The Sri Lankan economy is expected to make a notable recovery in 2021, supported by policy stimulus and improving business sentiments, the Central Bank (CB) announced revealing that it has targeted 3-3.5 per cent growth in the first quarter this year.
Given the low inflation environment, the Central Bank is in the process of actively supporting the Government’s economic agenda focused on developing a production-based economy while focusing on non-debt creating investments.
Positive sentiments fuelled by the COVID-19 vaccination drive in the country and the impact of growth promoting policies are expected to support the economic revival over the short to medium term, Governor Prof. W.D Lakshman told a media conference in Colombo recently.
He said that credit to productive sectors is vital in ensuring a sustained economic recovery and the growth of credit to the private sector is expected to gather pace supported by low lending rates.
He disclosed that the Central Bank will be setting priority sector lending targets for banks on lending to the micro, small and medium scale enterprises (MSME) sector.
The rising demand for credit is to be driven by improving investor sentiments but the private sector credit has come down to LKR 25 billion in January from LKR 74 billion a month earlier.
The Central Bank has set a target of LKR 850 billion private sector credit growth to Micro, Small and Medium Enterprises (MSMEs) in 2021 to revive economic activity.
He reiterated that Sri Lanka has no intention of defaulting debt service obligation this year as it hopes to get more foreign inflows while strengthening the external sector performance.
He disclosed that the external sector performance is being closely monitored by the CB. Several successful meetings were held by the relevant government officials and the Central Bank with the stakeholders of the external sector to discuss ways and means to tackle challenges faced by them and increase foreign exchange inflows.
Discussions with the banking community and other stakeholders are ongoing to rectify deficiencies in extending credit to productive, growth-supportive, sectors.
Negotiations are underway with international agencies and donor countries for rapid financial instruments and necessary funding to strengthen foreign reserves, he said, expressing optimism on fulfilling debt servicing obligations.
Discussions are continuing on securing foreign financing. Furthermore, increased non-debt creating foreign exchange inflows are expected, supported by the measures introduced by the Government and the Central Bank.
In spite of adverse speculation, all debt service obligations of the Government have been duly met thus far in 2021, and the Government remains committed to maintaining its impeccable debt service record in the future as well.
Sri Lanka foreign reserves will fall to uncomfortable levels after the July 2021 repayment of USD 1 billion is repaid, economic experts said, but CB officials expressed optimism in boosting reserves.
Forex reserves were estimated at USD 4.6 billion in February 2021, down from USD 4.8 billion a month earlier, Director of Economic Research, Chandranath Amarasekara said. (Sunday Times)