• Cabinet decides to implement Bill with a few amendments 
• Treasury Dept. Secy. says yet unaware of amendments
• Formerly discarded Bill to be implemented due to IMF push

The Cabinet has decided to bring back the Central Bank Bill drafted under former Central Bank of Sri Lanka (CBSL) Governor Dr. Indrajit Coomaraswamy with new amendments to replace the existing Monetary Law Act under the conditions laid out by the International Monetary Fund (IMF).

Accordingly, the Central Bank Bill, which was pushed aside by President Gotabaya Rajapaksa's Government despite being submitted to Parliament after being gazetted in November 2019, will now be enacted with amendments to replace the Monetary Law Act in order to strengthen the country’s monetary sector and ensure the independence of the Central Bank.

Cabinet Spokesman Bandula Gunawardana said yesterday (20) that fresh amendments have been added to the original Bill and that it has been improved to suit the current needs so that the activities of the Central Bank can be performed more efficiently and effectively, which is also part of the IMF’s requirements.

He said that the President has submitted the relevant proposal and informed the Cabinet members to present further changes they would like to add to the Bill at the next Cabinet meeting, and added that the Act will be passed in Parliament in 2023.

Attempts to reach Gunawardana for a comment proved futile. When The Morning Business spoke to Deputy Secretary to the Treasury R.M.S. Ratnayake, he said that he was unable to disclose the amendments, as they have to wait until Cabinet forwards the relevant meeting minutes. 

In the final Monetary Policy Review for 2022 held in November, CBSL Governor Dr. Nandalal Weerasinghe said that enacting the new Central Bank Act to enable the Central Bank to operate independently is one of the requirements set forth by the IMF for granting Sri Lanka access to an Extended Fund Facility (EFF).

Under the original Central Bank Bill, three boards are to be established instead of the Monetary Board, namely, the Governing Board, Monetary Policy Board, and Executive Board, while the Governor will preside over all three boards, and the Secretary to Treasury is a member of the Governing Board, but not a member of the Monetary Policy Board.

In terms of money printing, the original Bill states that in order to operate an inflation-targeting framework successfully, the Central Bank should be able to control the stock of money effectively, as the liquidity level affects inflation. Thus, the Bill would restrict the provisional advances to 10% of Government revenue of the first four months of the preceding financial year, whereas the current Monetary Law allows up to 10% of the estimated Government revenue for the whole year.

Moreover, the Central Bank  explicitly prohibited from issuing credit to the Government or any organisation owned by the Government. However, this prohibition does not apply to Government- or publicly-owned banks and other financial institutions, as the Central Bank is the lender of last resort to the financial sector, while the bill also prohibits the Central Bank from buying any security owned by the government or government-owned organization from the primary market.