Enhanced focus on import substitution will have significant implications on a longer horizon: CBSL

Aug 20, 2020 (LBO) – The Monetary Board of the Central Bank believes that the enhanced focus on domestic production for import substitution as well as to export is expected to drive near term growth, with potentially significant implications on the longer horizon.

According to the board, sustaining the growth momentum beyond the near term would require reforms to address structural issues in the economy.

As per the provisional estimates released by the Department of Census and Statistics (DCS), the Sri Lankan economy contracted by 1.6 percent in the first quarter of 2020, contrary to the expectations of the Central Bank.

“As per the available indicators, the adverse impact of COVID-19 on economic activity during the second quarter of 2020 is likely to be substantial,” the Monetary Board of the Central Bank said.

“However, a faster rebound of economic activity is expected, especially in the fourth quarter of 2020, supported by improved political stability, the resultant improvement in business confidence, and the lagged impact of monetary and fiscal stimulus.”

This expected rebound in the fourth quarter is essential for the country to record a positive growth rate during this year, the Monetary Board added.

Meanwhile, the inflation is expected to remain broadly within the desired 4-6 percent range in the near to medium term, with appropriate policy measures.

The slow growth of credit to the private sector is expected to recover gradually in the period ahead. The Central Bank further stated that the impact of monetary easing measures is reflected in the recent notable decline in market interest rates.