give an exact figure at this point. “

The Governor noted that if IMF negotiations are completed in six to seven months, the economy could be stabilised in a year’s time. He added “Inflation would remain at 30-40% for next few months. SME sector may find it challenging. Export sector may benefit due to the depreciation of the rupee. A long-term solution for all these issues is to increase our exports, and move away from a totally import-dependent economy.”

By Rajiesh Seetharam