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View from the windscreen is more optimistic than the view from the rear mirror, Governor, Central Bank of Sri Lanka

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Economic growth certainly is inadequate but there is no evidence of the economy collapsing

“The available data did not corroborate the notion that the economy was collapsing,” Sri Lanka’s Central Bank Governor Dr Indrajit Coomaraswamy said.

He made these remarks at the launch of The World Bank Group’s study on trade in South Asia, titled “A Glass Half Full: The Promise of Regional Trade in South Asia”. He cited trends in growth rate, inflation and reserves to counter argue that economy was not in a crisis.

He said that the economic growth showed signs of improvement in the second quarter against the first quarter of 2018. “The growth rate of 3.5% experienced in the first half is expected to increase to 4.6% during the second half,” he said.

Governor mentioned the steady rate of inflation, headline being 4.3% in September. “The inflation of food was even lower, thanks to good yala and maha seasons,” he said. 

“The reserves stand at USD 7.1 billion, down from USD 8.5 billion due to debt servicing and USD 180 million spent to equilibrate the exchange rate. Syndicated loan from China Development Bank is expected later this month and Central Bank is optimistic about raising USD 500 million more from Panda and Samurai Bonds,” Dr Coomaraswamy said.  The Governor also indicated the possibility of issuance of another international Sovereign Bond. “These inflows will make reserve position healthy,” the Governor said.

Governor stated that it was wrong to claim that the economy was collapsing without backing such claims with robust evidence.

Speaking about regional integration in South of the Asian region, the Governor observed that certain developments in India could potentially provide fresh impetus to promote trade within the region.

“Neighbourhood friendly” policy of India, which began during the previous regime and continued under the Modi administration, would be conducive to the regional integration.  “A friendly, peaceful and prosperous region would serve India’s interests, given its aspirations to play an enhanced role in the region and in global affairs,” he noted. “In the past, the Indian industry was not open for collaboration with the player in rest of the region,” the Governor observed. “However, Make in India initiative is different to the past practices. It facilitates and enables supply chain integration opportunities for the industries in rest of the region,” he said.

The GST, which is hailed as a transformative tax reform in India subsumes many indirect taxes and eliminates the tax on taxes. This will significantly ease doing business in India. The Governor said he expected the Indian GST to make trading with India easier to the exporters.

The Governor stated that the proximity advantage of the nations in the region had not yielded positive benefits, partly due to underdeveloped infrastructure.

 

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