Sri Lanka central bank warns against reckless spending

(From left) Dharmasri Kumaratunga, Director - Payments and Settlements, Central Bank; Nanda Fernando, Managing Director, Sampath Bank; and Tharaka Ranwala, Head of Operations and Group Chief Marketing Officer, Sampath Bank

Jan 05, 2010 (LBO) – Sri Lanka may be forced to print money and send inflation up again unless the state avoids reckless spending, which also takes away resources available for productive activities by the people, Central Bank Governor Nivard Cabraal has warned. “We have to be conscious that any money printing that can take place if there is no proper (fiscal) discipline could eradicate all the successes,” Cabraal said delivering his main policy speech for 2010 on Monday.

“Any reckless new public spending in hundreds of billions on recurrent expenditure will be disastrous to the economy and will reverse the sound macro-economic fundamentals as prevailing now and put many businesses at intense risk.”

Cabraal brought inflation down to 4.8 percent by end 2010 with tight monetary policy despite some of worst deficit spending seen in recent years, though prices have now started to curve upwards.

Following a float of the currency in April which broke a sterilized intervention cycle (dollar peg defence and money printing to fill liquidity shortages) ending a balance of payments crisis, the exchange rate has also been stable.

Peoples’ Burden

But Sri Lanka’s current ruling coalition has more than a 100 ministers and has engaged in mass st