The Governor, speaking at a press conference held on Tuesday on the state of the economy, said the discussions with the International Monetary Fund (IMF) to obtain a loan facility have been positive but it is not yet a "done deal".
"So far the discussions (with the IMF) have gone very positively, so we hope to get some form of IMF assistance in the next couple of weeks. But it's still not a done deal. We have lot of further negotiations to be held," Mahendran said.
The Sri Lankan team attending the spring meeting of the IMF and the World Bank in Washington from April 12-17, including the Finance Minister Ravi Karunanayake, the Governor, and Treasury Secretary Dr. RHS Samaratunga, will continue the discussions with the IMF, Mahendran said.
Mahendran said Sri Lanka needs to raise around US$ 2.5 billion for its government funding requirement this year, and would look at Chinese renminbi bonds as well as dollar bonds in coming months.
He said the economic situation is going according to the plan. Imports, funded by high bank credits, were high last year but now showing signs of plateauing with the tight monetary policy.
"The rate of growth (of imports) I think has been arrested, which is desirable," he said adding that the lending by the banks were very high last year and early this year growing at about over 25 percent which is clearly undesirable as it would increase inflation.
The Central Bank started tightening the monetary policy to discourage imports and keep the inflation low and it has begun to yield the desired effects, he said.
He said the IMF has suggested continuing the tightening of monetary policy but it is not necessary if the economy continues to achieve a "soft landing" as planned and the Central Bank remains hopeful that there won't be a need to hike interest rates. Controlling inflation remains a main objective of the economic plan, he said.
I would say that that is not necessary if the economy continues to achieve a soft landing, if the economy goes according to plan. The Central Bank however reserves the right to increase rates, he said.
He said that on a positive note, the economic outlook is strong although the economy grew only 2.5 percent in the fourth quarter of 2015. He attributed the low figure to the "base effect" compared to the 10.4 percent growth in the fourth quarter of 2014.
Overall, Sri Lanka's economy grew at 4.8 percent in 2015 versus 4.9 percent in 2014, according to the Central Bank.
The Governor said on a conservative basis the economy is expected to grow 5-5.5 percent this year, adding that if the Chinese investments negotiated by the Prime Minister during his recent visit to China come to fruition in the second half of the year, a higher growth can be expected.
According to the Governor if IMF assistance is secured in the next two weeks that will also give confidence to the investors. Mahendran said he was hopeful of obtaining around US$ 1 billion to US$ 1.25 billion support from the IMF.
He said the government has decided not to borrow excessively and the thrust of economic activity in going forward will be private investments. All infrastructure projects in future will be done with public-private partnerships, he added.
The IMF concluding a review mission on Monday, said it has made significant progress toward a staff level agreement with the government of Sri Lanka on an economic program that could be supported by a 36-month Extended Fund Facility (EFF) and it could get approval within the next two weeks.
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