In a speech published on the Finance Ministry website, Dr. Jaysundara said that greater flexibility in the exchange rate, which was adopted during the latter part of last year has stabilized the country’s external reserves at around US$ 6 billion, in spite of a continued higher out payments on oil imports.
“The greater flexibility in the exchange rate has reduced the supply of foreign exchange by the Central Bank to the market significantly. On an average, the sale of foreign exchange has reduced from around US$ 500-600 million per month prior to the adjustment, to below US$ 200 million a month after the adjustment and below US$ 50 million in June 2012, reflecting that the bank’s intervention has been reduced. This has stabilized the country’s external reserves at around US$ 6 billion in spite of a continued higher out payments on oil imports,” he said.
He also noted that since these adjustments, the Colombo Stock Exchange has experienced net foreign capital inflows.
He further said that the new fiscal and monetary adjustments have slowed the importations of motor vehicles by about 40 percent since April 2012 and may likely to moderate further helping the balance of payments outcomes this year.
“Although the moderation in the credit growth and associated high cost of finance is a cause for concern for growth prospects, considering the substantial benefits in terms of managing the demand and particularly the inflationary pressures, a modest sacrifice in terms of economic growth to around 7 percent from the earlier projected level of around 8 percent is viewed as a justifiable move,” he said.
Commenting on Sri Lanka’s per capita income, Jayasundara said that it is on its way to achieve US$ 3000 per capita income this year, amidst a host of challenges in the post-conflict phase.
The most significant challenge among them and the most immediate term concern according to Dr. Jayasundara would be the adjustments with the widened trade deficits which have increased to US$ 10 billion in 2011, almost equivalent to the value of exports of that year.
As he pointed out, the sustainability of the postconflict growth momentum with economic stability requires a constant refinement in policy strategies, which include measures to tackle immediate term problems and plans to sustain medium-term prospects of high investments and growth that will fulfill the government’s overall expectation.