We had to take measures to prevent a crash landing - CBSL Governor

by Zulfick Farzan 15-11-2022 | 1:15 PM

COLOMBO (News 1st) - Sri Lanka's Central Bank Governor said that necessary measures had to be taken to prevent the economy from crash landing.

Speaking at the Post-Budget Forum on National Budget 2023 the Central Bank Chief said "When the government settled the sovereign bond on January 18th, there were a lot of calls for instead of settling the bond with depleting reserves, why don't we start restructuring our debt and address the debt sustainability issue".

He said that even before Sri Lanka announced its decision to default on debt the International Sovereign Bond Holders were already forming a committee preparing to negotiate and restructure the debt.

"This is even before we announced our debt standstill, our creditors were getting ready because it was already obvious that we were already going into a debt crisis," he said.

"The Central Bank realizing that it was no longer able to maintain the currency at 203 on the 8th of March, let the currency float without having any safeguards. The then-government realized this was going to crash, and this is where the first request the then-government made from the IMF and asked for a bail-out package back in March," said the Central Bank Governor.

"How do we prevent it if it happens? That was a priority. That is where the immediate policy package included sharp tightening of monetary policy to curtain the demand, minimize the monetary expansion and tighten monetary policy, and reduce what we call the deficit financing by the Central Bank and also to announce a debt standstill which would prevent a hard default, if that happened we would not be in a position to restructure with our creditors," added the governor.

Sri Lanka's Central Bank Governor said that the country has made some progress with respect to the discussions with the International Monetary Fund.

"Now we see instead of the crash landing that we were expecting, we were able to have a soft landing. It means we have landed at a lower point. But, if we did not take that action at that point, the outcome would have been much worse," highlighted the Central Bank Governor.