Governor outlines economic philosophy | Daily News


Governor outlines economic philosophy

‘There has to be a focus on three types of capital; domestic private capital, foreign capital and state capital for the economy to take off.’

Central Bank Governor Professor W. D. Lakshman (Pictured) outlined economic philosophy at a recent breakfast meeting with the Council for Business with Britain and projected GDP growth to be around four percent for 2020.

He said he believed it was useful to conceptually classify capital into three groups. “There was a difference of opinion on the importance of inflation and we would be working closely with the treasury in the national interest. My philosophy is that there has to be a focus on three types of capital; domestic private capital, foreign capital, and state capital. A coalition of these factors is required for Sri Lanka to take off,” he said.

“Sri Lanka’s vast state-owned enterprise sector has not been facilitated to grow commercially generating profits. If they were managed by a suitably efficient and competent professional class Sri Lanka could lay claim to a robust stock of state-owned capital to partner the other two forms of capital. The Public sector is now a drain on government revenue.” He added, “The previous regime had the focus on FDI but this has not materialized in reality. Our FDI flows in the last 30 years have been low in comparison to Bangladesh and Vietnam.”

“My strongest dependence for investment expansion is what we called shared growth; Domestic capital both private and state. Foreign Direct investments are no doubt important. Port City and the Hambantota industrial zones, in particular, should attract large FDIs.”

He said, “Our projection was to grow at 4.5 to 5 percent. Some slight downward adjustment is called for to account for the COVID 19 crisis. We estimate today for 2020 growth to remain around 4 percent. “I remind myself the projections in economics have a high level of unreliability. Global disruptions to growth caused by COVID 19, financial market disruptions, uncertainty due to upcoming elections, and the delayed presentation of the annual budget all-cause downside risks to our projection.”

“Coordinated and timely policy measures could mitigate these risks. That is what we are trying to do with coordination between the Central Bank and the treasury.”

“There are reasons to believe that investment prospects remain good and will further improve with parliamentary results in April.”

He said, “Supply disruptions in Sri Lanka are likely to have serious impacts on intermediate import goods such as textiles and textile articles, Chinese supply is about 40 percent.”

He said Merchandise exports to China however only make 2 percent of the total for 2019. The COVID-19 pandemic had impacted the economies of major export regions for Sri Lanka such as Italy which was the 3rd largest importer of garments. He said, “We all know that Sri Lanka’s economic growth has been very low, it has been below 5 percent since 2013. It was below 3 percent over the 2016 to 2019 period.”

He went on to outline the countercyclical policy of the previous government. He said, “These steps were not taken boldly and strongly as any developed countries central bank would have done. The stimulus packages in those countries were much stronger than what was done in Sri Lanka. The traditional type of Central Bank of maintaining austerity position and the accommodative stances are required by changing conditions.”

He said, “I was very optimistic about the change of presidency in 2019 and establishment of conditions of political stability.

“There was an enormous amount of goodwill from all quarters of society including the business community. There were greater business confidence levels consequent to political change.”

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