Sri Lanka’s economic growth for 2012 is expected to be lowered to 7.2 per cent from a projected 8 per cent with an announcement on the lower growth (GDP) rate due on Tuesday, banking analysts said yesterday.
They said the decision was to be made at a meeting of the Monetary Board of the Central Bank (CB) chaired by Governor Ajith Nivard Cabraal and attended by Treasury Secretary P.B. Jayasundera who is also a member of the Monetary Board. At this meeting the CB’s monthly statement on monetary policy would be released and the announcement of the lower GDP figure made. No other changes including interest rates are expected in the announcement.
Mr. Cabraal, who has returned from a visit to Qatar where he led a delegation of bankers to induce investments from the fastest growing economy in the Middle East, was not available for comment.
The lower rate against 8.2 per cent GDP growth in 2011 comes in the backdrop of an external economic crisis in Europe and the US, and acute financial problems at home. The Treasury has urged government ministries and departments to cut spending and save on energy costs as debts rise particularly for institutions like the debt-ridden Ceylon Petroleum Corporation and the Ceylon Electricity Board with both increasing fuel and power tariffs.
The analysts, who declined to be named, said reasons for the lower growth forecast was due to lending restrictions on banks aimed at reducing non-essential imports, a rising US dollar and depreciation of the rupee which are all expected to reduce economic activity while troubled economies in the West would hurt Sri Lankan exports, particularly garments.
When the 2012 growth forecast of 8 per cent was made by the CB in January, top Sri Lankan economists questioned the wisdom of such a high growth projection when the country’s other trading partners were lowering economic growth figures.
“It doesn’t make sense to project high growth when all our key buyers (garment-buying countries) have lowered their forecasts due to a global financial crisis,” one economist said, adding that the CB plan to lower growth rates proved that “what we have been saying
is correct (and these views should not be ignored or ridiculed)”.
Meanwhile the delegation of mostly bankers led by Mr. Cabraal and including representatives from Bank of Ceylon, People’s Bank, Sampath Bank, Commercial Bank and Seylan Bank visited Qatar last week to tap into the enormous resource of funds for investment in Sri Lanka.
“Qatar has been reducing its exposure in Europe and looking for other investment opportunities. Local banks are trying to get a slice of these funds for investment in treasury bills and bonds and other investment avenues,” a banker who was in the delegation said.
The CB has been encouraging local banks to seek overseas loans and direct investments to boost foreign reserves which fell to US$ 5.9 billion by end-2011 from US$8 billion in August 2011. Last week, the US dollar fell slightly against the rupee to Rs. 121.30, in the local money markets, against Rs. 122 the previous week suggesting that the rupee has stabilized after depreciating to over Rs. 122 from Rs. 110 in early February.
But market traders said they expected pressure on the rupee to rise this month and the dollar gaining with pressure on imports for the National New Year in April. |
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