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Fiscal Responsibility Management Bill soon - Central bank Governor

Central Bank Governor Dr. Indrajit Coomaraswamy.

Central Bank Governor Dr Indrajit Coomaraswamy revealed a host of policy frameworks planned to institutionalise sustained and sound macro-economic policies yesterday.

He said a strong legal and accountability framework will be embedded with them, that in extreme cases the Central Bank Governor will have to resign.

He was delivering the keynote speech at the 32nd Sri Lanka Economic Association Annual Sessions at the Auditorium of the Center for Banking Studies in Rajagiriya.

Explaining these frameworks, the Governor said consistency and predictability in policy making are expected by institutionalizing them.“The Government will bring in a Fiscal Responsibility Management Bill. The Fiscal Responsibility Management Act, that we have, has no teeth.

We need to strengthen it. The bill will provide provisions that any deviation from the targets made could only be for specified reasons, be that be natural disasters etc. If you do deviate from the targets then you must chart a clear way back to get through the target” he explained.

Commenting on the framework on the monetary policy, the Governor said the CB is in the process of putting in place a flexible inflation targeting review. “We are trying to be much more proactive and forward looking in our monetary policy. In the past, there has been significant fiscal forbearance and the CB tendered to do ‘too little, too late’. The CB is in the process of strengthening its forecast and modelling capabilities. The idea is to embed these with legal and accountability framework. In the extreme cases the accountability framework involves that the CB Governor has to resign” he added.

Moving into the exchange rate, the Governor observed the country has to have a competitive exchange rate to get the much-needed exposure and enter the global market. “It is time we put in place a framework for managing the exchanging rate. We will stop subsidizing foreign producers. Over the past, we have developed a practice of trying to defend a fixed rate by depleting cash resources. We have to do away with it, he noted.

“The final framework is related to liability management. Our debt matrix is daunting. However we are confident that we can efficiently manage the debt. We will introduce a Liability Management Act which will enable the Government to borrow more than the requirement for the Budget of that particular year. For the moment, the Appropriation Act limits Government borrowing through finance into deficits in the Budget. With the new legislation, we can collect extra money to manage our future debts,” he revealed.