- we have the economic stability, as well as low interest rate sans any further depreciation of the rupee, we have already seen most of the businesses, specially the big ones have picked up and if we can get the small businesses also going well, I think then we will be on the path to a full recovery
- The resurgence I think will commence once tourism also gives its support because as you know, about 500,000 people depend on tourism as their main livelihood. At the same there are many who earn a living indirectly from tourist industry in addition to other source of income and benefits
- Sometimes, people when they are disappointed with the outcome immediately may get little upset but I think over the period of time people will understand that this government has done tremendously better than any other government could have done
The Daily Mirror discussed the current economic situation of the country with the Central Bank Governor Ajith Nivard Cabraal.
Excerpts
QIt is no secret that the country’s economy is in very bad shape and the people are in a constant struggle to make ends meet. Under this extremely precarious situation what relief can the people expect from the budget 2022?
What you say is that the tragic situation as well as the challenging situation pervasive in the country is correct which is also true with almost all other countries in the world. At the same time what is needed today is to ensure that we bring stability and the confidence on our economy. In so doing, we must ensure that the economic structure that we have put in place will draw new investments – both local and foreign – and at the same time assure that the economic activity will be sustained. If we do that, I believe we have done that successfully, you would find Sri Lanka’s economy once again would be in the path of recovery.
This year we will have a growth rate of about 5%. We had a GDP growth of 8% in the first half and in full year it will be around 5%. It is not a bad growth. With that, we have the economic stability, as well as low interest rate sans any further depreciation of the rupee, we have already seen most of the businesses, specially the big ones have picked up and if we can get the small businesses also going well, I think then we will be on the path to a full recovery.
QWhat is the strategy of the government to achieve this target?
Several! One is to build confidence and stability. Other is to deal with the current situation in a clear and concise manner so that the people get confidence, both of which we are doing now. As you know, the Central Bank has set out a six month Road Map which portrays clearly our goals as well as what we are going to do. The government will articulate that in the budget 2022 proposals. Once these arrangements are all understood by the stakeholders, I think the recovery will be even faster as everyone will be committed towards doing.
QWhen can the people have a sigh of relief following resurgence in the economy?
The resurgence I think will commence once tourism also gives its support because as you know, about 500,000 people depend on tourism as their main livelihood. At the same there are many who earn a living indirectly from tourist industry in addition to other source of income and benefits. Tourism also provides much needed foreign exchange. So, once that support is given, I think the resurgence will be very clear and that is what we are trying to do with a very fast phase of machination so that the country is prepared to open up once again.
QThe recent attempt to consolidate Sri Lanka’s foreign reserves with the infusion of an SDR facility of US$ 787 million from the IMF, US$ 150 million from Bangladesh Bank as a SWAP arrangement and a loan of 2 billion Renminbi worth US$ 308 million from the China Development Bank totaling over US$ 1.2 billion has failed to appreciate the rupee. Why?
These inflows are important because they actually compensate for the loss of foreign exchange earnings that we are experiencing from the lack of tourist activities. That is why it did not contribute much to appreciate the rupee but over the period of time once tourism gains momentum, then we will see the appreciation of the rupee taking place because there is plenty of room for the appreciation of the rupee as of now. It also helped us to keep a balance on restrictions of imports.
QIn addition to these liquidity injections, you expect another US$ 500 million from the Economic Development Cooperation of the KEximbank of Korea and US$ 350 million in two tranches from the ADB in the near future. Are you confident that with these fresh foreign currency boosters to the national economy, Sri Lanka would be in a better position with economic revival and financial stability before the end of the year?
I am very confident that the financial stability would be established as these inflows will be definitely help but if you go through our road map, you will find there are other avenues also that could meet our targets. So, with all those inflows, Sri Lanka’s external sector will definitely stabilize and those who have been thinking that it is going to fail are in a rude shock because we will re-establish the external sector in a very viable level and that would be a very important factor with Sri Lanka’s growth story as well.
QThe Covid-19 pandemic has severely jolted Sri Lanka’s economy as never before depleting the revenue from all sectors of the economy with a negative impact on the industry, tourism, agriculture, apparel and garment exports, health, education and many more. The forecast on the global economy by many an international economic pundit is that the world economy is to experience a rapid progress once the pandemic is contained to a satisfactory level. How is the preparation of Sri Lanka to face this challenge?
