The Central Bank of Sri Lanka rejected the fear-mongering on the foreign reserve situation of the government. The Central Bank predicts growth of 6% in 2021 and expects a small current account surplus in the 3rd quarter.
Negotiations are currently underway to secure between US$ 4-5 billion at a cost between 6-7%. The economy is expected to see a rise in FDI with projects like the Port City and reduced outflows through imports due to the incentivising of domestic production.
Central Bank Governor Prof. W D Lakshman noted that the doomsayers modelling was based on unfair projections from 2020.
He said the models were based on macroeconomic conditions of declining GDP growth, high-interest rates, high rates of Rs/USD depreciation, high fiscal deficits, and foreign financing of government deficits. He said all those factors were to change in 2021. The governor called on the treasury to provide more details to the public on the revenue situation of the government.
Prof. Lakshman made these observations at the Central Bank of Sri Lanka last Friday.
Prof. Lakshman said, “We will maintain Sri Lanka’s unblemished debt servicing record,” noting that a considerable portion of the foreign debt for the year had already been serviced.
Prof. Lakshman noted that during the second wave of COVID-19 the lockdown measures were not as severe as during initial waves. With the prospect of vaccination, any future containment strategy is expected to have a smaller impact on the economy than during the first wave.
With the opening up of tourism, there is expected to be a considerable rise in economic activity.
The governor reiterated the government’s stance of not actively pursuing an agreement with the IMF due to the adverse conditions that are accompanied by it. The Central Bank is approaching other multi-lateral and foreign Central Banks to secure credit.
There is currently a large output gap in the economy. Due to the large output gap inflation in January was estimated to be around 3%. There however has been considerable volatility in food prices.
The Central Bank does not expect retaliation on the trade restrictions. Trade figures outside motor vehicle imports have not drastically changed in 2020. The prospect of higher oil prices is expected to have limited impact on the economy.
The Central Bank is currently directing the banking sector to divert 10% of foreign worker remittances to the Central Bank. Remittances are expected to bring in US$ 7.5 billion.
The Port City agreement is expected to be finalised soon and the Central Bank expects US$ 1 billion in lease agreements in the year 2021.