Sri Lanka finance minister finalizes budget
ECONOMYNEXT – Sri Lanka’s finance minister Mangala Samaraweera is due to present a budget for 2019 on Wednesday with a salary hike for state sector workers.
Sri Lanka has seen slower revenue growth in 2019 than official forecasts have said, with a soft-pegged exchange rate generating monetary instability and a currency collapse destroying purchasing power and investible capital.
The 2018 currency collapse came despite better budgeting, with the Central Bank cutting rates early 2018 and printing money despite operating a pegged exchange rate to collect forex reserves under an International Monetary Fund program.
The IMF has institutionalised the so-called ‘impossible trinity of monetary policy objectives’ by making the Central Bank operate a monetary regime with two conflicting anchors (a reserve collecting peg and an inflation target), making balance of payments troubles inevitable.
IMF also gave technical support to the central bank to calculate a so-called output gap, giving an excuse to cut rates and print money and bring about a currency collapse, in the same way Fed Chief Arthur Burns brought about a collapse of the Bretton Woods peg. (Colombo/Mar04/2019-SB)