Sri Lanka's central bank unveils six-month plan to stabilise economy

Sri Lanka’s central bank governor unveiled on Friday a six-month roadmap for putting the economy back on track and assured global investors and lenders of timely debt repayments while maintaining macroeconomic stability.

Governor Ajith Nivard Cabraal, while announcing a range of measures, also reiterated that the island nation would not seek any bailout from the International Monetary Fund.

Cabraal, making his first major policy address since his re-appointment as governor last month, sought to assure investors that Sri Lanka was aware of the gravity of its economic problems and would work fast to address them.

He said fears of a default were “misplaced” and the government was working towards increasing inflows to replenish foreign exchange reserves through measures including loans from other countries, currency swaps and monetising non-strategic assets.

“The rationale for this short-term focus is that given the forex challenge and debt service concerns, the proper management of this period will result in clarity and certainty being restored which will enable the economy to rebound,” he told reporters.

The government would unveil an “investor friendly” budget next month that will have simpler taxes and provisions to contain the deficit, Cabraal said.

In July, Sri Lanka’s fiscal deficit was at 3.2% of gross domestic product (GDP), higher than its revenues, which are at 2.9%, Finance Ministry data showed.

The central bank would also explore the possibility of buying back the entire lot of international sovereign bonds maturing in January and July 2022, which amounts to about $1.5 billion, if high discounts are prevalent in the market, he said.

These will be replaced with foreign government loans until the sovereign bond ratio declines to about 10% of GDP from the current 16%.

“Sri Lanka has no intention to do any deferment of its debt repayments in the future. A credible debt management strategy will be worked out and it will be done in such a way that Sri Lanka will not face any difficulties,” Cabraal said.

“Sri Lanka has no intention of seeking support from any external party. We have enough expertise to deal with our challenges but we are open to external advice.”

The central bank would also intervene in forex markets to finance its energy bills and use monetary tools to unwind pandemic moratoriums given to businesses while trying to maintain the rupee between 199-203 per dollar over the next three months.

“Sri Lanka is back in business and ready for investment,” Cabraal said.