Confidence; the key ingredient

This column last week called for an overall change in the Government’s ‘economics team’ simply because they had lost the confidence of the people. The individuals concerned were incompetent, corrupt and way above their heads in handling a crisis of the magnitude that is currently faced by the country. Further, quite correctly, there is a general perception that they have been solely responsible for the crisis which could have been avoided through common-sense decision-making at the correct time.

Even amidst political and economic turmoil it is encouraging to note that the Government has finally relented on the absurd notion that the same policies and the same individuals who created the crisis could continue as usual. After two and a half years of disastrous economic management and hurtling the whole country towards a monumental crisis, President Gotabaya Rajapaksa this week took the first meaningful steps towards addressing the situation. He appointed Dr. P. Nandalal Weerasinghe as the Governor of the Central Bank. Dr. Weerasinghe, a career central banker, with extensive experience in monetary and exchange rate policy who holds a PhD in economics, is a significant upgrade from his accountant predecessor.

Though these are early days, the first impressions of the new governor are encouraging. At his first press conference since assuming office, he announced that decisive monetary policy action will be taken to ensure macroeconomic stability and confidence. The Monetary Board at its meeting under Dr. Weerasinghe decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 700 basis points to 13.50% from 6.50% and 14.50% from 7.50%, respectively with immediate effect. This is the highest ever policy rate hike and tightest monetary policy action in the history of the CBSL. Dr Weerasinghe was clear with his expectations of the economy, warning that things will get worse before they get better and promised to restore the independence and credibility of the Central Bank.

With regard to other changes, even though there is some confusion as to the position of Minister Ali Sabry, it seems that he is to retain the position of Finance Minister, even though he announced his resignation a day after being appointed by President Rajapaksa. His academic credentials or experience may not be ideally suited for the portfolio but considering the sheer dearth of properly educated or professionally qualified individuals within the current Government there is no better individual suited for this critical job.

Sabry will be able to comprehend the urgency of the situation and most importantly he is not marred by allegations of gross corruption like his predecessor. It is hoped that he would be able to present a well thought out, comprehensive, economic recovery plan to Sri Lanka’s international partners, including the International Monetary Fund and gather the necessary assistance that would enable the economic recovery. 

It is also encouraging that the President has appointed three eminent economists to a Presidential Advisory Group on multilateral engagement and debt sustainability. Dr. Indrajit Coomaraswamy, former Governor of the CBSL, Prof. Shanta Devarajan of Georgetown University and former chief economist of the World Bank and Dr. Sharmini Coorey, former director of the IMF Institute, would bring about a degree of professionalism that was solely lacking in the last two and a half years.

 Even at this late hour, it is welcomed that president Rajapaksa has finally had the acumen to appoint a competent team that could restore confidence of the general public, investors, international agencies and partners in the professional handling of the economy. While none of this absolves this responsibility in bringing about this economic calamity, at least by changing the economics team he has demonstrated some seriousness in handling the crisis. It is hoped that these individuals are now allowed to do their jobs without political interference.