IMF deal will ease Sri Lanka’s financing pressure: Moody’s

ECONOMYNEXT – Sri Lanka’s deal with the International Monetary Fund to get a loan of 1.5 billion US dollars will “ease immediate financing pressure” and has the potential to improve the island’s credit profile, Moody’s Investors Service said.

The rating agency said the agreement under IMF’s Extended Fund Facility comes as Sri Lanka’s sovereign credit profile is increasingly under pressure from its large fiscal deficits, high debt levels and poor debt affordability. 

“If the program supports Sri Lankan authorities’ efforts to boost tax revenues and better manage state owned enterprises, it would address constraints on economic growth and reduce fiscal imbalances, thus improving the sovereign’s credit profile,” said Marie Diron, Senior Vice President, Sovereign Risk Group, Moody’s Investors Service.

“However, we expect bumps in the fiscal consolidation path due to difficulties in implementing revenue raising measures and the possible crystallization of some contingent liabilities,” said Diron, Moody’s lead sovereign analyst for Sri Lanka.

Sri Lanka’s agreement with the IMF will have three benefits for Sri Lanka’s external financing profile, she said in a statement.

“First, program disbursements together with  forthcoming multilateral and bilateral loans will provide external liquidity to ease immediate financing pressures.

“It could reverse the decline in official foreign-exchange reserves and reduce Sri Lanka’s vulnerability to a sudden stop in capital inflows,” she said.

“Second, the financing will likely be at more favorable terms than Sri Lanka can avail of through the market, which alleviates debt servicing cost pressures.

“Third, if the agreement restores investor confidence in Sri Lanka’s policy framework,  it could ultimately support more stable private external inflows, such as Foreign Direct Investment.”
(Colombo/April 29 2016)





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