Sri Lanka taking pre-emptive steps as global liquidity tightens

ECONOMYNEXT – Sri Lanka has started to take steps to reduce economic risks by raising revenues and improving debt management as global credit conditions tighten with major central banks ending liquidity injections, officials said.

The US Federal Reserve, European Central Bank and the Bank of Japan had injected the equivalent of two trillion dollars since the global financial crisis but the injections have halved since 2018, Anubhuti Sahay Head, South Asia, Economics Research, Standard Chartered Bank Mumbai said.

It is expected to drop to zero in 2019. While many emerging markets including Sri Lanka benefited when the liquidity was loose conditions would tighten now.

"So the shift is massive," Sahay told an economic forum in Colombo organized by the Ceylon Chamber of Commerce.

"It will have a massive impact on foreign exchange."

Sahay said countries with so-called twin deficits (budget and external current account deficits) like Sri Lanka and India would face tougher conditions. Sri Lanka financed about half the budget deficit abroad.

Sri Lanka has already started a process of cutting budget deficits by boosting revenues, which would help.

State Minister for Finance Eran Wickremeratne said Sri Lanka has gradually cut deficits and expected to bring the gap under 5 percent in 2018.

Sri Lanka will stay the course on fiscal consolidation and had already taken steps to manage debt with a active liability management law, he said.

Sri Lanka is under an International Monetary Fund program.





IMF resident representative Eteri Kvintradze said Sri Lanka’s problems are weak revenues, high debt and low forex reserves.

Sri Lanka has to boost reserves, and continue fiscal consolidation path.

Improving fiscal consolidation will enhance investor confidence she said.

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