Financial markets are expected to become more proactive to support the growth ambitions of the government. The relationship between the private sector and the government was envisioned as being a ‘co-ordinated growth-oriented approach.’ The Central Bank will continue to maintain liquidity in the markets.
Central Bank Governor Prof. W D Lakshman said, “Financial markets will become proactive, maximising funding sources for growth-oriented endeavours of the public as well as private sectors.”
“Implementation of these structural reforms, along with the picking up of government revenues and a rationalisation of government expenditures, should ensure sustainability and successful management of public debt in the period ahead.”
Lakshman was speaking at the inaugural webinar of the Veemansa initiative on ‘The External Debt Situation in Sri Lanka’ on February 24.
The Central Bank has already settled sizable foreign currency obligations amounting to US$ 1.1 billion this year between January and February.
The Governor noted that there will be a decline in the debt servicing pressure on the economy from 2026. The Governor opined that recent reports by ICRA, Standard Chartered, and Barclays coincided with major movements at the UNHRC concerning the country were not by coincidence.
“These critiques in addition to being politically and ideologically motivated, appear to be cries of despair from a group of pessimists. That is what they do.”
The Governor said that economic management was more competently handled now than it was before.
He said, “When they combine with these numbers, the assumption that things will continue to move in the same way as they did during 2015-19, there cannot be anything but predictions of doom and gloom. I strongly believe that this problem has to be examined in a dynamic manner, in the light of new directions in policy and practice and the likely changes in the tempo of economic activity.”
As Sri Lanka migrated to a middle-income status it lost access to concessional financing and had to resort to commercial borrowing. The government now intends to reduce the reliance on foreign borrowing.
He said, “The prospects for external financing has been adversely affected by risk aversion, and volatility found in global financial markets. Despite these challenges, and predictions by many parties who project doomsday scenarios, the country continues with its unblemished record of debt servicing.”
The ratio of foreign: domestic debt is expected to improve from 43:57 to 33:67. “This could have been during the 2nd half of the 2010s. Instead, foreign debt volume was increased from US$ 24.6 billion in 2015 to US$ 34.7 billion in 2020.
“Now is the time to bring down the foreign: domestic ratio of total public debt and gradually take the country out of the debt trap.”
