Sri Lanka cenbank unveils six-month plan to stabilize economy

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Band Uditha Jayasinghe

COLOMBO, October 1 (Reuters)Sri Lanka’s central bank governor on Friday unveiled a six-month roadmap to get the economy back on track and assured global investors and lenders to repay debt on time while maintaining macroeconomic stability.

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

Cabraal, making his first major political speech since his reappointment as governor last month, sought to assure investors that Sri Lanka is aware of the gravity of its economic problems and will work quickly to resolve them.

He said fears of a default were “unwarranted” and that the government was working to increase inflows to replenish foreign exchange reserves through measures such as loans from other countries, currency swaps and monetization of non-strategic assets.

“The reason for this short-term focus is that given the challenge of forex and debt servicing issues, managing this period well will restore clarity and certainty, which will allow the economy to grow. bounce back, ”he told reporters.

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

Sri Lanka’s budget deficit in July stood at 3.2 percent of gross domestic product (GDP), higher than its revenue of 2.9 percent, according to data from the Ministry of Finance.

The central bank would also explore the possibility of repurchasing all of the international sovereign bonds maturing in January and July 2022, which amounts to around $ 1.5 billion, if high haircuts prevail in the market, he said. .

These will be replaced by loans from foreign governments until the sovereign bond ratio drops to around 10% of GDP from the current 16%.

“Sri Lanka does not intend to postpone paying down its debt in the future. A credible debt management strategy will be developed and it will be done in such a way that Sri Lanka does not encounter any difficulties.” , Cabraal said.

“Sri Lanka does not intend to seek support from an external party. We have enough expertise to meet our challenges, but we are open to external advice.”

The central bank would also intervene in foreign exchange markets to finance its energy bills and use monetary tools to untie pandemic moratoria granted to companies while trying to hold the rupee down. LKR = between 199-203 per dollar over the next three months.

“Sri Lanka is back to business and ready to invest,” Cabraal said.

(Edited by Swati Bhat, Robert Birsel)

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