Sri Lanka needs stable economy to progress: CB governor

Apr 06, 2010 (LBO) – Sri Lanka needs a stable economy with low inflation and ‘reasonable’ interest rates to progress and reduce poverty, after recovering from a 30-year war, Central Bank Governor Nivard Cabraal said. In Sri Lanka, for the past several decades, deficit spending governments have created a need for high interest rates but the central bank has been forced to print money to keep interest rates down (fiscal dominance of monetary policy) de-stabilizing the economy.

In 1977 Sri Lanka broke state monopolies, ended sweeping import protection and import barriers which unjustly enriched local business interests and liberated the people to unleash their potential.

But the government did not have good budgets which allowed the central bank to run prudent monetary policy and fiscal dominance of monetary policy continued.

“The 1977 reforms was a big policy reform which opened up the economy,” Prema-chandra Athukorala, an economics professor at Australia National University said on the sidelines of the Sri Lanka Economics Association annual sessions in Colombo last year.

“The quantitative restrictions were removed and at successive stages tariff was reduced.

“We opened up the economy but at t