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Sri Lanka political uncertainty puts economic gains at risk, warns CB Governor

ECONOMYNEXT – Sri Lanka’s fractious unity government should restore political stability and avoid reversing positive macroeconomic and policy gains which saw record exports, FDI and inflows to the stock exchange, albeit from low bases, warned Central Bank Governor Indrajit Coomaraswamy.

Political uncertainty has gripped the island with the uneasy SLFP-UNP coalition growing more unstable and fractious, especially after former President Mahinda Rajapaksa’s proxy party swept local government elections early 2018.   

"Restoring political stability is particularly important at this time because I think, and I hope I am not being overly optimistic, but I think we were beginning to see some progress in the positive direction," Coomaraswamy said.

"The elephant in the room is the political situation in the country. I am not aware of any country that has made significant economic progress without political stability. So the restoration of political stability is of paramount importance," he said Tuesday at the launch of the Development Process for Sri Lanka’s National Financial Inclusion Strategy.

Sri Lanka was seen making progress in terms of macroeconomic fundamentals.

Sri Lanka’s headline inflation soared to over 7 percent in 2017, but has since slowed to 4.5 percent and is expected to range between 4 to 6 percent in 2018. Foreign exchange reserves grew to 7.97 billion US dollars by the end of 2017, from 6 billion US dollars a year earlier.

Progress was also seen in developing policy frameworks for long term sustainable growth.

"This is reflected in the fact that we had a record year for exports, from a very low base and I must admit there is nothing to write home about that. Our exports are still far too low, but it was a record year.

"The same applies to FDI and inflows to CSE. The overall levels are still too low but we are moving in the right direction. So it seemed that things were coming together and we were moving in the right direction," Coomaraswamy said.

"The important thing now, is to stay on track. The government should have done many things quicker, that’s for sure. Things have gone too slowly, but this is not the time to deviate," the Governor warned.





The Department of Census and Statistic is expected to release 2017 GDP growth data soon, and Governor Coomaraswamy predicts it will be lower than expected.

"Sri Lanka should now guard against the danger of going for short term expedient solutions to push up the disappointing growth rate," he said.

"The important thing is to work on a framework that will deliver sustained growth by exports.

"For a market of 20 million people external demand plays a major role in terms of providing sustained growth in the long term". (COLOMBO, March 20, 2018)

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