Interest rate hike decisions have added up to Rs. 330 billion to Sri Lanka’s debt burden, Ravi Karunanayake warns.
Interest rate hike decisions made under the guise of Central Bank independence have placed severe economic pressure on the government and the public, former Finance Minister and MP Ravi Karunanayake has warned.
Karunanayake said the rapid movement of the dollar from Rs. 350 to Rs. 330 within a short period has pushed the country’s import-export trade into a serious crisis.
He pointed out that importers who obtained dollars at the Rs. 345 to Rs. 350 level will now have to absorb losses after the rate dropped to Rs. 330.
He said this situation is unbearable for small and medium-scale businesses.
Karunanayake stated that a 1% increase in interest rates raises the government’s debt repayment burden by a minimum of Rs. 220 billion and a maximum of Rs. 330 billion.
He said that even if the Central Bank increases interest rates arbitrarily, the government and innocent people ultimately have to pay those instalments.
The former Finance Minister argued that the current inflation is not demand-based, but cost-based.
In such a situation, he said increasing interest rates will only further contract the economy.
Karunanayake also revealed that a request signed by 70 MPs has been made to appoint a Parliamentary Select Committee to investigate the Central Bank’s conduct and establish its accountability and responsibility.
He said the Central Bank of Sri Lanka should act responsibly, taking examples from central banks in countries such as Japan, India, and Malaysia.
Karunanayake also predicted that fuel prices may increase in the future, as a cost-based pricing formula is being implemented under agreements with the International Monetary Fund.
He further said a heavy burden has already been placed on the people through electricity bill increases, fuel price hikes, and higher interest rates to secure the US$ 700 million from the IMF.
Karunanayake said the government must now show the people what relief they will receive from that money once it is obtained.
