CB says time running out; calls for political stability

• Governor issues ultimatum that he would resign if no political stability is found during next 
• two weeks 
• Economy heading for complete standstill with anarchy being order of day
• Warns of longer hours of power cuts and endless queues for essentials unless situation brought under control 
• Foreign reserves not even sufficient for next week’s imports 

The Central Bank yesterday made a fervent appeal from all elected representatives, including Executive President Gotabaya Rajapaksa, to make way to establish political stability, rule of law and civic order immediately, to ensure that people’s economic sufferings wouldn’t worsen anymore.

Central Bank Governor Dr. Nandalal Weerasinghe said the policy reforms that are already implemented by the Central Bank and Finance Ministry would end up being futile, if the current anarchy persists any longer. 

“The country can come to a complete standstill, if the current situation isn’t resolved immediately,” Dr. Weerasinghe said in a hurriedly summoned press conference to announce to the public the current status of the economy, which turned from bad to worse from the events that took place on Monday. 

“Unless we see no resolution in the next two to three days, the country may have to reimpose 10 to 12-hour daily power cuts and experience massive shortages in essentials such as fuel and cooking gas, resulting in endless misery for people, which could compel them to come on to streets,” he cautioned calling for immediate political stability. 

Although there was some semblance of improvement in the economic conditions from the policy reforms implemented since April 8, as seen from the reduced hours of power cuts, shortened queues and increased availability in essential items, things took a wild turn on Monday, obstructing even the little progress made thus far. 
Painting a gloomier picture of what could come in the next few days and weeks, Dr. Weerasinghe said the current usable reserves aren’t even sufficient to finance the country’s next week’s imports.

He also said the Central Bank has begun talks with the Chinese authorities to explore whether the US $ 1.5 billion worth of yuan-denominated swap facility in foreign reserves could at least be used for the imports from China.  
Sri Lanka’s official foreign currency assets fell to US $ 1,827 million by the end of April, of which US $ 1,500 million equivalent yuan facility could not be used to fund imports, despite various statements made by the previous governor when repeatedly queried about its usability.  

Meanwhile, Dr. Weerasinghe stressed that the actions of the Central Bank alone could not fix the economy but a functioning government is sine qua non in making other much-needed adjustments in the economy such as raising taxes, revising prices of petroleum products, electricity and other utilities, which the Central Bank considers as urgent reforms. 

Announcing an ultimatum, Dr. Weerasinghe said he would step down, unless the elected officials failed to re-establish political and social order in the next two weeks, as no one could rescue the economy from its current depth without political stability.  “I have made myself very clear that I won’t stay unless political stability is restored in the next two weeks,” he said. 

Since taking office, the Central Bank took several policy measures, including the 700-basis point policy rate hike and suspended foreign currency debt, to ensure that Sri Lanka has foreign currency to meet at least its essential imports such as fuel, medicine and cooking gas.  While the results are already seen from the successful weekly Treasury bill auctions and substantial slowdown in private sector credit growth thus far, the Central Bank yesterday took further measures to rein in the extreme volatility in the domestic foreign exchange rate and also to clamp down on exporters who have been misusing their ability to determine how they use their export proceeds.  The measures are taken amid seeking bridge financing facilities from the multilateral and bilateral partners to ensure that the country has sufficient foreign currencies to meet their daily essential imports, until a rescue package with the International Monetary Fund (IMF) is struck, which is at least three to four months away. 

However, Dr. Weerasinghe warned that the more time the elected representatives take to bring about political stability, the longer it would take to enter into any deal with the IMF and also to engage with the country’s multiple creditors to come into agreements to restructure debt.