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Sri Lanka is moving at a steady pace down the road of development. There is no doubt about that; the oil shock and other problems notwithstanding. This confident assertion comes from Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal, on surveying current economic trends in the country. While rectifying internal economic imbalances, Sri Lanka should be constantly impatient to scale newer and newer heights of economic achievement, explains Cabraal in this interview. Among other things, Cabraal visualises a new dynamic, developmental role for CBSL: Q: You have been quoted as envisaging a larger developmental role for the Central Bank of Sri Lanka. Could you elaborate on this idea? A: The Central Bank has two, clear core activities. That is, price and income stability and financial system stability. Now, in fulfilling those core objectives, there are other key chores also that the Central Bank has to meet. In that you cannot exclude development because if the country is in a dynamic mode where overall the country is progressing, expanding and growing, development has to play a very, very critical part of that entire exercise. So, we see the Central Bank as playing a proactive and dynamic role while ensuring these core activities are maintained. The Central Bank should be alive to its obligations, fulfill its key role as economic advisor to the Government, by showing the path of social development. Q: What are your proposals for bringing down inflation and living costs? A: Bringing down living costs is a responsibility of the Government and the Government has to fulfill that role. I know there are very many areas where the Government is taking action to bring down prices but in a market-oriented situation, there are many factors which are beyond the control of a single nation. There are the outside forces which have a close bearing on what the Government does. For example, oil prices. Government has no control over the prices of oil which comes into this country. If at all it does, it will only look at futuristic models which can be purchased in a certain way, where by hedging the prices there is a definite price for a particular time. But beyond that Government has to purchase oil from outside. There are certain impacts which the economy feels as result of outside forces. That cannot be avoided. But at the same time if the country can look at internal sources, where internal productivity and internal production methods are employed, we could reduce the impact of outside influences. So, the Government has to deal with that and ensure that the overall cost of living can be reduced. Besides, if the incomes of people are also rising as a result of greater productivity, greater opportunities or greater skills, or greater acceptance of skills in the outside world, then they will be able to withstand any rise in costs. For instance, a rich man would be able to meet the rise in prices than the man with a lesser income. So, there are two ways of looking at this situation. Inflation is more a situation which has to be responded to by the Central Bank. The Central Bank has many instruments under its control to meet this challenge. One of these are the interest rates. The other is the liquidity which the market is having and the control of that liquidity through the money supply. But inflation is best controlled over a long period of time through the enhancement of the productivity of the labour of the country. That is something we have to have an eye on; ensure that our productivity is high, ensure that our foreign exchange reserves are intact or enhanced, ensure that we build up certain reserves which would ensure that our overall exposure to the outside world is reduced and our dangers and our vulnerabilities are reduced. All these factors have to be taken into consideration by the Central Bank while ensuring that we get the support and commitment of all other stakeholders in the economy. Meaning, the market intermediaries, the banks, the finance companies - all who are players in the critical financial markets. So, we have to see this as a combination of efforts to meet the challenge of inflation. Q: Do you think the characterisation of Sri Lanka as a middle income country could be reconciled with the wide income disparities among our classes and provinces? A: You see, in the global culture on data, they would not be looking at provincial disparities within a country. They would be looking at the country as one entity and would be classifying the country and the economy on that basis. So, we will fall into that category depending on our projected incomes and other economic indicators and whether we are a high income country or a low income one has to be decided on that basis. But we have to be conscious within the country: where are we failing? Are we having growth in certain areas and not in other areas? That is an internal debate and discussion we must have within the country, to ensure that our disparities are redressed. Mahinda Chinthanaya is all about addressing these disparities. For the first time in this country, a plan was put out to address this issue. Because 50.1 percent of the GDP in this country comes form the Western Province. The rest of the country contributes only 49.9 per cent. So to address that disparity many measures were introduced. For example, for agriculture, for agri-business, for micro-finance, for new industrial activity to be introduced in some targeted areas. But all are introduced to deal with this problem. So, the answer is Sri Lanka may be termed as a middle income country, but we have to be conscious that we deal with any imbalances that we have in the country. Q: So would you define this country as really developing? A: Of course, we are showing all the necessary factors to prove that we are a developing country. In fact we are growing at eight percent, our unemployment is reducing. It has been reduced to the lowest levels. During the last year, 286,000 new jobs have been created. Our exports have been the highest in the first half of this year. Notwithstanding the huge oil bill we are saddled with this year, we still have a balance of payments surplus. Our inflation, although it was 17 percent, is on the decline and we are hoping to bring it down to 11 percent by the end of this year. Hopefully, next year we will bring it down to a single digit. So, all these factors show that Sri Lanka is developing. There is no question about that. We are happy to be in this position but we must be impatient. We must strive for greater achievements all the time. It is only then that we would be able to achieve the targets we have set ourselves. Q: How would you define the Nation-building Bond programme? How could it help in bringing a Lankan Renaissance? A: The Nation-building Bond was introduced and designed to bring that renaissance. That is to make people feel that they are contributing something to the nation of their birth. That has been designed to not only collect the money necessary for the bond issue but to also give a sense of ownership and belonging to the country. So we believe that for the people investing in the bond, the very name would give them the impression that they need to support the nation. We are hoping that if it is marketed and distributed well by our overseas missions as well as the banks who are having a presence outside the country, it will have the necessary attraction for people to invest. So hopefully, it will have the twin advantages of bringing in the necessary moneys for development work in the country and at the same time, give a feeling of ownership to Sri Lankans abroad who also want to contribute towards such an effort. Courtesy: Daily News
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