ECONOMYNEXT – Sri Lanka’s economy is managed through new policies in an ‘alternative way’ but critics are using the downturn seen in the second quarter of 2020 to make, doom and gloom predictions for 2021, Central Bank Governor W D Lakshman said on Friday.

The alternative policy now being deployed seemed to be criticized based on a political or ideological basis in his view, he said.

It was important to have a positive view he said. A pick-up in business confidence has been seen in the purchasing managers’ index.

Alternative Policy

“It is important to note the government’s determination to move away from the, so far, heavy dependence on imports for foodstuffs,” he said. “That is indeed a really significant long term policy approach despite in the short run there is an adverse impact in the prices.”

Sri Lanka was already growing enough turmeric he said. Sri Lanka banned the import of turmeric and as prices shot up to 200 rupees for 50 grams (about 4,000 rupees a kilogram) smuggling commenced.

But now nobody is talking about turmeric, he said.

The Navy was deployed to stop smuggling. Sri Lanka had seen similar smuggling in the 1970s.

Most negative analysis and critiques were based on the performance of the economy in the second quarter of 2020, but conditions for 2021 were different, he said.

The country was now using limited closures of areas instead of national lockdowns and business activity was picking up with people starting to move around.

Tourism, which was the most badly hit was also now starting to unlike in 2020, he said.

The government was moving towards a mass vaccination campaign which would also help.

The International Monetary Fund has forecast global economic growth to pick up to around 5.5 percent in 2021.

Pick Up

Gross domestic growth of 5.5 to 6.0 percent in 2021 was expected, recovering from a 3.9 percent contraction in 2019. The low base will also help the recovery number, Governor Lakshman said.

Per capita GDP is expected to be 4,000 dollars.

Inflation of 4-6 percent is targeted in 2020. Private credit is expected to grow by 850 billion rupees.

There were challenges in the fiscal side and external sector. But we will repay debt and maintain our unblemished record of debt repayment.

Year end gross official reserves were targeted at 5.5 billion US dollars. Negotiations were underway with multilateral lenders, and foreign central banks as well as commercial banks for credit and swaps, details of which would be announced as they are finalized, he said.

It was not correct to simply add debt repayments and compare against foreign reserves. The foreign share of central government debt was expected to fall to 35 percent in 2021 according to Central Bank projections. In 2020, foreign loans were repaid partly by using foreign reserves and selling Treasury bills to the Central Bank. Despite stronger private credit a 500 million dollar surplus in the current account is also forecast.

Inflows in 2021

Exports are targeted tat 13 billion US dollars, with apparel at 6.0 billion USD, tea 1.5 billion dollars, gem and jewelry 1 billion dollars. Imports are expected to be 17 billion USD. Among services, IT/BPO is expected to be 1.75 billion USD and tourist earnings 1.75 billion USD.

Worker remittances would be around 7.5 billion US dollars and foreign direct investments would be about 2.0 billion US dollars. Port City lease sales would bring in an additional billion US dollars.

Sri Lanka had recorded a surplus in the current account for part of 2020 for the first time in decades.

In 2020 up to October the government had repaid foreign debt on a net basis. Up to August 2020, private credit was negative, and the second quarter GDP was negative, which will also help create a current account surplus, analysts say.