Ceylon Chamber of Commerce lauds govt's macroeconomic measures
The government introduced a package of courageous macroeconomic
stabilization measures in February/March 2012. These were necessary to
avert the balance of payments crisis that was looming on the horizon.
While these measures were commendable, there is no room for complacency.
The data for March/April compel continued caution and a careful
monitoring of developments in the balance of payments, particularly the
trade deficit.
Macroeconomic policy-making should now be informed by the lessons to
be learnt from the sharp deterioration in the country's external account
in 2011. Adverse global economic conditions, particularly the rise in
oil prices, were an important causal factor. However, it is important to
recognize that misaligned macroeconomic policies, particularly the
exchange and interest rates, also contributed significantly to the sharp
worsening of the trade and current account deficits of the balance of
payments.
An important lesson to be learnt from last year's experience is that
efforts to maintain an over-valued exchange rate and hold down interests
rates simultaneously invariably result in a worsening of the trade
deficit, pressure on the currency and a loss of reserves. A repetition
of such a policy mix is likely to result in a balance of payments crisis
which would have destructive effects both on businesses and the lives of
the people of this country.
The government's use of all macroeconomic instruments (flexible
exchange rate management, monetary tightening and fiscal measures)
earlier this year offers the most promising path for addressing the
imbalances that have emerged in the economy. There is now a strong case
for staying the course on this approach until there is clear evidence
that the balance of payments have achieved medium-term stability, the
Ceylon Chamber of Commerce statement added. |