To Protect SMEs and Spur Growth:

By Ishara Gamage | Published: 2:00 AM Oct 24 2020
FT To Protect SMEs and Spur Growth:

By Ishara Gamage

Economists and finance experts say the government will have to completely remove or reduce existing import control regulations, as early as possible to protect SMEs and spur growth.

“We have only a government financing issue. Therefore, the entire economy should not be affected by this unnecessary controls, the government should take immediate action to relax the import control regulations to accelerate the growth,” they say.

In the face of the prevailing epidemic situation, economists have predicted ‘W’ shaped economic growth. The government is considering the possibility of tightening its foreign reserves from various sources and easing import restrictions.

They say that the prevailing market interest rates in the country have now reached a record low and there is a possibility of some increase in the face of possible easing of import regulations in the future. 

Sri Lanka’s export economy represents about 10 per cent of the country’s GDP, while the vast majority represents the import economy.

Economists say that if these import restrictions continue, the country’s small and medium enterprises (SMEs) will face a severe crisis and that the government should pay immediate attention to this issue.

Commenting on the current situation, research head of the First Capital group Dimantha Mathew said that according to his forecasts, the government should definitely take steps to ease these import restrictions at least from end of the first quarter of next year.

He is confident that the dollar will remain in the 186-191 rupee range this year due to the current import restrictions. He also confident that the dollar will appreciate to 195-210 by the June quarter next year on the basis of easing these import restrictions. 

The Monetary Board of the Central Bank of Sri Lanka (CBSL) this week announced that it has decided to keep its key policy interest rates unchanged for October.

However, the CBSL said that despite the resurgence of COVID-19 cases, the private sector credit growth was boosted by the easing of monetary policy measures this year as well as lower market interest rates and the introduction of concessional credit schemes.

According to CBSL, the imposition of lending rate caps on selected financial products in August 2020 has also helped bring down the overall lending rates in the market. Further space remains for market lending rates to decline, particularly with the high level of excess liquidity in the money market, which is deposited with the Central Bank at the SDFR of 4.50 per cent at present.

“The expansion of credit to the private sector is expected to continue in the period ahead, despite the recent rise in COVID-19 infections, which is expected to be a short-term problem,” it stated. 

CBSL slashed policy rates five times this year, taking the cumulative monetary easing to 250bps.

 CBSL expects that the 2Q of 2020 has recorded a greater contraction than the first quarter, followed by a recovery in the 3Q of the year. 

“Developments in some leading indicators suggest that Sri Lanka is on the path to economic revival. However, the new COVID-19 cluster could somewhat affect this momentum in the short-term,” CBSL said.

Accordingly, inflation is expected to remain broadly within the desired 4-6% range in the near to medium term, with appropriate policy measures.

The imposition of lending rate caps on selected financial products in August 2020 has also helped bring down the overall lending rates in the market. 

However, CBSL stated that there was further space remaining for market lending rates to decline, particularly with the high level of excess liquidity in the money market.

By Ishara Gamage | Published: 2:00 AM Oct 24 2020

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