CB Chief says SL has potential to grow over 5% 

Central Bank Governor Dr. Indrajit Coomaraswamy - Pic by Ruwan Walpola

• Insists fiscal consolidation via enhanced revenue is critical with or without IMF support
• Says talks with IMF team next month will focus on creating more space for growth whilst meeting social commitments

By Charumini de Silva

The Central Bank Governor Dr. Indrajit Coomaraswamy on Friday expressed confidence that Sri Lankas true growth potential was 5.7% and the 3% achievement was below par. 

“The Central Bank thinks the potential growth rate is about 5.75%. So, the current growth rate of 3% to 4% is well below potential growth because there’s a big output gap," the Governor told the inauguration of the 33rd Anniversary Annual Sessions of the Sri Lanka Economic Association. 

Though reflecting on below potential growth, Dr. Coomaraswamy also told the SLEA session that Sri Lanka may not be properly capturing actual economic activity. 

«Sri Lanka’s subdued 3% growth rate could be due to Census and Statistics Department not having all the required resources to conduct surveys. It is possible that the Census and Statistics Department is underscoring the growth. There is a good sophisticated methodology, but they don’t have all the resources they need to do those surveys,” the Central Bank Chief opined.

He also pointed out that some of the proxies the Census and Statistics Department have been forced to use in Central Bank’s view is unable to capture some of the new economic activities.

Focusing on issues beyond statistics, Dr. Coomaraswamy acknowledged that 2019 is going to be a critical year where Sri Lanka has a tsunami of debts before the country totalling up to $5.9billion to be repaid with an elections coming up as well.

In that context, Central Bank Chief cautioned that any loose behaviour in the fiscal space could lead to great economic crisis. 

 “If we lose fiscal discipline we have very little room to manoeuvre. People can claim it’s a political cycle, but it’s also because we have managed our affairs so badly over a period of time and as a result country’s economy is in this shape. Look at data, prospects of the country and space we have for any kind of lose behaviour before election or anything else,” he stressed.

He also noted that Sri Lanka needs work on a fiscal consolidation based on enhanced revenue and build up net international reserves to meet such a wall of debt even without the support of International Monetary Board (IMF). “IMF or no IMF, we need to do that,” he added.

The Governor emphasised the need to negotiate very vigorously with the IMF team that will be here in Sri Lanka next month, to make the country›s case to have enough growth space and social sentiments intact. 

“When you become as indebted as Sri Lanka today to the rest of the world, you handover a significant share of your economic sovereignty. That is the reality. You need to absorb and understand that. We can’t do just what we want simply because we need other people’s money to pay our debts and have sufficient space in our balance of payment to import essentials and support our growth,” he opined.