‘Infrastructure drive must continue to maintain growth’

Central Bank Governor Nivard Cabraal recently had a question and answer session with the public via twitter, a social network site. The live Q and A session took place via twitter account of #askcbsl.

Q. Still no PayPal for Sri Lanka?

A. There is some progress on this matter and we are hopeful that it would happen by early next year.

Q. Do you think that our budget allocation for R and D is enough?

A. Allocations are always difficult because there are many competing interests. There are also many tax incentives provided.

Q. What is your outlook for interest rates and inflation?

A. It is a benign outlook.

Q. Sir, do you believe that our Sri Lankan banks are over regulated?

A. When times are good, people think there is over regulation.

Opposite when times are tough. Our regulation is appropriate.

Q. Governor, you were dismissive about BitCoins the last time you were asked about the topic. Have your views changed?

A. No.

Q. What do you see as the most pressing institutional reforms Sri Lanka should undertake to sustain high growth rates in the long term?

A. We need to keep our infrastructure drive and macro fundamentals at benign levels.

Q. IMF came out with a report last week that said Sri Lanka's (SL) public debt is too high. How concerned are you with this?

A. Our public debt is reducing as a percentage of GDP. That means we are on the right track.

Q. “Every Sri Lankan owes debt (Public Debt) more than their per capita income.” How do you see that?

A. That was true in 2002 and 2003. Our debt to GDP levels have been brought down from 105% in 2002 to 75% by 2014.

Q. Recently at a meeting you said by 2020 SL will have a per capita income of $7500 - what would rural Sri Lankans get by 2020?

A. The incomes of rural Sri Lankans would also increase significantly from what it is today. Policy measures are in place.

Q. Improving infrastructure and capacity building itself will not generate technology innovations. What else are you doing?

A. Without capacity building technology innovations won't take place. Hence, it is vital that we continue this process.

Q. By 2030, 30% of the people in Sri Lanka will be above 60 years of age. What are we doing to face it?

A. There is a gradual process to react to this condition. That is presently in place with pensions and other schemes.

Q. Colombo city is inundated with traffic. What is the loss of productivity due to traffic? Are there any plans to alleviate it?

A. Growing cities encounter this challenge. Better roads, good traffic manners and mass transportation will help.

Q. Why can't Sri Lanka allow some vehicle manufacturer to produce vehicles for the local market. We can reduce our vehicle imports.

A. That is allowed and it is being done.

Q. Banks charge 24% p.a. for overdue LCs. This hurts entrepreneurs with very short term liquidity mismatches.

A. There is a lot of excess CR in the market. That charge seems excessive and we will look into this matter.

Q. Appreciate that penal interest was capped with 2%. But banks use loopholes to exploit this.

A. Please let us know what loophole is being used. We will deal with it.

Q. While CB held programs to encourage Islamic banking BBS demands it be taken off the banking system. Views?

A. Banking business is conducted according to the Sri Lankan Banking Act. Hence, there should be no concerns.

Q. Do you think auto loans with a residual value a good product for Sri Lanka? If so can it be done for houses too with a balloon payment?

A. We will consider your suggestion. It is an interesting one.

Q. Lankan accumulated debt represents 589% of the government revenue -IMF and Moody's report, what is your view?

A. What is important is debt sustainability and the Sri Lankan debt is sustainable.

Q. Any expected impact towards consumption in medium term due to working age population expected to decrease?

A. This impact would be well compensated by higher incomes.

Q. Any plans on limiting population growth in highly populated areas?

A. No. There would be the natural inter country migration that would address this phenomenon.

Q. Having an aging population what are CBSL plans towards healthcare?

A. Healthcare is improving and that is one of the reasons that people are living longer.

Q. What's your view on the yield curve of SL and more specifically inside one year?

A. It is expected to gradually shift downwards.

Q. I'm a customer of CIFL. Please let me know the status of restructuring? Also depositors re-payment?

A. Finally, the court cases are over and the CBSL can get down to serious restructuring.

Q. University Students get only Rs. 2,500 as Mahapola Scholarship since 2006. Can they expect any increase from the 2015 Budget?

A. Students in State Universities receive free education in addition to scholarships that are periodically reviewed.

Q. What is the progress of merging banks and finance companies? Which banks are to be merged?

A. Our regular updates show that this process is progressing well.

Q. Governor, you have been trying to increase private sector borrowing during the past two years, but with little success? Why?

A. The private sector has enjoyed healthy profits and also accessed direct funding. Hence, less borrowing.

Q. Tell us why the LKA fixed deposit interest rates declined to very low levels?

A. That is due to low inflation which has preserved the value of the deposits on a long term basis.

Q. Governor, why do you think the private sector doesn’t borrow, as expected by the CBSL?

A. The private sector now has many sources from which they could access capital other than banks.

Q. Banks charge a fee of Rs. 15-75 for cash withdrawals through ATMs of banks where one does not have an account. Can we reduce this?

