sri lanka

Reuters reports from an interview with K D Ranasinghe, chief economist at the Sri Lankan central bank:

Sri Lanka will seek a waiver from the International Monetary Fund (IMF) after failing to meet the 2009 budget deficit target agreed under a $2.6bn loan deal, the central bank said on Monday.

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The Sri Lankan central bank has dismissed the idea that the delay of an IMF payment will have any effect on investor confidence.

Following the IMF’s announcement, governor Ajith Nivard Cabraal declared: “There is absolutely no impact at all.” Of course, countries receiving IMF loans are generally in need of them. But a) the governor couldn’t really say much else; and b) post-conflict growth in the country has helped to build up forex reserves, possibly making the loan less of an issue than it was. Read more

Sri Lanka’s central bank staff are to become proficient in Tamil, the language of the Tamil Tigers who were until recently at war with the Sri Lankan government.

It is one of several integrationist measures taken by the bank since the conflict ended last year. Another measure was a $26m re-finance fund called Northern Revival, intended to channel business loans to the Tamil-majority North through existing banks. After a flood of applications, a new but similar initiative, the Northern Regional Development Fund, is set to receive a further $100m. It will be based in Jaffna (see map). Read more

The central bank of Sri Lanka has held the repo rate at 7.5 per cent, as the economy shows signs of returning health. Rates offered by banks to the public – averaging about 15 per cent in December – are beginning to fall, and credit became more available (in nominal terms) at the end of last year. Inflation is interesting: year-on-year inflation rose steeply from 4.8 at the end of 2009 to 6.5 per cent in January, but the annual average inflation fell to 3.1 per cent. Annual average inflation – slower to change and less affected by what happened this month last year – has fallen from 21.6 per cent this time last year, a remarkable achievement.

Sri Lanka has shelved plans to allow the free flow of foreign currency into and out of the country following political upset over the plan. Sri Lankan central bank governor Ajith Nivard Cabraal said over the weekend that the plans were now on hold until after the Presidential election, scheduled for January 26, 2010.

The central bank, which yesterday kept its rates on hold, said on January 4 that it would allow the free flow of foreign exchange, so anyone could send money in or out, or set up foreign bank accounts. Read more

The state must stop reckless spending if the Sri Lankan economy is to avoid inflation, the governor warned yesterday in a roadmap address. Ajith Nivard Cabraal is quoted as saying the central bank may be forced to print money if the state continues to spend at its current rate.

The governor is concerned about the government’s recurrent expenditure, which in nominal terms reached 16.5 per cent of GDP, exceeding its target of 15.8 per cent. “Any reckless new public spending in hundreds of billions on recurrent expenditure will be disastrous to the economy and will reverse the sound macro-economic fundamentals as prevailing now, and put many businesses at intense risk,” he said. Read more

Sri Lanka’s central bank has kept interest rates unchanged in an effort to encourage bank lending and spur economic growth. Information released today shows the monetary policy committee kept the repurchase rate at a low of 7.5 per cent, having cut it by three percentage points so far this year. The reverse repo rate was kept at 9.75 per cent, having been cut by 2.25 percentage points this year.

“Still there is room for lending rates to come down and more credit growth,” Nandalal Weerasinghe, an assistant governor at the central bank, told ReutersRead more