Sri Lanka needs corrective economic package: Wijewardena

ECONOMYNEXT – Sri Lanka needs a corrective economic package to put the economy on a stable path top economist WA Wijewardena said as foreign exchange shortages continued to dog the country amid low interest rates and a high budget deficit.

“We need a corrective policy package,” Wijewardena, who is an ex-Deputy Governor of the central bank said. “Sri Lanka has to take the bitter pill.”

There have been calls for Sri Lanka not to pay an upcoming loan and use the money for imports.

“That is a choice among alternatives,” Wijewardena said. “You need to look at it and carefully and analyze it.”

Unlike in the past currency crises, Sri Lanka’s credit has now been downgraded to ‘CCC’ and ‘CC’ levels by rating agencies and the country has been locked out commercial debt markets.

The finance ministry recently raised salaries and pensions and other subsidies via special allowances which would cost 227 billion rupees. The country is running a 6.0 percent policy rate now and inflation was at 12.1 percent in December.

Many economic players are feeling the effects of the controls and forex shortages.

One example was of a factory which was operating at 50 percent of capacity because there were no imported raw materials indicating that firms catering to the doemestic market are also in trouble.

Though the needed goods were in the port, the manufacture could not access the shipment because dollars were not released.

He said a comprehensive economic package was needed to fix the problem.

“Unless the bitter pill is taken Sri Lanka has no future,” Wijewardena warned.

His comments came as foreign banks tightened lines to Sri Lanka and restricted packing credit for shipment to Sri Lanka even without a default.