SL’s alternative policy path not understood: CB chief

• Says rating agencies and other international orgs. used to traditional thinking remain sceptical of SL’s alternative policy
• Says SL is introducing groundbreaking reforms to improve domestic production of economy
• Dismisses claims of excessive fiscal deficit and unmanageable debt level
• Says plans already underway to reduce country’s reliance on foreign debt

Central Bank Governor Professor W.D. Lakshman this week called out to the doomsayers, who fail to understand the alternative policy platform unleashed by the government and Central Bank, which is already showing some encouraging results.

“We are not surprised that most international organisations, rating agencies, as well as certain domestic quarters, which are so used to certain traditional ways of thinking, remain sceptical about these alternative policy stances without making the effort to understand the new framework,” said Prof. Lakshman. 

Speaking at the first-ever virtual Sri Lanka Economic Summit conducted by the Ceylon Chamber of Commerce this week, the Governor debunked the claims propagated by certain quarters about the effect of excessive fiscal deficits and debt at unmanageable levels. 

“Several countries, including Japan, Singapore and the United States, have debt levels far exceeding their GDP. Firstly, this shows that even such high levels of debt could be sustainable when domestic debt is the predominant component in the debt portfolio,” he said. “It can be shown through alternative indicators that even foreign debt is more manageable than doomsayers indicate,” he added. 

Meanwhile, Prof. Lakshman pointed out the government’s plans to reduce the country’s foreign debt component in 2021 and beyond, which has brazenly been disregarded by the rating agencies when arriving at their judgments. 

“Public debt will be managed in such a way the domestic to foreign component of the debt will become 55:45 in 2020, to 60:40 in 2021. This and the stated policy of not pursuing foreign debt-creating public investments will make government debt more manageable. The commitment to reduce the budget deficit over the medium term to 4 percent by 2025 remains,” he added. 

The Central Bank Governor further exposed the duplicity and the hypocrisy of those who call for “debt restructuring” or “debt re-profiling”, as such a move include austerity measures characterised by higher taxes, cut down on welfare and subsidies.

“In my view, Sri Lanka is already undergoing some austerity but on our terms. This is evident when the ongoing programme of import compression is considered,” he said. 

“In my view, Sri Lanka is introducing groundbreaking reforms to improve the domestic production economy, enhance exports and reduce foreign debt dependence. It is commendable that Sri Lanka is following this approach without being prompted by any foreign agency, while continuing to honour all its financial obligations,” he added.