CBSL Governor hopeful of 6 per cent growth but sounds cautionary note


Dr. Indrajit Coomaraswamy, Central Bank Governor

By Hiran H. Senewiratne

Central Bank Governor Dr. Indrajit Coomaraswamy envisages an economic growth of 5.5 percent to 6 percent but this projected growth for 2017 comes with a word of caution on significant downsides from the prevailing volatile global economic climate and a possible slowdown in the agricultural sector along with limitations in power generation due to prevailing weather conditions.

"It is too early to tell how significant these will be. But the fact that the economy is stabilising, we hope, will result in greater investment activities with both the domestic and foreign investor communities. It is part of a natural progression as the economy becomes more stable that you see investment coming in and amplifying growth, he said, among other things, in the course of the 21st annual tax oration organised and held recently by the Faculty of Taxation, Institute of Chartered Accountants of Sri Lanka.

He said that Sri Lanka's revenue to the GDP ratio has persistently declined but in 2015 it showed some turn around by 12 percent, which was higher than the previous years. Referring to the Central Bank Road Map for 2017 brought out to outline the monetary and financial sector policies for the coming years, Coomaraswamy said that the government has established the right framework for economic expansion and now needs to initiate practical measures to support the programmes.

"Overall, inflation has been contained within our mid-single figure target of 4 percent to 6 percent . Meanwhile, core inflation continued its upward trend in 2016, reflecting the firming up of demand conditions in the economy and the revisions made to the tax structure in the latter part of the year, Coomaraswamy highlighted.

The CB Chief also said that despite considerable depreciation pressure on the rupee, it has remained relatively stable in 2016 compared to the previous year, recording a depreciation of 3.8%.Further relaxation of exchange control measures are also on the cards for this year. 

Speaking of the proposed changes to the Exchange Control Act he said that the Central Bank is looking at creating a framework.

"What we are looking at is a framework where we look at our inflation rates and the rates of our trading partners and see where it can go within that framework to have a competitive exchange rate. We will move slowly. We don’t want to make any sharp disruptive changes, he said.

The move by the government to gradually relieve the Central Bank of debt management duties for the state was seen as a positive decision by the Governor as he claimed that the task created a "conflict of interest" for the Central Bank.

The Central Bank also aims to engage in policy and regulatory revision this year, with focus on amending the regulatory framework for all financial institutions. The amendments to the Banking Act are aimed at giving the Central Bank more supervisory control, reinforcing its enforcement powers for violation of the regulations and directions issued under it.

The CB chief said it is clear that stability in the economy is broadly on track, as evident in the improving macro-fundamentals. "As the monetary authority and the apex regulator of the financial system of Sri Lanka, we are making our best efforts to ensure stable economic conditions on a sustainable basis.

"Some of these policies may be perceived as painful in the short run, but they are meant to strengthen the medium-term stability of the economy. This is crucial for the long-term prosperity of all Sri Lankans.

"As an agent for stability, the Central Bank would continue to play its role through clear and consistent policies to ensure overall macroeconomic stability in the country. The frameworks that are being developed are intended to support this, Coomaraswamy added.



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