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Controversial consultancy fees add to losses at Sri Lanka's Central Bank

May 04, 2015 11:35 AM GMT+0530 | 0 Comment(s)

COLOMBO (EconomyNext) - Sri Lanka's Central Bank has spent 2.05 billion rupees in 2014 on consultancy fees adding to massive losses made during the year, official accounts show.

"Consultancy, Communication, Advisory and Professional Fees," of 2,050 million rupees, up from 16.8 million rupees a year earlier doubled administration and other expenses to 4,050 million rupees in 2014 up from 1,997 million a year earlier.

The Central Bank hired international public relations firms and also disgraced former International Monetary Fund chief Dominic Strauss-Kahn as consultants.

Sri Lanka's current administration terminated the deal with Strauss-Kahn after paying 750,000 dollars (about 97 million rupees). Strauss-Kahn was to have advised Sri Lanka on being a financial centre.

Central Bank Governor Nivard Cabraal has defended the deal saying, Sri Lanka would benefit from the advice, guidance and assistance from Strauss-Kahn, who was also a former finance minister of France.

The Central Bank also hired other PR consultancy, mostly in the US to help foreign policy at a time when the ousted Rajapaksa regime was under fire for abusing the rights of Sri Lankan citizens amid worsening relations with many western nations.

Sri Lanka's Central Bank lost 32.3 billion rupees in 2014, up from 24.2 billion rupees in 2013.

A central bank that keeps inflation down and appreciates a currency can however make losses in a balance sheet valued in domestic currency.

Since a central bank makes profits from inflation or meaning printing money to destroy the real value of the currency, large profits are not a good sign for the general public.

In 2012 for example, when Sri Lanka's currency collapsed as the central bank printed large volume of money, profits rose to a record 66 billion rupees.

A well-managed pegged exchange rate central bank, which focuses its activities on monetary policy can make profits on its foreign reserves, without inflating the domestic economy.