Even with the pandemic, Sri Lanka has fared reasonably well with regard to its exports, remittances and many other sectors. However, there are several gaps that have been opened out and many sectors affected as a result of Covid 19. But many countries can experience a sharp and rapid upturn of their economy as soon as the Covid impact is reduced. Sri Lanka will be no different. As soon as tourism is able to flourish, I personally believe that we will see enormous progress mainly because the plant is already there. The plant of tourism, hotels, vehicles, infrastructure guides and everyone is there. As soon as tourists start coming, we have the ability to give them the service. That should mean that there would be a massive inflow of foreign exchange taking place immediately and we must work towards that diligently.
QMoney is printed in any country to match the value of overall transactions in the economy. It is common that countries print money to meet the growth of economic and business activities befitting the increase in total money supply. One of the basics in economics is that money printing must be on par with the growth of the GDP. The government has printed over 2 trillion rupees in 2020 /2021 period alone to fund state expenses which has contributed to the sharp increase of prices of essential consumer goods and the COL. Your comments?
You have spoken about the basics of economics which is correct. I am not disputing it. But these basics are also based on certain assumptions. That normalcy is also experienced but today we are not experiencing that normalcy. That is why we have to take somewhat innovative actions in order to deal with the current extraordinary situation as done by many other countries and Sri Lanka has been no exception. We have also had to resort to address the traditional issues exclusive to Central Bank which you in common parlance say ‘Money Printing’. But what is important is first to recognize that at the time when it needs to be pulled back, we will be in a position to do that. I think of it as a serious surgery which has to be performed by a surgeon. The surgeon will cut you up and he knows how to stitch you back. If you allow other persons to cut you, he will cut but he does not know how to stitch you back. Then you will be in serious trouble. So, the operation has been done by the surgeon and the surgeon will know at what time to pull it back. We are confident that this will not lead to any untoward situation. But we will be watchful and ensure that this will be dealt with in the next few months to come.
QIt is an established fact that the cut of import tax on sugar to .25 cents from Rs. 50 per kilogram early this year benefitted only a few regime friendly businessmen. The tax cuts have cost the Treasury a cool Rs. 15.9 billion at a time the economy is in dire strait. This action has contributed to hoarding and jacking up of sugar prices to extremely unreasonable levels by these rogue sugar mudalalis. The government is still to take action against the robbers. Why?
At a time of crisis, many traders attempt to make additional money than what they should. This is true not only with sugar dealers but also with the small mudalali in the village. They naturally resort to earn a fast buck exploiting the situation. This is experienced in the biggest world market as it is a universal action. When there is a shortage of goods, certain people make money. The government’s attempt of reducing duty on sugar which is a humane action taken to benefit the consumer as the sugar price in the global market was going up. Unfortunately it was used by certain big time traders to create a shortage of sugar in the domestic market to make additional profits. But the government’s action taken to cut tax on sugar imports was not designed to support any particular trader. The tax cut on sugar imports was a humane action intended to benefit the people. If someone says that the people actually did not benefit from the tax reduction, I would say that if the government re-imposed tax on sugar, a kilogram of sugar will go up tomorrow by a minimum of Rs. 50 or more. That is why we have to appreciate sometimes that in times of tax reduction or price reduction, the benefit is not passed out to the consumer as fast as to the expectations of the government. However, if the taxes are increased today it will go to the consumer faster than we expect. As such we must maintain this difficult balance in these matters.
But, to say that the treasury has lost Rs.15.9 billion may not be entirely correct, mainly because the Treasury sometimes can take a decision to reduce taxes because otherwise the people can be suffering a lot more. So that is a conscious decision taken by the government in the same manner the previous government increased the taxes adding burden on the people.
QYour contention is that the tax cut has helped the average consumer. In other words, if there was no tax cut, the sugar price in the domestic market would have been much more than today’s price?
Absolutely, I take that view because it is very obvious. If the government increased tax on sugar imports, the sugar price will go up overnight. This has been prevented by the tax cut.
QThe government is indecently slow taking action against the prime suspect of the Central Bank bond scam, Arjuna Mahendran who has fled to Singapore. The politician who handpicked him as the governor of the CBSL in 2015 and helped the man to rob the Central Bank is still at large. Taking speedier legal action against them was an election pledge of President Gotabaya Rajapaksa and the SLPP. The people of this country have every right to believe that the top hierarchy of the government and the suspects who have been involved in the bank robbery have struck a deal between them to help each other. What have you to say?
