Arrogance and incompetence of the regime will in the coming months begin to bite as the adjustment on the exchange rate will have to be much bigger.!

Govt.’s arrogance, incompetence will begin to bite - Harsha


Saturday, 04 February 2012 10:44

(Srilankamirror) - UNP MP and economist Dr. Harsha de Silva warns that arrogance and incompetence of the present regime will in the coming months begin to bite as the adjustment on the exchange rate will have to be much bigger and the impact on the public will become much larger.

In a statement he says that in the meantime, the export industry would also have felt a significant blow with increasingly less resources being invested in the sector relative to the GDP. Ten years ago exports accounted for some 37 percent of GDP, but today, it is at 17 percent and dropping.

Dr. Silva’s statement says,

The verdict is out and for all practical purposes the IMF has abruptly ended the USD 2.6 billion bailout package to Sri Lanka with USD 800 million yet to be released given the failure of the Government to keep to the agreed targets; particularly the net international reserve target. The unsustainable policy stance of fixing the currency at a highly overvalued and arbitrary level of LKR 114 to the USD by selling more than a third of the external reserves, most of it borrowed, and thereafter printing money to offset lost liquidity to maintain artificially low interest rates have resulted in a massive trade deficit and continued pressure on the LKR. The trade deficit of close to USD 9 billion is unprecedented and unlike in previous years it cannot be offset by remittances and tourism earnings; a yawning gap of around 40 percent remains.

If as the Governor says Sri Lanka has more than sufficient reserves and thus there is no need for additional borrowing this year then it is of no consequence that the IMF has stopped the facility. But, as was the case last week where the completely politicized Governor of the Central Bank attempted to fool the public by falsely stating a higher than the true rate of interest on the IMF loan this statement is nothing but pure gobbledygook. The Government is already planning to borrow USD 1 billion in the international markets besides attempting to borrow USD 500 million via the Bank of Ceylon. Given the history of our sovereign bond program and the current global scenario Sri Lanka will not be able to borrow for anything less than twice the rate offered by the IMF.

Arrogance and incompetence of the regime will in the coming months begin to bite as the adjustment on the exchange rate will have to be much bigger and the impact on the public will become much larger. In the meantime, the export industry would also have felt a significant blow with increasingly less resources being invested in the sector relative to the GDP. Ten years ago exports accounted for some 37 percent of GDP, but today, it is at 17 percent and dropping.