IMF monitoring Sri Lanka closely; impact on program not assessed: official
ECOMOMYNEXT – The International Monetary Fund is monitoring a political crisis in Sri Lanka triggered by the contested appointment of Mahinda Rajapaksa as Prime Minister and Finance Minister last week, and is in touch at a technical level, an official said.
Sri Lanka has missed targets in an IMF program especially in forex reserves, after the central bank stopped mopping up foreign inflows in February and de-stablized a de-facto peg with the US dollar by cutting rates and injecting new money in April.
"..[T]he IMF is not in the political realm but clearly we take note of recent developments," spokesman Gerry Rice said.
"We are monitoring the situation closely and we remain in contact with our counterparts at the technical level. I don’t have any assessment as yet on potential program implications there in Sri Lanka."
The political crisis burst just as Sri Lanka was about to reach a staff-level agreement for the next stage of the program, with an overall program which is nearing its end.
The new administration has also ended a fuel price formula that was started under the program, and both petrol and diesel prices were cut outside the price formula.
However Rajapaksa had said there will be an unspecified different mechanism for pricing.
Sri Lanka runs into balance of payments crises and is a good customer of the IMF because it operates an unstable soft-peg, printing money to suppress market interest rates.
There is a strong Mercantilist belief in eh country that monetary instability comes not from contradictory policy but trade.
Economists and analysts have called for the central bank’s peg to be reformed or a currency board established to help the remove the biggest impediment to economic stability in the country. (Colombo/Nov03/2018)