Sri Lanka could get IMF deal in June
ECONOMYNET – Sri Lanka could get funds from an International Monetary Fund in June 2016, if a preliminary deal is reached in Washington on the side lines of annual meeting of the agency and World Bank, an official said.
Sri Lanka is hoping to get at least a billion US dollars under a structural reform driven Extended Fund Facility (EFF) which will run for three years.
IMF and Central Bank officials said that a preliminary deal or staff-level agreement is expected to be reached in a few days.
But it has to be approved by various departments of the IMF and then go to the Board.
IMF Board approval is likely in early June, Central Bank’s Deputy Governor P Samarasiri told reporters last week.
IMF money goes to boost central bank reserves and will bridge the budget deficit of the United States if a recipient country is pegged to the US dollar and has prudent reserve management.
However a reform based EFF could also get funds from other development partners like the Asian Development Bank or World Bank based on structural benchmarks that are built into it. Such funds could be used to fill the budget gap.
"..[T]here are no conditions that are imposed," Finance Minister Ravi Karunayake, who is second vice chair of the Group of 24 said, during a media briefing in Washington.
"It is just that financial discipline is what is expected and I am sure it is something the government has been embarking on.
"On the austerity measures, the discussions are still not at the end. Certainly, they will revisit certain things, but that would not be categorized as austerity measures."
Sri Lanka has taken the first steps to full-fill a so-called prior action by announcing tax increases to reduce the budget deficit and domestic borrowings. The taxes are due to take into effect from May 02.
Sri Lanka is also expected to reform the income tax code. Sri Lanka has a feudal style income tax code where the king (President) is free from income tax.
On other taxes, such as in cars which is the biggest taxed item in the life of an ordinary citizen, the entire elected ruling class is also exempt from tax.
Taxes are also imposed on the people through a ‘Royal Prerogative’ without prior parliamentary approval. The legislator is used a rubber stamp to approve taxes already collected from the people including through a mid-night gazette.
However analysts have pointed out that collecting taxes is better than printing money by rejecting bids at weekly Treasuries auctions. Printing money busts the currency and pushes the price of all goods and services up.