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Lanka’s economy improving:CB Governor Stronger Macroeconomic fundamentals :

The Sri Lankan economy is improving and its fundamentals have got better, Central Bank Governor Dr.Indrajit Coomaraswamy said yesterday.

The Central Bank Governor said the country recorded a 3.8 percent growth in GDP during the first quarter of 2017.

Given the severity of the droughts followed by the floods, the Governor expected to end the year with a 4.5-5 percent growth in the economy.

Addressing a media briefing on the monetary policy review at the Central Bank, Dr. Coomaraswamy further explained that the “Macroeconomic fundamentals was becoming stronger, the government fiscal consolidation programme was on track up to now, though the floods will have to be accommodated, the exchange rate was gradually becoming more competitive and foreign reserves had increased to over USD 7 billion by mid-June,” the Central Bank Governor sdid. “By end of the year it is expected to increase to USD 7.2 billion,”he said.

“We can’t be satisfied with the reserves, they are largely borrowed reserves and we must earn reserves but that will take time,”he said.

The Governor added, “We feel that the current monetary policy stance will bring in inflation within our target range”.

“Inflation is projected to be moderate to mid-single digits by the end of 2017 and stabilize thereafter,” Dr.Coomaraswamy said.

He hoped that exports would pick up with the GSP Plus concessions being granted and explained that for the first time since the global financial crisis in 2007, all major economies were seeing synchronized expansion and positive growth.

“With the US and Europe being our key markets, it will give some tail wind to our exports,” Dr.Coomaraswamy said.

Growth this year has been led by industry activities which grew at 6.3 percent with construction at 16.1 percent and textiles and apparel at 0.6 percent. The services sector had moderate growth at 3.5 percent; with the highest being in the financial services activities at 14.9 percent. Agriculture on the other hand recorded a contraction of 3.2 percent with greatest in rice at -53.1 percent.

The trade deficit in the meantime continues to grow; with it increasing by 11.9 percent in April 2017 (y-o-y) to USD 795 million. Import expenditure had increased by 9.8 percent to USD 1,604 million. This was a 13.7 percent increase in imports (y-o-y) with a large majority being spent on fuel imports for electricity generation, given the drought. Rs 1.2 billion was spent this year on fuel; a 76 percent increase from last year.

Worker remittances in the meantime, has declined by 6.3 percent this year and the Central Bank noted that if the recent diplomatic fallout with Qatar continued, it could have a serious impact on remittance numbers,

“At present, there is no significant slowdown in the Qatar economy. They have massive reserves to cushion them for some time and it all depends on the intensity of the crisis and how long it will continue.Hopefully, there will be some resolution.

“Remittances have come down overall, it is mainly due to a reduction in housemaid numbers which is partly policy induced as the government introduced conditions for female migrants. There has also been an impact due to the overall slowdown in economic activity in the Middle East due to subdued oil prices,” the Governor said.

The Governor however stressed that they were concerned with the growth rate.

“In the past we artificially pumped it up or we reduced interest rates or both and then two years later, we have high inflation and a balance of payment crisis. But this time we are trying to maintain discipline; to keep fiscal consolidation on track, monetary policy forward looking and make sure we are sticking to our inflation target,” the Central Bank Governor added.

He stressed that the next step would be to “Take advantage of a better foundation to improve the investment climate, get into trade agreements and implement government development programmes efficiently so that you get good quality growth which can be sustained for 3-4 years and not relax policy to create a sugar high in terms of growth”.