Cabraal justifies bond sales during his tenure
Posted on March 14th, 2017

 Courtesy The Daily Mirror

Former Central Bank Governor Ajith Nivard Cabraal rejected allegations about irregularities in the sale of bonds during his time, and said the bond sales were carried out at that time with the sole objective of minimising the cost of government borrowings.

In a statement, he said the Central Bank had already confirmed on March 2, 2017, that all Treasury bond sales had been done in accordance with the applicable rules, regulations and laws via a transparent procedure.

My assertion as well as that of the Central Bank are clearly borne out by the clean and unqualified reports of the Auditor General (AG) over the years, and in particular, the AG’s report dated 16th January 2017, which could be accessed from the AG’s website.

According to official economic data published after 2015, the previous administration transformed the 2005 US$ 24 billion Sri Lankan economy to a US$ 80 billion economy by 2014, while enhancing the GDP per capita from US$ 1,242 to US$ 3,853. Economic growth for the 6 years, 2009 to 2014, averaged an unprecedented 6.5% per annum. Inflation was controlled at mid-single digits for 6 years from 2008 to 2014. The debt situation as indicated by the Debt to GDP ratio which was dangerously high at 91% in 2005, was skilfully managed and reduced to 70% by 2014, even while a massive infrastructure development programme was implemented. Foreign reserves increased from US$ 2,735 million at end 2005, to US$ 8,208 million by end 2014. The Balance of Payments (BOP) recorded a massive surplus of US$ 1,369 million in 2014. From 2006 to 2014, the Rupee was maintained at stable levels, with the average depreciation of the Rupee during this period being the lowest-ever since the liberalization of the economy in 1977. By end 2014, interest rates of all Government Securities from 3 months to 30 years had stabilized between 5.5% and 9.5%. The country’s credit rating and economic outlook had improved significantly, and foreign investors invested confidently in Sri Lankan stocks and government securities. Foreign Direct Investment (FDI) recorded significant growth and reached USD 1,616 million in 2014, its highest-ever in history. Overall, the economy progressed smoothly through the severe global economic, financial, oil and food crises, as well as across the major terrorist conflict and a possible bank failure. As a consequence, external and internal shocks did not penetrate into the economy, and people did not suffer any adverse effects of these mega challenges.

In stark contrast, under the current administration, economic growth has been woefully weak, and inflation has started to rise. The debt to GDP ratio has escalated sharply to 76% by end 2015, and is likely to exceed 82% at the end of 2016, according to analysts. Infrastructure development has been minimal. Foreign reserves have plummeted to USD 5,453 million by end January 2017. The Rupee is depreciating rapidly, while the 2015 BOP deficit of US$ 1,489 million was the worst-ever in the country’s history. Interest rates have almost doubled in the last 2 years, adding a massive burden to the government finances. Foreign investors have pulled out more than USD 2.5 billion from government securities, with the stampede to exit continuing. The country’s credit rating and outlook has been downgraded. FDI has crashed to around USD 400 million in 2016. The stock market is in a serious slide, and hundreds of billions of rupees has been wiped out from the market capitalisation. In the meantime, unbearable fiscal and other burdens are heaped on the people, the private sector and the economy almost daily, even while the economy is being rocked with mega scams, scandals and losses,” he said.

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