By Hiran H.Senewiratne
Sri Lanka is confident of reaching debt sustainability without re-structuring domestic debt, which would lead to problems in the banking sector, Central Bank Governor Dr. Nandalal Weerasinghe says.
“There have been concerns among domestic bond investors about rupee debt/ internal debt to be restructured following comments made by President Ranil Wickremesinghe to the effect that financial advisors were looking at domestic debt. However, there has been no request to restructure domestic debt. We are confident that we can make debt sustainable without restructuring domestic debt,” Weerasinghe told the media at the CBSL’s 6th Review of the Monetary Policy stance for this year, at the CBSL head office auditorium in Colombo yesterday.
Dr. Weerasinghe said: ‘The CBSL’s Monetary Board has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 per cent and 15.50 per cent, respectively.
‘Negotiations with the IMF are making good progress and the IMF delegation is to visit the country at the end of this month and the staff level agreement is to be reached soon.
“At present we are reaching our targets and once we sign the agreement with the IMF we could reach out to commercial creditors, Paris Club creditors, such as Japan, and Non -Paris Club creditors, such as China and India, to restructure our debt by negotiating with them.
‘Once we sign the agreement with the IMF, Sri Lanka will get the required recognition and improve its credibility to hold discussions on bilateral and multilateral loan agreements to build the economy.
‘Although inflation is projected to remain elevated in the near term, the policy measures taken by the Central Bank and the government so far would help contain any aggregated demand pressures, thereby anchoring inflation expectations.
‘The impact of persisting supply side disruptions, primarily due to shortages of power and energy, and uncertainties associated with socio-political developments that caused significant adverse effects on economic growth in second quarter 2022, is expected to continue through third quarter 2022 as well, resulting in a larger than expected contraction in real activity in 2022.
‘However, real GDP growth is expected to recover in the period ahead, with the envisaged stabilization of macroeconomic conditions and implementation of structural reforms in the economy.
‘The pace of acceleration of inflation has moderated faster than expected and such moderation is expected to continue in the period ahead, thereby resulting in a low level of inflation by end 2022.
‘The CBSL would continue to monitor domestic and global macroeconomic and financial market developments and stand ready to take appropriate measures proactively to stabilize inflation at the desired range and help reinforce greater macroeconomic stability in the period ahead.’
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