President Ranil Wickremesinghe yesterday via the interim Budget announced several key initiatives concerning the monetary and financial sector.
He said the new Central Bank Act will be implemented as a key legislation to strengthen the monetary sector.
“This legislation would provide the framework for effective implementation of inflation targeting and prevent monetary financing of the budget deficit – what is commonly known as money printing,” he said.
“The new law insulates the Central Bank of Sri Lanka from politicisation of monetary policy decisions.
Given the weak Government revenue and lack of net foreign financing of the budget, it is inevitable that a limited level of monetary financing would continue until tax policy measures help improve the Government cash flow and the IMF program unlocks foreign financing for the budget,” the President added.
The President also revealed divesting 20% shareholding in State banks to the depositors and staff of those banks. This, he said, will help meet recapitalisation requirements borne out due to increase in interest rates, rising NPLs, loan settlement issues faced by businesses due to economic crisis, and liquidity issues faced by the State banks.
“It is noted that the Government’s ability to provide additional capital at this stage to the State banks is very limited given the lack of fiscal space,” President emphasised.
FT