- Urges need to gradually reduce foreign share of national debt
- Points out need to maintain low interest rates and less volatile exchange rate to promote domestic production
- Says targeted bank lending key for economic revival
By Shabiya Ali Ahlam
As the economy is expected to recover from a contraction in last year to a positive growth of 3.3 percent this year, the Central Bank yesterday stressed that the country does not need an episode of high growth but rather stable and shared growth to be sustained over many years.
Prof. W.D. Lakshman
The government has conveyed its commitment towards a production-oriented economy via various policy measures to promote shared growth and Central Bank Governor Prof. W.D. Lakshman asserted on the need to gradually reduce the foreign share of the country’s national debt.
“The Central Bank recognises this notable shift in policy direction and the need to maintain low interest rates and less volatile exchange rate to create an environment conducive to promote domestic production and to support local businesses,” Prof. Lakshman told the Association of Professional Bankers’ Research Symposium, held yesterday, in Colombo.
He stressed that the stable and shared growth can only be achieved by continuously improving productivity, promoting innovation to develop new knowledge and being vigilant about movements in socio-economic and politically sensitive indicators such as poverty, unequal distribution and unemployment.
Prof. Lakshman also stated that although the pandemic brought about devastating impacts, the health crisis has given Sri Lanka a unique opportunity to change and redirect strategies and thinking patterns.
“It is important to take this opportunity to address the long-standing structural issues of our economy,” he told a full house.
While commending the economic framework of the government, where the promotion of the domestic production sector has been identified as the key driver to push the country forward, Prof. Lakshman stressed that measures need to be taken simultaneously to avoid growth stagnation by promoting an innovation-driven economy.
According to Prof. Lakshman, the immediate challenge faced by Sri Lanka today is to emerge stronger from the current crisis.
“The economy is projected to record a revival in 2021, as the threat of the pandemic is expected to fade out along with the increased vaccinations across the country.
However, a long-term view on economic policies is essential to mitigate some of the structural weaknesses of our economy that have hindered its performance in history,”
Furthermore, the role of the banking sector in lending to key sectors was pointed out as imperative for the revival of the economy.
“Whilst actively supporting such lending, it remains essential for banks to monitor the performance of firms to which they have provided facilities,” said Prof. Lakshman, who went on to add that the Central Bank believes cautious monitoring of the asset quality of the banking sector is important, as businesses are still recovering from the recession.
“Therefore, the necessary prudential measures are thus in order, to preserve financial sector stability,” said Prof. Lakshman.