Governor of the Central Bank of Sri Lanka Ajith Nivard Cabraal last week said that the success of the island’s journey towards a US$ 100 billion economy would depend to a great extent on harmonized policies, clarity of communication, quick implementation, and the maintenance of a vibrant momentum on a continuous basis. Delivering the 18th Annual Tax Oration of CA Sri Lanka, the governor noted that in going forward Sri Lanka must retain one of the most important features of its current economic management, which is that the Ministry of Finance (MoF) and Central Bank (CB) must have a ‘shared’ vision and ‘shared objectives’.
“That shared vision has been the platform that has helped the two institutions to achieve ‘goal congruence’ in the recent past, and there is also no doubt that the resulting harmonization has been the powerful driving force behind our steady progress,” the Governor, who spoke on the topic titled ‘Harmonizing Fiscal and Monetary Policies to Deliver Stability and Growth’ pointed out.
Explaining the degree of success that had been achieved in the past by working in harmony, the Governor cited seven case studies which he said had helped the economy flourish in the past few years. Among the success stories mentioned were the opening of Sri Lanka Treasury Bills and Bonds to foreign investors in late 2006, issuance of debut international sovereign bond of Sri Lanka US$ 500 million in 2007, stabilizing a systemically important bank that was facing a liquidity crisis in late 2008/early 2009, the creation of a new ‘virtuous cycle’ in relation to inflation, interest rates, investor confidence and sustained growth, the establishment of the Deposit Insurance Scheme, stabilization measures of 2012 and the judicious use of fiscal policies, based on inflation behavior and other macro-economic factors.
The Governor noted that one striking feature in the implementation of Monetary and Fiscal policy over the past seven years, has been that both institutions, Ministry of Finance (MoF) and Central Bank(CB) have been taking a keen and enduring interest in both monetary and fiscal policies.
“We realized that a ‘blame game’ would be of no value to the country or to the stakeholders, and that it was absolutely vital that we should deliver on both fronts simultaneously,” Cabraal, who has been a Past President of the Institute of Chartered Accountants of Sri Lanka and South Asian Federation of Accountants, said.
Meanwhile, in what was somewhat a response to critics who had in the past questioned the level of independence exercised by the Monetary Authority, the CB Governor said that the need for harmonization between the Central Bank and the Ministry of Finance, is not a virtue that has been suggested recently, but a vital ingredient that had been provided for, since the establishment of the Central Bank, in order to ensure the sound economic management of the country.
He highlighted that despite the Monetary Law Act stating that the Central Bank must exercise a high degree of independence, on the other hand, John Exter, the first Governor of the Central Bank of Ceylon in 1950 had stated that the CB must act in harmony with the policies of the Government.
“It is, of course, obvious that this paradox is not unintentional, and has, in fact, been carefully thought through and deliberately introduced, and has obviously been done in order to establish an extremely vital and far reaching principle. That is, the need for the Central Bank to retain intellectual and operational independence, but to temper it with the pragmatism of the national deliverables of the economic agenda that has been decided by a democratically elected government,” the Governor further pointed out.
- See more at: http://www.nation.lk/edition/biz-news/item/20534-cb-mof-harmony-fruitful.html#sthash.a2f9Oj4c.dpuf
“That shared vision has been the platform that has helped the two institutions to achieve ‘goal congruence’ in the recent past, and there is also no doubt that the resulting harmonization has been the powerful driving force behind our steady progress,” the Governor, who spoke on the topic titled ‘Harmonizing Fiscal and Monetary Policies to Deliver Stability and Growth’ pointed out.
Explaining the degree of success that had been achieved in the past by working in harmony, the Governor cited seven case studies which he said had helped the economy flourish in the past few years. Among the success stories mentioned were the opening of Sri Lanka Treasury Bills and Bonds to foreign investors in late 2006, issuance of debut international sovereign bond of Sri Lanka US$ 500 million in 2007, stabilizing a systemically important bank that was facing a liquidity crisis in late 2008/early 2009, the creation of a new ‘virtuous cycle’ in relation to inflation, interest rates, investor confidence and sustained growth, the establishment of the Deposit Insurance Scheme, stabilization measures of 2012 and the judicious use of fiscal policies, based on inflation behavior and other macro-economic factors.
The Governor noted that one striking feature in the implementation of Monetary and Fiscal policy over the past seven years, has been that both institutions, Ministry of Finance (MoF) and Central Bank(CB) have been taking a keen and enduring interest in both monetary and fiscal policies.
“We realized that a ‘blame game’ would be of no value to the country or to the stakeholders, and that it was absolutely vital that we should deliver on both fronts simultaneously,” Cabraal, who has been a Past President of the Institute of Chartered Accountants of Sri Lanka and South Asian Federation of Accountants, said.
Meanwhile, in what was somewhat a response to critics who had in the past questioned the level of independence exercised by the Monetary Authority, the CB Governor said that the need for harmonization between the Central Bank and the Ministry of Finance, is not a virtue that has been suggested recently, but a vital ingredient that had been provided for, since the establishment of the Central Bank, in order to ensure the sound economic management of the country.
He highlighted that despite the Monetary Law Act stating that the Central Bank must exercise a high degree of independence, on the other hand, John Exter, the first Governor of the Central Bank of Ceylon in 1950 had stated that the CB must act in harmony with the policies of the Government.
“It is, of course, obvious that this paradox is not unintentional, and has, in fact, been carefully thought through and deliberately introduced, and has obviously been done in order to establish an extremely vital and far reaching principle. That is, the need for the Central Bank to retain intellectual and operational independence, but to temper it with the pragmatism of the national deliverables of the economic agenda that has been decided by a democratically elected government,” the Governor further pointed out.
- See more at: http://www.nation.lk/edition/biz-news/item/20534-cb-mof-harmony-fruitful.html#sthash.a2f9Oj4c.dpuf
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