ECONOMYNEXT – Sri Lanka does not need to go on bended knees to an outside agency to solve the country’s debt problems, Central Bank Governor Nivard Cabraal said, amid concerns over debt repayments.
There was nothing wrong with changing the debt profile on one’s own, Cabraal told a business forum organized by the Ceylon Chamber of Commerce.
He said a private business when faced with excessive debt will try to extend the maturities, negotiate with lenders to reduce interest rates and reduce foreign debt and increase domestic debt.
Cabraal said Sri Lanka was also doing the same thing the reduce vulnerabilities in the debt profile.
“We are now on that path to debt sustainability,” Cabraal said. “We are changing our debt profile.”
He said Sri Lanka was moving away from only borrowings to non-debt creating inflows.
Sri Lanka was also reducing exposure to commercial debt and going for a government credit line, he said.
Attempts were also being made to improve remittance through a ‘carrot and stick’ approach.
A large share of Sri Lanka’s remittances has shifted out of banks after money was printed and exchange and trade controls were imposed, creating a parallel market for dollars.
It is now being partly filled with unofficial remittances.
Sri Lanka’s soft peg with the US dollar frequently comes under pressure due to monetary stimulus involving aggressive open market operations to short term rates down.
He was speaking amid calls for a new International Monetary Fund program.
IMF was set up mainly by US new dealers who built the Bretton Woods system of soft-pegs which collapsed in 1971 amid US money printing and sterilized gold sales.
Sri Lanka’s central bank has so far gone to the IMF 16 times. Since the IMF does not wean countries away from soft-pegs they keep going back.
The latest re-incarnation of the soft-peg is the ‘flexible exchange rate’. Sri Lanka has a Latin America style central bank set up by a US money doctor.
Similar central banks get into severe external troubles when the US Fed tightens by trying to sterilize the balance of payments. (Colombo/Dec06/2021)