brand logo

Sri Lanka eyes new Central Bank Act amidst IMF programme

31 Aug 2022

 
  • New legislation to keep inflation under control, prevent money printing 
  • President says money printing unavoidable to certain extent until tax policy strengthened
  By Imesh Ranasinghe   Sri Lanka will implement the new Central Bank Act, which will be a key piece of legislation to strengthen the monetary sector in the country by preventing political interference into the activities of the Central Bank of Sri Lanka (CBSL), President Ranil Wickremesinghe said. Presenting the interim Budget for 2022 yesterday (30), he said that the new legislation would provide the framework for effective implementation of inflation targeting and prevent monetary financing of the budget deficit, commonly known as money printing.  Also, the new law insulates the CBSL from the politicisation of monetary policy decisions, he stated. However, he added that given the weak Government revenue and lack of net foreign financing for the Budget, it is inevitable that a limited level of monetary financing would continue until tax policy measures help improve the Government’s cash flow and the upcoming International Monetary Fund (IMF) programme unlocks foreign financing for the Budget. A Bill for the Central Bank Act has already been tabled in Parliament, which was prepared by the Yahapalana Government and was subsequently abandoned by the President Gotabaya Rajapaksa Government. The Bill aimed to restrict the provisional advances to 10% of Government revenue of the first four months of the preceding financial year, whereas the Monetary Law Act allows provisional advances of up to 10% of the estimated Government revenue for the whole year. The Monetary Board would be solely responsible for CBSL’s monetary policy formulation and implementation of the flexible exchange rate regime, in line with the flexible inflation targeting framework, under the said Bill. Neither the Treasury Secretary, nor any member of the Government, would be members of the Monetary Board. Moreover, the CBSL is explicitly prohibited from issuing credit to the Government or any organisation owned by the Government. However, this prohibition does not apply to Government-owned or publicly-owned banks and other financial institutions, as the CBSL is the lender of last resort to the financial sector, and it is critical to have a Central Bank credit line available in the event of a financial crisis.  The Bill also prohibits the CBSL from buying any securities owned by the Government or Government-owned organisation from the primary market.  


More News..