‘Marginal increase in external debt stock’ | Daily News


 

‘Marginal increase in external debt stock’

“The country’s external debt stock increased marginally, while external debt service payments also rose in 2018.” Total external debt stock as at end 2018 was USD 52.3 billion which is 58.7 percent of GDP compared to the USD 51.6 billion which was 58.6 percent of GDP,” Y. M. Indraratna, director economic research at the central bank said.

Presenting her reflections on the Central Bank annual report at the Centre for Banking Studies last week she said, “Credit to the government by the banking system increased substantially during 2018. Credit has risen significantly by Rs 346.7 billion, particularly in the fourth quarter of the year, in comparison to an increase of Rs 196.4 billion in 2017.”

“Core inflation remained at low single digit levels in 2018, reflecting the impact of the relatively tight monetary policy stance maintained during the past years and anchored inflation expectations. Projections indicate that inflation is likely to remain within the 4-6 percent range in 2019 and beyond.”

Indraratna pointed to a box article within the annual report detailing central bank plans to implement flexible inflation targeting (FIT) by 2020. The box article notes ‘to adopt FIT by 2020, the CBSL is currently in the process (of selecting) appropriate inflation metrics. Amendments to the monetary law act require a monetary policy framework agreement to be signed between the government and the central bank.’

A section of the annual report called on the public to get accustomed to low nominal rates of interest. A section in bold within the annual report notes ‘with inflation expected to be maintained at mid-single digit levels on a sustained basis it is likely that the economy will move to a low-interest rate regime in future, and this highlights the need to introduce new financial products with reasonable rates of return for an ageing population.’

The annual report further notes, ‘this regime shift (to FIT) is likely to be accompanied by a gradual decline in nominal interest rates from the current high levels. It is essential that the general public is made aware of such a transition in advance while encouraging the financial sector to introduce sustainable, long term financial products which provide a reasonable real return to investors.’

Indraratna added, “historically highest earnings from exports seen in 2018. Higher export earnings were underpinned by the restoration of the EU-GSP plus facility, conducive external trade policies together with strong institutional support, and (the) flexible exchange rate policy of the Central Bank.


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