- Dr. Nandalal Weerasinghe stresses importance of getting IMF program and debt sustainability right
- Unlike in the past, current IMF program comes amidst Balance of Payments crisis and unsustainable debt
- Stresses growth enhancing reforms are critical
- Calls for a change of mindsets as well as less dependence on credit and imports, living within our means and enhancing export earnings
- Rules out runaway hyperinflation
Admitting the country is not yet “out of the woods”, Central Bank Governor Dr. Nandalal Weerasinghe on Tuesday warned Sri Lanka will not have a second chance to get macroeconomics right if the crucial IMF program along with debt sustainability initiative is compromised.
“We are not out of the woods yet though we are managing painfully. The transition will be a difficult period,” Dr. Weerasinghe said with reference to efforts to bring stability in the economy in the short term and revive growth prospects in the medium term.
Delivering the keynote at the PIMA Strategic Forum titled ‘Sri Lanka’s turnaround strategies and the role of the international community’, CBSL Governor said unlike the past 16 occasions of Sri Lanka having gone to the International Monetary Fund (IMF) when the country only had a Balance of Payments issue, the present situation was different as twin issues of BOP and debt sustainability.
In that context, he said getting the economy stabilised with import restrictions and higher interest rates etc., and recovering to a growth phase was critical. “Via our program of policy and structural reforms with the IMF we can recover from the crisis,” he said, adding that reaching the Staff Level Agreement for a four-year $ 2.9 billion Extended Fund Facility was a major achievement.
He said that engagement with creditors (both official and commercial) will begin tomorrow where the Government will make public its specific roadmap to further stabilise and revive the economy.
He expressed hope that all concerned will give financial assurances to proceed with the debt restructuring program as well as the IMF program. “How soon we can draw down IMF funding will depend on how fast the assurances come. For all, sooner the better,” CBSL Chief said.
It was in this context that Dr. Weerasinghe stressed that friendly partners of Sri Lanka referring to Japan, Indi and the US have an important role to play whilst acknowledging that India’s support so far this year was a “lifeline”.
US Embassy Deputy Chief of Mission Douglas E. Sonnek, Japanese Embassy Deputy Head of Mission Katsuki Kotaro and India Deputy High Commissioner Vinod K Jacob spoke as panellists at the forum.
Noting that no one could do business if inflation is at 100%, Dr. Weerasinghe assured there will be no runaway or hyperinflation in the country as he expects the sharp rise of inflation (66.7% in July and 70.2% in August) is expected to taper down from next month.
He said that higher interest rates was warranted to curb inflation but assured of ensuring financial system stability with on-going and planned measures.
In stressing the way forward for Sri Lanka to be out of the woods, CBSL Governor said growth enhancing reforms are critical and the program with the IMF will address it. He also called for a change of mindsets as well as less dependence on credit and imports, living within our means and enhancing export earnings.
“There will be no second chance for Sri Lanka. It is (reforming) all in our hands. We must use the crisis as an opportunity to reflect on past mistakes and commit not to repeat. We didn’t do so in the past whenever we went for an IMF program and we should avoid the need for another program in the future,” emphasised Dr. Weerasinghe, adding that the present program with the IMF was a strong one capable of bringing in stability and reviving the economy.