High interest rates keeping businesses afloat – CB Governor

By Rathindra Kuruwita

Central Bank Governor Dr. Nandalal Weerasinghe yesterday told journalists that Sri Lanka was holding discussions with China on debt restructuring and the developments were positive in general.However, the Governor refused to elaborate on discussions with any creditor, stating that specific details of these discussions would affect markets.

“We can’t be specific. We have to maintain ‘radio silence’ to ensure markets are not affected. When we have a concrete agreement we will reveal it,” he said.Dr. Weerasinghe said that they were also continuously discussing with the IMF, bilateral donors and commercial donors.

“The government reached an agreement with the IMF on 01 September. Following that we have taken several steps towards restructuring and discussions with creditors. On 23 September, we made a presentation to our creditors. President Ranil Wickremesinghe has also held several discussions with bilateral creditors and international organizations like the Asian Development bank (ADB). Next week, the State Minister of Finance, the Secretary to the Ministry of Finance and others will go to the IMF and hold further discussions,” he said.

The Governor added that inflation would notably drop in the first quarter of 2023. He also said that inflation would begin to decline from October.Dr. Weerasinghe said that the UNHRC resolution on Sri Lanka would not affect its discussions with the IMF or the World Bank.The Governor also said that the problems faced by the business community had not been created by high interest rates. The problems they were facing had been created by high inflation.

“People complain that they can’t do business because of high interest rates. It’s not true. They can’t do business because of high inflation. The cost of production is high because of inflation. The finance cost of a business at most will be 10%; whereas 90% is transport, raw materials, etc. These have increased because of inflation. If we have runaway inflation, business will collapse. People have to understand why interest is high. If inflation comes down, we can bring down interest rates,” he said.

Dr. Weerasinghe added that the remittances through the banking system were slowly rising. The drop in remittances was mainly due to the open account system and black market.

“These illegal flows are decreasing now. There has been increased black market activity in the past few weeks but this is temporary. Also, I would like to remind you that we are getting more accurate data on remittances. A few years ago, the data said Sri Lanka was receiving around 600 million US dollars a month as remittances. However, there are issues with the way the banks calculated remittances in the past, but now they are calculating right. Previous bank data was problematic and now we are talking to banks about this. Given that more people are leaving the country for jobs, remittances will go up,” he said.The Governor said banks were receiving foreign currency and businessmen and students were allowed access to foreign currency.

“There are still shortages, but you have to remember that a few months ago we didn’t have money for fuel. We think things will continue this way. We monitor the remittances. We hope they come through the banking system,” he said.