An economic stimulus package is an attempt by the government to boost economic growth and lead the economy out of a recession or economic slowdown. The two main ways for stimulating the economy are expansionary monetary policy and expansionary fiscal policy. However, at this critical juncture, mere responses from monetary policy tools alone may not be sufficient. Sri Lanka should get ready with its fiscal tools to fight the pandemic.
Meanwhile, speaking exclusively to Mahieash Johnney at the ‘GET REAL’ program on Ada Derana 24, Senior Deputy Governor of the Central Bank Dr. Nandalal Weerasinghe expressed the following;
Q: Countries like the United Kingdom, America, Australia, all these countries are coming up with this thing called the ‘stimulus package’. They are giving out money. In America US $ 1200 is being sent to each and every family every month. Now they are apparently looking at doing it for 6-months. Why aren’t we doing that?
Dr. Nandalal Weerasinghe: Stimulus there are two kinds of stimulus. Fiscal and monetary stimulus. So Fiscal stimulus means giving out money, subsidiary, social security (loan), unemployment benefits and even giving subsidy credits to businesses. These are supposed to be done by the government. Not by the Central Bank. There are two mandates. Obviously monetary stimulus is the responsibility of any Central Bank, in order to provide liquidity to the banking system and make sure that enough money is there in the circulation. That is the monetary stimulus. Now we have done monetary stimulus to the maximum extend. In addition, from the government part, because the government is in a kind of situation where they did not have sufficient space to give that kind of support because the government has large fiscal deficits and also already the government was facing a large high debt situation. Fiscal deficit, income vs. expenditure deficit, now this year it is going to be almost more than 8% of GDP. When the government is in that kind of position, the government would not have any space to give out this kind of money. So, that is where the part of the burden has come back to the Central Bank. In terms of, all the interest subsidies schemes and also the construction payment to contractors. All are supposed to be fiscal stimulus. Suppose to be provided by the treasury. But because the treasury is unable to meet all these payments, it has come to the Central Bank. There is another reason for this. Because there is no ‘Vote on Account’; like borrowing limit approved. Because no parliament is there. Technically the government’s hands are tight. They can only expand after the parliament is convened. In Sri Lanka, parliament is the whole authority for public expenditure, public finance. Because there is no parliament for the whole year, their hands are tight. So, the Central Bank is firing all guns and the Central Bank is going beyond our mandate and not only monetary stimulus, part of the fiscal stimulus is now being done by the Central Bank.
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