ECONOMYNEXT – The International Monetary Fund (IMF)’s agreement with Sri Lanka must be contingent on Central Bank independence, strong anti-corruption measures and promotion of the rule of law, the United States Senate Foreign Relations Committee said.
“Without these critical reforms, Sri Lanka could suffer further economic mismanagement and uncontrollable debt,” the committee tweeted Saturday July 02 morning.
Any @IMFNews agreement with #SriLanka must be contingent on @CBSL independence, strong anti-corruption measures & promotion of the rule of law. Without these critical reforms, Sri Lanka could suffer further economic mismanagement & uncontrollable debt. https://t.co/oMdT7QIwZP
— Senate Foreign Relations Committee (@SFRCdems) July 1, 2022
Sri Lanka currently has a draft monetary law which legalizes soft-peg (flexible exchange rate) and worsens exchange and monetary policy conflicts.
Its section Article 7 (1) calls for specific ‘exchange rate policy’ that will make inflation targeting impossible and will doom the country to flexible inflation targeting which had brought multiple currency crises since 2015 and eventually driven the country in to default.
Sri Lanka needs a monetary law which curtail its powers of the central bank and will not allow it to mis-use manipulate interest rates and depreciate the currency mis-using central bank independence given by political authorities as happened in 2018.
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Sri Lanka’s central bank needs accountability and restraint, not independence
The IMF said in a statement on June 30 that the at latest talks with Sri Lanka has made significant progress towards developing a policy package to stabilise the country but the island nation also has to move forward on debt restructuring to finalise a bailout.
“The staff team and the authorities made significant progress on defining a macroeconomic and structural policy package,” the IMF statement said.
“The discussions will continue virtually with a view to reaching a staff-level agreement on the EFF arrangement in the near term.”
“Because public debt is assessed as unsustainable, Executive Board approval would require adequate financing assurances from Sri Lanka’s creditors that debt sustainability will be restored.”
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Sri Lanka, IMF make ‘significant progress’ to staff level deal
Sri Lanka has appointed financial and legal advisors to negotiate with creditors.
At least one sovereign bond holder with over 250 million dollars has gone to court seeking full payment.
Meanwhile, a US Treasury and State Department delegation was in Sri Lanka to “explore the most effective ways for the U.S. to support Sri Lankans in need”. (Colombo/Jul02/2022)