Sri lanka News – Sri Lanka is managing imports without ‘bridging finance’ Central Bank Governor Nandalal Weerasinghe has said as the balance of payments went through a correction with declining private credit.
“What I can say now is even without those bridging financing now we are managing the compared to when we had these bridging financing, that was obviously helpful,” Governor Weerasinghe told reporters after the August monetary policy decision.
“But now even without the bridging financing we are managing the situation.
“I’m not too concerned if those monies are coming in or not. We have our own system of managing and we can manage with our exports and remittances.”
“We can finance import requirements without much difficulty.”
Sri Lanka was at one time trying to get around 4 to 6 billion US dollars of ‘bridging finance’ amid severe forex shortages coming from liquidity injections and high domestic credit.
However Governor Weerasinghe had allowed interest rates to go up, and private credit has slowed sharply reducing investment spending and imports.
Attempts are also being made to reduce to reduce domestic credit to government to the state by raising taxes and end central bank credit with higher rates.
Governor Weerasinghe had also urged Ceylon Electricity Board tariffs to be hiked to reduce its borrowings from state banks. The Public Utilities Commission hiked prices earlier this month.
CPC is on a two weekly or monthly price formula.
Sri Lanka imports, curb market premiums have fallen in step.
However concerns have been raised on recent import controls as individual goods have little to do with external imbalances.
Bank credit, especially if they are re-financed with central bank credit leads to forex shortages as holders of the new rupees chase after non-existent inflows.
The central bank however is still intervening for some transactions using ACU dollars given by India. Sri Lanka also has to settle multilateral debt, despite defaulting.
Sri Lanka is expecting to finalize a deal with the International Monetary Fund later in 2021. The IMF does not give money until a country can manage imports with current inflows.
Under a Net International Reserve target of an IMF program, a central bank is expected to save a little money from current inflows or generate a little left over foreign exchange, after people pay for imports.
Bridging or other financial account inflows on the other hand leads to unsustainable imports and bigger current account deficits analysts say. (Colombo/Aug28/2022)