A. In the common ATM switch the charge is limited to Rs 30.

Q. Did CBSL provide the reports requested by PayPal and report on Sri Lanka’s exports? Where are we standing on this?

A. This matter is being handled through a private commercial bank. CBSL is also supporting the effort as needed.

Q. What is the future of Islamic Banking Sector in Sri Lanka?

A. Different banking services could be provided in Sri Lanka as long as those comply with the Banking Act.

Q. Can we expect decrease of tax for importing vehicles next year?

A. You will have to await the budget and that’s a matter for the Minister of Finance.

Q. Will there be a further decrease of lending rates? Why do people borrow for consumption rather than investment?

A. We expect long-term lending rates for projects to decrease.

Q. Governor, what impact will the recent drought in certain areas have on the economy and inflation in the coming months?

A. We normally factor some impact of droughts and other natural conditions in our projections.

Q. Are we surviving from ‘Debt trap’ or moving towards it. Are we safe now? Your comments?

A. We are safe and our debt sustainability is improving each year.

Q. What is the progress of Colombo Stock Exchange? Are there foreign inflows?

A. We are satisfied with the progress and the foreign interest in our capital market.

Q. During your term you had a remarkable journey. In your opinion what was the biggest mistake you made?

A. I am advised by very competent people. Hopefully, I could go forward without making big mistakes.

Q. Under the present low interest rate regime do you see a risk of an assets bubble like in the US?

A. We keep a close watch and we are satisfied that so far that there are no sign of bubbles.

Q. Is CBSL planning to launch bonds with other foreign currencies like Euro and GBP?

A. Each time we issue bonds we consider all options that are available.

Q. What would be the USD/LKR at the end of this year?

A. We expect the Sri Lankan Rupee to be stable in the coming months.

Q. Is CBSL planning to improve the data sources of Stock Price Index and Colombo Consumers Price Index?

A. Over the past several years, we have helped to improve all data sources and would continue to do that.

Q. When will you list the restructured Standard Finance Company in the Diri Savi Board, which was an innovative strategy by you?

A. This matter is now with the Colombo Stock Exchange and we believe they are working on it.

Q. Where can I get a crisp 10 rupee note now? For my collection?

A. The Rs 10 notes are being replaced with coins. If you wish to have a new crisp note, you can get it from the CBSL.

Q. What do you think about the IT sector? Is it supporting the National income?

A. IT is one of the fastest growing sectors and is supporting the GDP, generating foreign income and employment.

Q. Insurers argue that lower interest rates would hamper sector growth as they receive low interest income from Government Securities. Your views

A. All stakeholders agree that low inflation and interest rates help investment and growth.

Q. CB instructed banks to keep aside a percentage of loans for agriculture

development. How is it progressing?

A. Progress is satisfactory.

Q. Cost of Living is high but Sri Lanka’s inflation rate is low. Why is this? Any changes in the commodity basket?

A. Inflation measures rate at which prices increase and that is at a low rate, which results in price stability.

Q. Any initiative taken to build up national payment gateway?

A. There are many initiatives that ensure the efficient payments system needed in an economy of our size and nature.

Q. Sir, what steps have been taken to develop the forex market in Sri Lanka?

A. We have been working closely with the Forex operators to ensure that the market is efficient and effective.

Q. Banks should not only make low risk lending and make profits. They have to take some risk and lend to develop the country. Your view sir?

A. Banks have to balance their risk profile to make profits, stay stable and also develop the economy.

Q. Can we expect an increase of allocations for education sector from upcoming budget? (percentage increase from GDP)

A. Sri Lanka's education system is providing reasonably satisfactory results and that should be continued.

Q. Sir, any suggestion or directives from CBSL to the banking sector on improving private credit growth

A. Our policy action of yesterday addresses this issue.

Q. Yes sir, saw the decision as encouraging, will facilitate banks to go out from the conservative model?

A. Banks are beginning to be more innovative in the new evolving circumstances.

Q. What happened to James Packer's project? Is it still on?

A. Certain projects take longer to start than others. Hence, it is a matter for the investors as to when they should commence.

Q. Is EPF fund managed properly? Is it running at a loss?

A. It is very well managed and producing results which are highly satisfactory.

Q. Any news on the Golden Key repayment? So many depositors are still awaiting repayment for so long.

A. The implementation of the payment plan proposed by the CBSL has to be implemented with the blessings of the Court.

Q. We hear colossal amounts of money are being spent on PR exercises in the US. CB has given explanation but do we really need this?

A. When various detractors attempt to discredit the image of the country and discourage investors we have to respond.

Q. Governor, why do you need so many officials to conduct a twitter session?

A. We respect you and we want you to know that we at the CBSL take your questions seriously. That's why.