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Nandalal cautions not to expect quick recovery

11 Apr 2022

  • New CBSL Governor warns economic conditions will deteriorate before reversal
  • Expects inflation to reach 28-30% by next month
  • Wants clear communication between public and Central Bank
    BY Shenal Fernando Newly-appointed Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe called on the public to not expect a quick reversal in the economic conditions of the country, and stated that he expects inflation to reach 28-30% by next month.  The above revelations were made by the new CBSL Governor in an interview with Ada Derana on Saturday (9) where he stated that the events that led to the current crisis have already occurred, and that the public will have to face the repercussions. According to him, the policy reversals implemented by him will not have any immediate effect, and the economic condition of the country will deteriorate further in the near term before recovering, hopefully in around three months’ time. “We are taking the necessary measures and we are confident that it will work. But in implementing such measures, we must tell the public that the economic conditions will deteriorate further before seeing a reversal,” stated Dr. Weerasinghe. Explaining further, Weerasinghe stated: “Inflation was 17% last month. By next month, inflation will reach 28-30%. The results of our decisions today will not materialise tomorrow; it will take around three months for us to see it. What has happened has happened, and the public will have to face it.”  He further pointed out the importance of clear communication between the CBSL and public when facing the current economic crisis going forward, stating: “In order to successfully emerge from this crisis, we must explain to the public the crisis in detail. I confess that it was a mistake for the CBSL to continue to deny the existence of an economic crisis. We currently have foreign reserves of around $ 2 billion, from which only a limited amount is actually usable. During this year, we have to pay around $ 5 billion more to service our foreign debt repayment.”  Weerasinghe further cautioned on the importance of political stability and the need to end the current social unrest in the country in order for Sri Lanka to successfully emerge from the current economic crisis. According to him, the International Monetary Fund (IMF) and other creditors will require stability in the political structure to participate in the debt restructuring process.  He also highlighted the importance of the independence of the CBSL to ensure a stable economy, and pointed out that no country where the Central Bank has acted on political needs has succeeded in achieving sustainable development.  Sri Lanka’s inflation, on a year-on-year (YoY) basis, reached 18.8% in March 2022 as per the Colombo Consumers’ Price Index (CCPI), increasing from 15.1% in February 2022. Similarly, food inflation reached 30.1% YoY, increasing from 25.7% in February. The CCPI had increased by 4.8 index points during the month of March compared to February, reaching 164.9.  However, according to the Inflation Dashboard computed by Johns Hopkins University Professor of Applied Economics and Cato Institute Senior Fellow Steve Hanke, the annual inflation rate of Sri Lanka was the sixth highest in the world at 55%, behind only Venezuela with an annual inflation rate of 140%, followed by Zimbabwe with an annual inflation rate of 134%, Lebanon with an annual inflation rate of 117%, Turkey with an annual inflation rate of 101%, and Sudan with an annual inflation rate of 96%.


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