Sri Lanka will need economic medicine in third quarter: Ex-CB Governor
Aug 03, 2015 10:16 AM GMT+0530 | 5 Comment(s)
ECONOMYNET - Sri Lanka will require economic medicine to be administered in the third quarter to correct imbalances that are now building up, former Central Bank Governor Nivard Cabraal has said.
He said after the elections a United People's Freedom Alliance administration will have to fix the economy and then implement an economic plan outlined in their strategy.
Sri Lanka is going for parliamentary polls on August 17.
"We've got to stabilize the economy, we've got to stabilize the currency, we've got to stabilize the interest rates," Cabraal told Sri Lanka's Foreign Correspondents Association.
"We have to ensure that the credibility of the Central Bank and the Government is restored. We have to ensure that people will continue to put money into long term bonds.
"That is one of the key thrusts that will have to be handled in the first six weeks (of a UPFA administration).
"In our view it will take at least around six weeks to put it back at least to where it was and get it going. Which means the third quarter, is where we will want to concentrate a lot on the repair.
Cabraal said the current administration was "in denial."
"They pretend as if nothing has happened. They think everything is going on well and therefore they are not repairing it. They are not treating the patient who is in an acute sense of turmoil."
Cabraal said debts were mounting because most of the money was going to pay salaries but there was no corresponding assets being built up, which would generate revenues in the future.
Economic analysts have warned that the current pressure on the balance of payments was coming from mounting state credit in particular and increasing domestic which are part-accommodated by Central Bank credit to keep interest rates down.
Cabraal said a person had questioned him why the rupee was trading at a premium in the black market and how it could be fixed whether he could give some advice to the administration. He had replied that it was up to the current administration to fix the problem and he was not a teacher.
Sri Lanka last got into a balance of payments crisis in 2011/2012 by giving central bank accommodated credit to finance fuel subsidies.
Cabraal declined to give a total cost of the handouts promised in the UPFA manifesto.
The UPFA had promised 50,000 rupees to a students between 18 to 25 years. There are about 330,000 students in a grade for higher studies. Assuming all apply for the grant, about 125 billion rupees would be needed.
Those who passed GCE O/L exams up to 30 years of age would be given 200,000 rupees each for further education as an interest free loan.
Three wheeler drivers will be given a credit card through which they can borrow up to 100,000. There are over 900,000 three wheelers in the country. Three wheeler owners will also be given one tax slashed car permit.
Low income families who get married will also be Rupees 200,000. All newly-weds will also get low interest housing loan and a permit for a tax slashed car. There are about 180,000 weddings each year in Sri Lanka, though not everyone will be able to afford a car.
It was not clear whether, the couple could sell the tax free permit and raise some money. At the moment permits given to State workers are sold in the secondary market.
Asked whether the handouts promised in the budget would put the economy under further pressure he said that the UPFA had a plan to support the manifesto, which would not be disclosed at this stage.
He said the last administration had found money to fund many infrastructure projects.
"Whatever the outlay is we will find it," Cabraal said
"I am giving you the assurance that we have worked out the math and we are confident that the necessary resources would be found for all this to work on a continuous basis,
"Not a one off type like a mansion tax or a super gains tax for one year."