Sri Lanka is seeking the aid of a veteran central banker, Ajith Nivard Cabraal, as the country’s devices plan to uplift its depleting foreign exchange reserves and debt without depending on an international financial bailout.
The former junior minister managing capital markets led the Central Bank of Sri Lanka for a tenure of 9 years from 2006. Ajith Nivard Cabraal will return to the Central Bank of Sri Lanka as governor. Cabraal stated that he will first be brainstorming methods to solidify the Sri Lankan economy and then seek growth measures.
Ajith Nivard Cabraal will uplift the depleting forex reserves in Sri Lanka
The yield on Sri Lanka’s 2024-dollar bonds saw a surge of 43 basis points in the last two sessions. However, it fell to 25.3% (a decrease of 4 basis points) on 14th September 2021. Ajith Nivard Cabraal, during his previous governor tenure, drove inflation to as low as single-digit units and minimized interest rates when the forex reserves grew. The Sri Lankan economy witnessed these silver linings owing to a resurrection of the tourism sector which boosted the economic growth at the end of the island nation’s civil war.
Ajith Nivard Cabraal now has to deal with the country’s depletion of forex reserves, owing to a crashing tourism sector, born from the aftermaths of the devastating COVID19 pandemic.
Momentarily, the Central Bank of Sri Lanka has reduced the number of foreign currencies exiting the country. The bank has also imposed stringent import rules to discourage the purchases of commodities like wines, chocolates, electronics, and cosmetics.
According to the investors of Sri Lanka’s dollar bonds, the depleted reserves could result in more stringent impositions on the nation’s monetary policies and even an international bailout from the IMF.
Ajith Nivard Cabraal has stated that the country will not need any help from the IMF and will not be the cause of any discomfort to its investors and lenders.
Ajith Nivard Cabraal will replace Weligamage Don Lakshman, who stepped down on 14th September 2021. The latter revealed his early retirement on 10th September 2021 and stated that authorities had to aid the country with resources as the pandemic had left devastating effects on the country’s economy. Lakshman said that the Sri Lankan economy was facing a very sensitive period and that the creation of an excessive money supply could easily be reversed.
In August 2021, the Central Bank increased its policy rate which resulted in the broadening of the trade deficit. The rate surge was also to prevent the accumulation of any extra inflationary pressures.
The country’s foreign exchange reserves saw a surge of 26% to USD 3.55 billion in August. The Sri Lankan forex reserves had decreased to USD 2.8 billion in July 2021 after it utilized a part of the reserve to clear a USD 1 billion debt.
