Politically difficult decisions required to address current economic crisis : CBSL Governor

Tuesday, 26 July 2022 - 12:39

Central Bank Governor Dr. Nandalal Weerasinghe says that if this government is ready to form a stable government and take politically difficult decisions, the current crisis economic situation can be prevented to some extent within six months.

Participating in the SALAKUNA political program on Hiru TV last night, he said that there is uncertainty regarding the purchase of fuel next month.

The Governor said that the existing stable government should be prepared to take difficult decisions.

He also emphasizes that the decisions should be taken considering the country and the economy and not based on politics.

He emphasizes that a government should look at decisions related to taxes, as well as decisions related to loss-making institutions and actions that can increase government revenue.

He also mentioned that the government should withdraw from welfare programs.

Central Bank Governor Dr. Nandalal said that in order to immediately conclude the agreements with the International Monetary Fund in the initial round, the President as the Minister of Finance should inform the position of his government to the International Monetary Fund and accordingly the agreements made with the International Monetary Fund will be able to be concluded promptly. 

Meanwhile Indrajith Kumaraswamy, former governor of the Central Bank of Sri Lanka in an interview with the foreign Media stated that Sri lanka requires structural changes.

Dr. Indrajit Coomaraswamy has said the economic recovery will require painful treatment whilst expressing hope that President Ranil Wickremesinghe would take all the tough decisions to avoid the disastrous situation.

“President Wickremesinghe is economically very literate. He knows what has to be done. At times, it has been difficult for him or any other politician to get it done, given the political dynamics and that toxic populist politics and entitlement culture that has driven the economy to where it is today. But, if President Wickremesinghe understands, he can get it done,” Coomaraswamy said in an interview with The Wire on Saturday.

He said the President seems that he was ready to bite the bullet, noting that if he does not, Sri Lanka will go down the abyss and it will be a disaster.

“First, we need to get an IMF agreement because, at the moment, we neither have foreign exchange nor rupees. The Government does not have fiscal revenue and thus it puts enormous pressure on the Central Bank to print money.

“This has to be resolved immediately and the only way is via an IMF program, which gives us a certificate of good housekeeping and will also leverage other funding from the international donor agencies like the World Bank and Asian Development Bank and hopefully from others. It will also allow flows of private investment into the economy. We also need to restructure our external debt by talking to creditors.

“Secondly, President Wickremesinghe has to find a way of getting essential supplies urgently, such as fuel, food, medicine, and so on, till the debt restructuring and the IMF program are finalised. However, to get the IMF finalised to a disbursement level, will take around five to six months and during this period, the President has to get bridge finance to meet the essential imports.

“Thirdly, the President needs to have a very clear plan on the structural reforms that he is going to undertake to accelerate growth in the economy,” Dr. Coomaraswamy outlined the three key factors the Government should focus on in the immediate future.

He suggested that the Government needs to and is beginning to do is, to strengthen the safety net by enhancing the cash transfers going to the poor and vulnerable.

“I think communication is going to be critical. Almost all Sri Lankans now recognise that sacrifice is necessary and inevitable. With that, the message needs to be reinforced and driven through. Simultaneously, we have to find a way of distributing the sacrifice and pain according to the capacity of the population to bear that pain,” he added.

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