State Minister Nivard Cabraal yesterday declared pandemic-prompted “tough times are only temporary” but collective responsible action by all will ensure they don’t prolong, as the Government continues with measures to address multiple challenges.
“Tough times are temporary and collective responsible behaviour by importers and exporters will ensure such times will be shorter than longer,” Money, Capital Markets and Public Enterprise Reforms State Minister Cabraal told a media briefing at the Finance Ministry, speaking on the status of the economy, debt servicing and foreign reserves.
Responsible action, he explained, meant exporters converting their foreign exchange earnings than delaying on speculation, and importers not bringing down excessive stocks also on speculation.
He said that the COVID-19 pandemic had caused disruptions globally and within major economies of the world and that the challenges faced by Sri Lanka, and its remedial measures, weren’t unique.
Cabraal justified money printing but ruled out it was excessive, or that only Sri Lanka was doing so, and emphasised that there was no direct correlation between money printing and the pressure on the rupee.
“Due to drop in Government revenue (collection has been only 34% of the target up to June) printing money is permissible, but it is taking place when consumer demand is compressed due to the pandemic, apart from low interest rates and single digit inflation. Major economies like the US, UK, Japan and many other European and Southeast Asia countries do the same,” Cabraal said.
“When normalcy returns, we will pull back. Efforts are underway to ensure normalcy returns as fast as possible to enable quantitative easing,” added the former Central Bank Governor.
He described multiple measures implemented to first stabilise the economy and stimulate thereafter, as well as preserve foreign reserves in the backdrop of a $ 4 billion loss in tourism earnings due to the pandemic. He also said curbs placed on non-essential imports were being “judiciously” planned and executed.
“Yes, Sri Lanka is facing many challenges and the Government is aware and not oblivious. The Government has implemented many measures and is working on more solutions,” Cabraal explained.
As per the State Minister, the Government was negotiating over $ 2 billion in foreign funding in the short term via bilateral and multilateral arrangements. Among them are currency swaps of $ 400 million with the Reserve Bank of India and $ 200 million with the Central Bank of Bangladesh, $ 200 million from the China Development Bank, $ 780 million via enhanced Special Drawing Rights (SDR) from the International Monetary Fund (IMF), as well as a syndicated loan of $ 700 million.
The State Minister also justified controls on imports, which he said enabled the country to reduce the trade deficit in 2020 to $ 6 billion from $ 8 billion, adding that the ongoing measures would ensure a further saving of $ 700 million in the next few months.
He also said the Government is stimulating foreign direct investment, growth and income via the Port City, reactivating unutilised and underutilised state commercial assets, reducing the import of oil by promoting renewable energy generation, as well as reducing expenditure on chemical fertiliser with the use of home-grown organic fertiliser. Whilst encouraging higher exports, another key strategy, he said, has been the promotion of import substitution industries. Additionally, with rapid vaccination and other safety measures, tourism will be revived, thereby ensuring the resumption of foreign exchange earnings by the sector, noted Cabraal.
Of the $ 1 billion International Sovereign Bonds (ISBs) coming up for redemption, he said $ 300 million was being held by Sri Lankan banks meaning that the outflow would be limited to $ 700 million only. However he said post-settlement of ISB by end July, reserves would come down to around or slightly below $ 3 billion as opposed to $ 4 billion at present but on-going measures will see it increasing again.
“Soon after President Rajapaksa assumed office, the Opposition claimed Sri Lanka wouldn’t be able to pay foreign debt due in 2020. After we did it, then the allegation was we would not pay in 2021. So far this year we have settled debt due, and we will do the remainder too. The Opposition is now saying we won’t be able to settle those due in 2022 and these false statements will continue,” Cabraal pointed out.
(FT)