Sri Lanka capital projects may be delayed but disinflation faster amid global turmoil: interview

Nov 20, 2008 (LBO) – Sri Lanka has plans to borrow abroad next year at commercial rates to repay maturing loans and keep its infrastructure projects on track. While raising new money is difficult, ongoing global turmoil is tempering commodity prices, helping price stability. ETV’s Lanka Business Report programme discussed the challenges facing Sri Lanka with the Central Bank’s Chief Economist Nandalal Weerasinghe.

Shamindra Kulamannage started a wide ranging interview by asking how the dollar peg of the Sri Lankan Rupee benefits the country. Excerpts:

Nandalal Weerasinghe: During the first 8 months we saw a lot of inflows to the country and as a result there was a tendency for the currency to appreciate against the dollar. We prevented the appreciation and built-up about 600 million dollars in reserves during that period. We didn’t allow the rate to appreciate because of short term investment on treasury bills and bonds. Because of this financial crisis there was a sudden outflow of most these financial flows. The 600 million dollars in outstanding bills and bonds reduced to about 200 million. So was a 400 million outflow. We didn’t want the exchange rate to appreciate or depreciate because of this short-term influence because this isn’t consistent