Sri Lanka expects revised IMF deal by April, disbursement by June
ECONOMYNEXT – Sri Lanka expects to get a reform program with the International Monetary Fund back on track by April with executive board approval to release the next tranche in June 2017, a central bank official said.
Sri Lanka plans to reach a staff level agreement covering the next stage of the program by April, Deputy Governor Nandalal Weerasinghe said.
Sri Lanka’s December 2016 review was suspended for failing to collect enough reserves – a performance criteria – as well as a number of structural benchmarks, despite meeting revenue targets.
Sri Lanka has to enact a new income tax law as part of reforms. The cabinet last week gave the nod to draw up a new law, though business chambers called for more discussion.
The finance ministry also signed ‘statements of corporate intent’ with key state enterprises.
Analysts see the moves as ‘prior actions’ for the new staff level agreement in April.
Sri Lanka is planning to go the market with a 1.5 billion US dollar sovereign bond, and a 700 million dollar syndicated loan is already in the works.
Analysts however have warned that the continued to printing money, involving attempts to manipulate long term rates with ‘quantity easing’ type exercises as was seen in November and December and outright printing of money to repay bond will increase credit and imports, making it difficult to retain forex reserves.
The IMF program failed to impose ceilings on domestic assets of the central bank, despite knowing the central bank’s past history of printing money to finance state spending, its long track record of delaying rate cuts and undermining them with ad hoc liquidity injections.
Analysts have called for central bank reform to prevent fiscal dominance of monetary policy or abolishing the agency altogether to end balance of payments crisis and high inflation. (Colombo/Mar25/2017)