Governor of the Central Bank of Sri Lanka, Ajith Nivard Cabraal breaks his silence

Ajith Nivard Cabraal

was appointed Governor of the Central Bank of

Sri Lanka

(CBSL) in September 2021, when Sri Lanka’s economy was seeing a slowdown and foreign exchange reserves were rapidly depleting. The C.A. and politician is a close associate of Sri Lankan PM Mahinda Rajapaksa and had served as CBSL Governor under M.Rajapaksa as former President between 2006 and 2015. Cabraal, 68, is also a founding member of Sri Lanka’s ruling Podujana Peramuna Party (PPP). Cabraal breaks his silence in an interview to Padma Rao Sundarji for The Times of India Online

Q: Sri Lanka is in the grip of the worst economic crisis in its history. Angry protesters across your country are calling for your President Gotabhaya Rajapaksa to resign. An Emergency is in place; there are curfews and 10-hour long powercuts. And yet, at a recent All-Party Conference which former PM Ranil Wickremesinghe attended but many others boycotted, you straightaway laid the entire blame at Wickremesinghe’s doorstep. This is surely a time to find solutions and not play politics?
A: It is at the President’s invitation that I made a presentation at the All-Party Conference. In it, I spelled out, in a very scientific manner, the background that led to the current economic situation. While during so, I had to point out that during the years 2015-2019, our forex debt had grown from $23 billion to $37 billion, i.e. by almost 65%. I also pointed out that the forex debt servicing had gone up from over $2 billion to almost $6 billion, i.e. by 400%. I also referred to the fact that the economy had grown only from $79 billion to $84 billion during that time. These remarks were made in a professional manner, but unfortunately the former Prime Minister took umbrage, perhaps because he would have realised that he was responsible for that debacle.

Q: But the government of President Gotabhaya Rajapaksa -your close associate, PM Mahinda Rajapaksa’s brother - has been in power since November 2019; that’s more than 2 years. Surely some of the damage also occurred during this period?
A: During my presentation at the all-party meet, I also went on to say that, during the two-year period 2020-2021, Sri Lanka lost around $9 billion in tourism receipts, while remittances suffered a decline of around $1.5 billion, which, too, contributed towards the deterioration of the external account. We should have implemented a cost-reflective price formula for fuel, electricity and gas more than 6 months ago. It would have ensured macro-economic stability. However, it would have been a tough political call, as that decision was going to be unpopular.


Q. Sri Lanka’s economy has been tanking for several years and yet, you were never in favour of approaching the International Monetary Fund (IMF) for a bail-out. Instead and in October 2021, you presented a ‘Road Map’ as a way out of the crisis. One of the ideas in the Road Map was to check ‘hawala’ money transfers from overseas, by offering remittances undertaken through banks, an additional 10 Sri Lankan Rupees (SLR) per US dollar. Sri Lankan media reports also suggest that there are differences between

Finance

Minister Basil Rajapaksa (the President’s brother) and yourself. Is that why this Road Map was not implemented?
A: I have said this before on a TV channel and I repeat: Sri Lanka would not have needed an IMF programme if the actions proposed by the Central Bank to strengthen the forex cash flows had been successfully implemented and, as a consequence, the estimated forex inflows as per our Road Map, had materialized.


Q. Sri Lanka’s main economic sectors are tourism, tea export, apparels, rice and other agro produce and – inward remittances from Sri Lankans in the Middle East. Which of these sectors is likeliest to help ease the situation right now, without putting further strain on the economy in other ways?
A The economic situation and the external account in particular, is expected to improve with the return of tourism. With greater inflows of forex from tourism, the liquidity in the forex market would also improve. Given that background, key utilities will also experience an improvement and be in a position to provide uninterrupted supply of gas, electricity and fuel supplies in the near future.

Q. India has already extended help to the tune of $ 2.4. billion as lines of credit. Which areas of your economy will benefit the most?
A: The key utilities I mentioned - will also benefit significantly from the support extended by India, in the form of a credit line for fuel and commodity imports.

Q. Can you confirm that you sought another LOC of $1.5 billion, when

EAM S Jaishankar

visited Sri Lanka last week ?
A: Yes. Sri Lanka is, presently, also discussing a further $1.5 bn line of credit from India to purchase essential goods, and that, too, would be very welcome, considering the fact that tourism receipts and workers’ remittances are still somewhat sluggish.