The economy will notch a GDP growth rate of 6.5 percent by the first quarter of 2022 and beyond that by the end of next year backed by macro-economic and financial stability restored in the country, said Central Bank Governor Ajith Nivard Cabraal unveiling “The Six-Month Road Map” ensuring macroeconomic and financial system stability, on Friday.
He said the Central Bank expects stability in the exchange rate, foreign reserves to meet over four months of imports, a stronger Central Bank balance sheet and a higher GDP growth by March next year.
“We are confident the economy will record five percent growth this year and over six percent in 2022 supported by a strong framework to ensure macro economic and financial system stability,” the Governor said.
The Central Bank expects positive outcomes in the economy such as inflation to stabilise in the middle of the desired 4-6% target range, interest rates to stabilise further, revival of tourism to lead to a better business sentiment, higher investment flows, improved macroeconomic fundamentals, resulting in improved Sovereign ratings and stronger and disciplined economy. Tacking debt, forex concerns, financial sector and macroeconomic stability took precedence in the ‘Do List’ laid out by the Governor.
He said the time has come to move away from ‘Other Person’ syndrome and added that the Task Force set up under the Finance Ministry, will have high-level bilateral and multilateral discussions.
Making good use of used assets, facilitating inflows from tax amnesty, operations of special economic zones and resumption of tourism will help address debt and forex concerns. Sri Lanka has met all foreign debt obligations having paid over USD 6 billion in 2020 and around USD 5.5 billion this year and would continue to meet future debt obligations on time said Cabraal, adding that doomsday predictors look at only the amount of foreign reserves in debt management discounting the inflows to the country.
The Central Bank presented a three-pronged framework to strengthen the economy and deliver macroeconomic stability. The six-month Road Map from October 1, 2021 to March 31, 2022 focuses on macroeconomic and financial system stability, near-term measures to ensure continued timely debt servicing, increase forex liquidity in the market, and create a framework for all enterprises to recover from the pandemic.
The Central Bank will announce a one-year horizon from January 1, 2022 to December 31, 2022 on January 4, 2022 which will focus on improving the external debt profile while concentrating on non-debt inflows, deliver the fiscal and external targets, promote a fast recovery in the real economy, improve the Sovereign ratings and Ease of Doing Business ranking.
The medium to long-term horizon aims at building stable ‘cushions’ in all macro-fundamentals to absorb any shock - strengthen the domestic production economy - strive for higher growth within a low inflation environment - ensure the achievement of fiscal and monetary targets
An ‘Outcome Oriented’ Central Bank will intervene in the Forex market by providing the funds to finance the country’s energy bills, and thereby infuse liquidity, promote investments in Rupee denominated government securities with a guarantee on the exchange rate, strengthen mandatory conversion of export proceeds, request the Government to tax profits of exporters at 28% and not 14% where forex is not repatriated and converted, expand the moratorium while also providing liquidity support to affected finance companies, stop parate executions and repossession of vehicles in the next six months for pandemic-affected borrowers, share the burden of Pandemic losses suffered by local SMEs by allocating Rs. 15,000 million towards interest accrued through a mechanism which is to be worked out, use monetary policy tools to unwind monetary stimulus extended during the pandemic, use macroprudential tools and microprudential regulation and supervision to guide the financial sector towards sustained stability, facilitate education and health related forex outflows immediately, lift the ceiling imposed on outward investment and Migration allowances in January 2022and discontinue cash margin deposit needs on “nonessential/non-urgent imports” with immediate effect.
The regulator also aims at setting up the International Transactions Reporting System (ITRS) to monitor foreign exchange transactions commencing on January 1, 2022, monitor services related foreign exchange inflows and ensure due repatriation and conversion, replace maturing debt obligations with new inflows through non-debt sources, wherever possible, consider the possibility of buying back the entire issue of ISBs maturing in January 2022 and/or July 2022, if high discounts are prevalent in the market and replace maturing ISBs with Government-to-Government loans until ISBs/GDP ratio declines to 10% or less, take measures to improve Sovereign ratings, Strengthen workers’ remittances through official channels, encourage forex transactions through formal channels with the restoration of licenses of money changers.