Giving the economy a rosy diagnosis, State Minister of Finance, Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal yesterday assured Parliament that Sri Lanka’s growth prospects were positive, underscored by a stable currency and sound debt repayment capacity, adding the Government was readying to start investment projects with construction permits and other support to be given soon to revive key sectors.
He told Parliament the Government is in the process of putting delayed investment projects on track and construction permits will be given soon to revive the sector. Among the key projects will be the Port City and Hambantota port ventures as well as hundreds of multilateral funded projects that have been delayed over the past few years.
Sri Lanka is in a comfortable position with regards to its debt repayment ability and will not default on its payments, the State Minister said. Cabraal also noted the external sector has been revised quite substantially over the last one year and the trade balance has improved as well, largely due to import restrictions put in place by the Government since early 2020.
“We are comfortable about our debt payments, and even though there were instances where the rating agencies have made remarks which are not complimentary, they have been able to come back and say Sri Lanka would probably be able to maintain an impeccable position vis-à-vis the debt repayment ability,” Cabraal said during an adjournment debate held yesterday.
He said the Government is working out a SWAP arrangement with the Central Bank of another county, which would provide the standby arrangement ensuring that the rupee would stay stable even in the longer term.
Since last year, the Central Bank has been in talks with both India and China to finalise SWAP arrangements. In early 2020, India gave Sri Lanka $ 400 million as part of a SWAP arrangement and the two countries have been in talks for a further $ 1 billion. China, last year agreed to a $ 1.2 billion syndicated loan, which Sri Lanka is receiving in tranches but is also in talks for a SWAP arrangement with the People’s Bank of China, which is their central bank, for an undisclosed amount.
Cabraal went on to say the country has managed to achieve a positive economic growth of 1.5% during the third quarter of last year despite the many challenges posed by the COVID-19 pandemic.
“We see the rupee has become stable. The rupee was deprecating at the average rate of 6.8 % for the five years under the last Government but in the last one year, we have been able to control it effectively and as result, the depreciation has been limited to just 2.8%, and if not for COVID, we would have seen an appreciation of the currency as well,” he said.
Answering to Opposition criticism on excessive currency printing, Cabraal said every country during the COVID-19 period has been having excessive issues of treasury bills to their central bank, and Sri Lanka is no exception. However, Cabraal downplayed the possibility of additional liquidity in the market triggering inflation.
The Central Bank had printed a record Rs. 650 billion in 2020 to help manage the country’s monetary and fiscal challenges.
As per Central Bank data, as at 31 December 2020, the face value of CBSL holding government securities amounted to Rs. 725.19 billion whilst at the beginning of 2020, it was Rs. 74.7 billion. In contrast, the net figure of money printed in 2019 was Rs. 4 billion. The Central Bank also began the New Year by printing Rs. 13.2 billion as per its data.
(FT)