Notable economic recovery by last quarter 2021

Prof. W. D. Lakshman, Governor, Central Bank of Sri Lanka (CBSL).

Sri Lanka’s first quarter growth would be better than expected, Central Bank Governor, Prof. W. D. Lakshman said.

Despite the fact that GDP estimates for the first quarter of 2021 have not been released, Governor Prof. Lakshman said Sri Lankan economy is likely to have recorded a higher than expected growth rate in the first quarter of 2021 based on several information such as Index of Industrial Production, Agricultural sector performance and private credit, etc.

“We’re pleased to observe positive developments on many fronts particularly during the first quarter. As COVID related lock downs are gradually removed and then with the vaccination drive which is in full force, we expect a notable recovery by the last quarter of the year,” he said.

“In terms of foreign debt service obligations, the Government and the Central Bank have taken several steps to ensure the impeccable debt service record of the country amid the most challenging times. With COVID 19 pandemic affecting the inflows from tourism and many other investment inflows, measures have been taken to limit non-essential outflows,” he also said.

“We understand that some segments of the economy may have been affected due to these measures. But these measures are taken for the betterment of the country as a whole for a short period of time. And I’m confident that there will be a gradual improvement to the external sector situation over time,” he also noted.

Furthermore, Governor Prof. Lakshman mentioned that the successful implementation of the port city project would provide additional stimulus to the economy.

“We were working towards an ideal ‘debt free country’. Debt free in the sense not zero debt but easily manageable debt. Ideals are difficult to achieve. But it implies that we have to be able to handle foreign and domestic debt both. The best option for any country that is trying to achieve these ideals should focus on real sector development not losing the focus on stability concerns. In the real sector, we’re very confident that by about next year, we will achieve substantial positive development changes,” he pointed out.

When asked whether Sri Lanka is having a liquidity shortage in the domestic foreign exchange market or any forex crisis, the Governor elaborated, “The basic idea is to manage imports with some restraints on the basis of what we are getting, mainly such as service exports, commodity exports and also from remittances. If the banking sector is managing those inflows and outflows that come through those mechanisms, I think we should not be having this problem. Of course there is a strong message going from various sources which are largely speculative”.

When required in the future, Governor Lakshman said the Central Bank will take appropriate actions to address any inflation concerns without damaging the growth process.