I am personally disappointed that the process of the law has not been quick enough to apprehend and to bring these people to book. But we also must keep in mind that our people have to follow the law of the land. When we follow the law, sometimes find that laws delays have been a hindrance to the smooth administration of justice. We have to tolerate laws delays when we follow the law as we want to see justice is delivered fast. Fortunately or unfortunately, we are a country that abides by the rule of law. Even if a person is very well known to be a person who had committed a crime, he has the freedom to invoke the law to prove his innocence. So in this instance, Arjuna Mahendran is absconding indeed. He has to be apprehended and brought before the law. But I believe the cases against him are pending even without him being there. Other suspects have been indicted and trials are about to begin. So we are hopeful that justice is served but as you quite rightly said, the mastermind of this whole operation has to be brought to justice that something I have been consistently calling for. In fact I have written a book entitled ‘The Great Bond Scam Cover-up’. Because I believe there has been an extensive and very high level cover-up in this entire episode which needs to be looked at and checked out once again in order to ensure that complete justice is served to this heinous crime.
QAny possibility of apprehending this man, Arjuna Mahendran and bring him back to Sri Lanka?
I believe that the law enforcement authorities, the Attorney General’s Department and the Police are working on it but I am not privy to the progress they have made on the matter. But I am hopeful as well as anyone else in the country that they who have put this country in a serious jeopardy by their action are also asked to account for their misdemeanor.
QIt seems that this government is one of the most unfortunate ones that came to power since independence when we line up the domestic and global events that have affected Sri Lanka from 2020. Firstly, a large majority of the global community has turned against Sri Lanka with the passing of the resolution 46/1 with a big majority at the March sessions of the UNHRC. The EU has threatened to withdraw the GSP+ concession if the government does not toe their line. Then after came this unprecedented and highly damaging health threat in the form of Covid 19 pandemic that has devastated the entire country from all fronts. The FDI has dwindled to a drip. A big majority of voters who have voted to bring President Gotabaya Rajapaksa and the SLPP to power, in 2019 and 2020 respectively, including the Maha Sangha, priests of other faiths, the public and private sector employees, University teachers, the academia and the business community have lost hopes in the government which is clearly manifested in the mainstream and social media. The public are highly critical of the government at their normal conversations at the market place, office, work place and when they are in the public transport. How and why? What is the government going to do to rectify this unhealthy scenario?
Yes, It is true to say that this government had to face tremendous challenges since it came to power. It is very well taken. That is true. We accept that. But if you look at the way the government has handled these challenges, I think there has been a clear reaction to all these challenges in order to steer the economy as well as the country to progress, notwithstanding all these challenges. If you take the issue of UNHRC, the government has maintained categorically that the stance that we will not compromise our soldiers, our people who have suffered during the 30 year separatist war waged by the LTTE and that stance I think has been endorsed by the people of this country. That is a good thing. At the same time, if it entails further new challenges like the withdrawal of the GSP+ we have also made it clear that the overall integrity and sovereignty of the country cannot be compromised in order to receive some benefits from some other party. If that is the case, as a risk manager of the country, I myself would do our utmost to ensure that the impact of such actions could be minimized.
The second part is to see how to make the people satisfied. The people have challenges as a result of the pandemic mainly and that is something that not only the people of Sri Lanka have experienced but the people all over the world. You may have seen massive reactions and agitations in so called western, developed or rich nations as well. So, what we need to focus on now is how we can bring that stability over the next couple of years, making it possible for the people to go about their business without any new challenges. We have given a moratorium to the extent of Rs. 4,000 billion for their business in the last two years. Saubagya loans have been over Rs. 179 billion. Every section of the population who has suffered has been provided with some kind of relief. The families among vulnerable sections of the society have been paid Rs. 5,000 three times. Those who are suffering from Covid were also provided with relief. Billions of rupees have been spent on vaccine. All these have been done to provide basic, essential facilities to people. Sometimes, people when they are disappointed with the outcome immediately may get little upset but I think over the period of time people will understand that this government has done tremendously better than any other government could have done.
QWhen does the Central Bank expect to advise the government to remove import ban on vehicles imposed in March last year as thousands of public officers and the business community have been severely affected and the domestic vehicle market has almost disappeared?
Yes, we are also conscious as this decision has certain repercussions which can be fairly intense for our people. But at the same time, due to the crisis of foreign exchange shortage, the government has to take a call which is what the government has done. At the same time we are also examining other avenues on how to stabilize the vehicle market as we articulated it in the recent past. So, let’s see how we can balance this situation but in the short term we may need to keep this ban going until such time that tourism is improved so that when the equilibrium is set up, the government will allow once again importing vehicles like in the past.
