Monetary policy measures have resulted in certain positive developments like stability in exchange rate, narrowing black market and official exchange rates, stated Central Bank of Sri Lanka (CBSL) Governor Nandalal Weerasinghe. However, he claimed that monetary measures alone cannot take Sri Lanka out of the economic crises, rather needs fiscal policy support and reforms in State-Owned Enterprises (SOE’s).
“Public Utilities Commission of Sri Lanka (PUCSL) have announced revised electricity prices, however, it is not implemented yet as it is under public consultation.
Currently there is a foreign exchange shortage. Even if there are sufficient US dollars available, Ceylon Petroleum Corporation (CPC) is in shortage of rupees to purchase the dollars, despite the fuel price formula. CPC lacks funds because the dues of Ceylon Electricity Board (CEB). CEB should revise its electricity charges soon and make payments to CPC. Also it has to be noted that, if the fuel price formula was brought earlier, the CPC fund shortage could have been reduced. However, these are things which are out of control of CBSL. CPC has asked treasury Rs. 217 billion. CBSL can only provide the amount by printing”, noted Weerasinghe.
Reducing fiscal deficit and undertaking structural reforms were also some of the recent IMF recommendations.
With regard to the IMF negotiations, the governor stated, “Significant progress has been made with respect to negotiations with the International Monetary Fund (IMF) towards reaching a staff-level agreement on the Extended Fund Facility (EFF) arrangement in the near term, while negotiations with several bilateral and multilateral partners are ongoing to secure bridging financing. Moreover, expeditious arrangements are being made with regard to the external debt restructuring process.”
CBSL Gross official reserves, as at end June 2022, are estimated at US dollars 1.9 billion, including the swap facility from the People’s Bank of China equivalent to around US dollars 1.5 billion, which is subject to conditionalities on usability.
By Rajiesh Seetharam