Central Bank Governor Ajith Nivard Cabraal yesterday called on the private sector to join hands to revive Sri Lanka from the challenges of COVID-19 towards a sustainable growth trajectory.
Delivering the keynote at the opening day of Sri Lanka Economic Summit ‘Springboard for revival: Opportunity to reset’ organised by the Ceylon Chamber of Commerce, the Governor acknowledged the challenges before the country, whilst emphasising on the opportunities.
“Every crisis has a silver lining. We naturally had to undergo a series of debacles in our economy over decades, but never waste those opportunities arising from a crisis. After the tsunami, we built better, and after the global financial crisis, we made our financial systems stronger.
“The same way, post-pandemic we will adjust our debt profile, make the external sector stronger and improve businesses. These are the opportunities before us,” Cabraal said at the event at which Finance Minister Basil Rajapaksa was the Chief Guest.
Going forward, he said the Central Bank will introduce certain reforms to the external sector and to the debt profile to create a path towards sustainable growth.
Noting that the growth was hindered with intermittent lockdowns enforced by the Government to protect the lives of the people, which also negatively impacted the livelihoods, Cabraal said the balance of health precautions and economic activities should go hand-in-hand.
“We need to adhere to the Health Authorities and continue to do our business. If this relationship is broken, we will witness severe adverse impacts to the economy. We need to reset not to run into another lockdown of 60-70 days,” he explained, amidst rising concerns on the heavily-mutated COVID-19 new variant – ‘Omicron’.
Acknowledging that the revival process is easier said than done, he said the Central Bank has embarked on a concentrated effort to make the macroeconomic fundamentals stronger.
“There is no magic wand that can make it stronger overnight, but we need to work and balance it. Interest rates, exchange rates, and money supply are key factors for investors looking at Sri Lanka. We need to improve on all these factors without looking at them in silos,” he pointed out.
To revive the economy, he said it was critical to introduce a growth element, which is quite substantial.
“We have been enjoying a growth of around 2-3% from 2015-2019, and thereafter the economy was hit with COVID. This is not sufficient for us to gain momentum. We need to once again get back to a growth momentum of 6% + which we enjoyed from 2006-2014. The fact that many of your companies have grown in the year 2020 and 2021 with over 6% growth is an indication that it is possible, provided that we take the correct steps,” he explained.
In terms of the debt profile and external sector, he underscored the importance of reviving and replenishing those fronts.
“We need to ensure a more sustainable debt profile which we can announce to the world. There are adjustments to be made gradually. We are changing our scope to non-debt inflows, Government-to-Government (G2G) and equity funds rather than only seeking via commercial markets. In a vulnerable situation, we must reset our profile. It cannot be done immediately, but we need to work towards it,” he stressed.
In an apparent response to calls to go to the International Monetary Fund (IMF) for a bailout, the Governor also pointed out that Sri Lanka does not need to go on bended knees to an outside agency to solve the debt problem.
“On the external debt, we have taken steps to ensure to deal with it fairly and squarely,” Cabraal assured.
Cabraal also said the need to improve productivity has been talked about for too long and both the State sector and the private sector are guilty of it.
“Let’s embrace technology whenever it is possible to improve our services. We need to reflect on a better growth trajectory,” he said.
He believes the financial sector also needs to be re-energised, pointing out that having profits alone doesn’t indicate a sustainable revival process ongoing.
To ensure Sri Lanka could move forward more confidently and deal with the outside world, the Governor said it was important to improve and reset the doing business indicators to revive the industries.
“The large firms appear to be doing well, but we need to encourage medium-and-small businesses to grow,” he added.
The Central Bank has offered Rs. 4.1 trillion worth of debt moratorium for businesses and individuals to counter drastic impacts of COVID-19.
As moratorium extended to business will expire soon, Cabraal said the Central Bank is now looking at new measures to ensure a seamless passage to sustainability along with the reforms it will roll out over the next weeks and months.
“With reforms underway, I believe we are on the threshold of a higher growth in the coming months and years. A lot has been done and a lot more to be done. We need to concentrate on all areas that can be developed towards a sustainable growth trajectory,” he said.
(FT)