Indian Ocean hub crucial for global trade
The successful conclusion of the trade agreement with China and India will pave the way for Sri Lanka to be the only country in the world to have preferential trade with these two countries and also Europe, West Asia and Asia as Sri Lanka’s geographical location is priceless.
‘We have to negotiate the geo dynamics with these countries so that we use it for our advantage,” said the Governor of the Central Bank (CB) Indrajit Coomaraswamy making the keynote speech at the Sri Lanka Forum of Junior Business Economists ((SLFJBE) Summit 2019 held at the Centre for Banking Studies at Rajagiriya, Kotte recently.
“Although we take pride in our social development on the UNDP Human Development Index and the Millennium Development Goals, we have failed to meet the aspiration of young people. This cannot be allowed to continue and we have to find a way to grow our economy. The balance between social development and wealth creation has not been achieved in the past and that has posed a challenge for business economists.”
The Governor said although people think that the CB is responsible for development it is the responsibility of the government. The main objective of the CB is to create stability by making a suitable foundation for development by having a low inflation and by maintaining the correct account deficit in the balance of payment sustainable. Since liberalizing the economy in 1977 Sri Lanka has had a high budget deficit, high inflation with high nominal interest rates and overvalued currency.
He said although the macro- economic fundamentals are right growth in the country is low. “We have had 16 IMF programmes but have completed only one which may be a record. We get the money from the IMF and thereafter drop the programme. We were able to behave in this way with a lack of discipline because we were a low income country receiving a large amount of foreign aid; Sri Lanka was the second country to liberalise its economy after Chile as we were a democratic country with liberal economic policies. As a result we were able to live beyond our means but did not take tough decisions to improve the competiveness in our economy. Today we have to borrow money at 7-8 per cent from international capital markets being a developed economy.”
The Governor said that he was grilled by one of the rating agencies on the external sector vulnerability as to whether the country had the wherewithal to meet its external obligations. “We are now exposed to rating agencies and international capital markets,” he said. Vice Chancellor of the University of Sri Jayawardenapura Senior Prof. Sampath Amaratunga also spoke.