Sri Lanka moves a step closer to strengthening its Central Bank

Dec 21 (Bloomberg) – Sri Lanka’s cabinet endorsed a bill that aims to bolster the central bank’s autonomy and keep it out of fiscal management.

Cabinet approval of the bill on monetary law is key to unlocking a pending $2.9 billion bailout from the International Monetary Fund. Sri Lanka’s parliament will have to discuss the bill before enacting the legislation, though no timetable has been proposed.

The government hasn’t provided a copy of the latest version of the bill, which was first drafted in 2019. Last month, Central Bank of Sri Lanka Governor Nandalal Weerasinghe said the proposed bill would push the monetary authority to adopt a formal flexible-inflation targeting regime.

If approved, the bill will also end the central bank’s participation in government treasury auctions, said Weerasinghe. This change will separate the Central Bank of Sri Lanka from fiscal functions and end its involvement in funding the budget.

Weerasinghe said a new debt management office under the treasury will be created and handle government bond sales after the law is approved. The treasury secretary will cease to be a member of the central bank’s rate-setting panel.

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Source: NewsAsia