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The Present Global Financial Crisis and Sri Lankan Economy



Comments on The Present Global Financial Crisis and Sri Lankan Economy by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka 10 October 2008

1. The Global Economy is in Turmoil.

* The ongoing financial crisis originated as a result of the subprime mortgage crisis (SMC), erupted in mid 2007. The SMC erupted due to the bursting of the US Housing Bubble and high default rates on “Sub Prime Mortgages”, beginning 2006.

* The major cause for this financial crisis was the reckless providing of loans by financial institutions, particularly to the housing sector, without proper supervision, and the resulting eventual bankruptcy of such financial institutions. In other words, this is a turmoil that had been caused by the grant of loans to “bad creditors”, considering them as “good creditors”.

* The SMC became more apparent during 2007 and 2008, and has now resulted in contracted liquidity in the global credit markets and banking system.