Economy News Update: Sri Lanka will seek to accumulate forex reserves and stabilize exchange rates, and will engage with the International Monetary Fund on the basis of the current policy structure, said newly appointed central bank governor W D Lakshman.
In the absence of foreign direct investment, Sri Lanka has relied on debt, he said.
Sri Lanka is currently in an IMF program following a crisis in 2015/2016 due to liquidity injections to hold rates down due to the soft-pegged exchange rate system of the central bank.
In a strategy called’ revenue-based fiscal consolidation,’ the IMF program advocated higher taxes dropping a traditional liberal view of spending restraint to narrow deficits.
The current administration has cut taxes, saying it will cut spending until the economy recovers, but raising some concerns about deficits that led to a downgrade of outlook.
Administrative spokesmen also spoke in support of a strong exchange rate, which includes the implementation of a floating overnight rate.
Analysts pointed out that there were multiple anchor conflicts in the current IMF program as Sri Lanka targeted a range of de facto and program-wide domestic and external anchors and goals.