CB Governor sees encouraging signals, says economy continues to stabilise
Sri Lanka’s economy continues to stabilise in broad terms and it seems to be encouraging although the 3.3 per cent economic growth, year-on-year, in the third quarter of 2017, compared to 4 per cent recorded in the second quarter of 2017, was disappointing, Central Bank (CB) Governor Dr. Indrajit Coomaraswamy told reporters on Thursday.
The country’s economic stabilisation process has been endorsed by the IMF by approving the third review of Sri Lanka’s extended Fund Facility which enables the disbursement of around US$ 251.4 million, he said at a news conference in Colombo, adding that this money will swell the country’s foreign reserves.
Economic growth in the third quarter was mainly driven by moderate expansion in the industry and services sectors, while the agriculture sector continued to record negative growth on account of weather related disruptions.
It is anticipated that the economy would recover in 2018 due to continuous surge in exports and investments induced by foreign direct investments.
The recovery in the agriculture sector would also support the growth performance in 2018.
Both Fitch S&P global rating agencies recently upgraded Sri Lanka’s ratings from negative outlook while Moody’s rating affirmation outlook remained unchanged, he disclosed.
This shows a definite consolidation in the economy and the building up of confidence among investors and international agencies, he pointed out.
For the first time since 1950, the country is going to have a surplus in the primary account of the budget, he pointed out noting that for the first time since 1987, there is an excess in the current account in the budget.
Sri Lanka’s overcrowded finance company sector with 50 licensed Non-Bank Finance Institutions (NBFI) (44 finance companies and six leasing companies) are to be strictly monitored by the CB by strengthening the existing regulatory frame work, Dr. Coomaraswamy revealed.
He noted that some of these NBFIs have to brace for tough times as a result of low capitalisation levels amid the challenging operating environment and unfavourable weather conditions and declining profitability due to higher funding and credit costs.
The CB will seek technical assistance to handle ailing finance companies, he said adding that a traffic light system will be introduced to issue prior warnings before the build-up of pressure on capitalisation, he disclosed.
Dr. Coomaraswamy pointed out that they encourage shareholder-driven consolidation for small NBFIs and collapsed finance companies should be liquidated to repay the money of depositors.
Deputy Governor. C.J.P Siriwardane revealed that the CB issued a directive requiring all licensed finance companies to increase their minimum core capital levels to Rs.2.5 billion by end-2020 in stages from the current Rs.400 million, with the first target of Rs. 1 billion to be reached by next year.
He said that this will spur small companies to improve their capital buffers and may reignite industry consolidation,
Answering a question raised by a journalist on PayPal entry, Dr. Coomaraswamy said that “the Central Bank has no objections relating to the entry of PayPal in Sri Lanka. But they are not interested in carrying out their business in the country because our market is too small for them. We are not blocking their entry”.
Deputy Governor Dr. Nandalal Weerasinghe said a top PayPal official has been invited to consider the launch of inward remittances service during a conference of fintech firms in Singapore.
He disclosed that Sri Lanka had attempted to convince PayPal to start their services in the country three years ago. But afterwards there was no progress, he said adding that they were reluctant to come due to lack of sizable volumes of business for them.
According to the CB monetary policy review, the trade deficit widened during the first 10 months of the year, largely on account of the notable increase in import expenditure, particularly due to supply side constraints mainly arising from weather related disturbances, offsetting the positive impact of improved performance in export earnings.
However, easing the pressure on external accounts to a certain extent, sustained inflows to the financial account in terms of inflows to government securities market and the Colombo Stock Exchange (CSE) were observed.
Sri Lanka’s gross official foreign reserves have swelled to $8.1 billion recently and it will be around $7.8 billion by end December 2017, Dr. Coomaraswamy said expressing the belief that it will surge up to $10 billion next year.