‘Lanka better prepared to deal with economic shocks now’

Sri Lanka is better prepared to deal with the economic shocks that may arise from the increase in oil prices in the global market today, compared to the severe financial crisis of 2022, says Central Bank Governor Dr. Nandalal Weerasinghe.

“As long as there is oil in the global market, Sri Lanka has the resources to buy it,” the Central Bank Governor added.

Sri Lanka’s strong foreign exchange reserves of US$7 billion and the current low inflation rate are crucial factors in absorbing these shocks, the Governor pointed out. He expressed confidence that there is sufficient room for domestic inflation to absorb a price shock, as inflation remained at 1.6 percent last month, well below the Central Bank’s target of 5 percent. Dr. Weerasinghe recalled that the fuel shortage in 2022 was not due to price increases, but rather to the country’s lack of foreign exchange to purchase petroleum. However, the current situation is not one of solvency, but rather of potential disruptions in global supply chains.

With the price of a barrel of Brent crude oil having crossed $100 amid the ongoing unrest in the Middle East, rising freight costs and supply chain disruptions due to a protracted conflict have been identified as key risks. To address this, Sri Lanka’s cost-reflective fuel pricing mechanism will prevent a financial burden, while the flexible exchange rate regime will act as a shock absorber.

The Central Bank Governor revealed that the Sri Lankan economy is currently showing a trend of achieving a higher real GDP growth of 5 percent, despite the expectation of an economic growth of 3 percent at the beginning of the year. It was further stated that the discussions for the consolidation of the fifth and sixth reviews of the IMF Extended Fund Facility of US$ 3 billion are currently underway and are expected to be presented to the IMF Executive Board by May.

The primary goal of the government and the Central Bank is to maintain stability by avoiding excessive volatility in the exchange rate, he noted.

Source: Daily News