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Sri Lanka forex support on ‘non-interventionist’ basis, no IMF talks yet: CB Governor

ECONOMYNEXT – Sri Lanka is seeking foreign exchange support from partners who willing to help on a ‘non-interventionist’ basis and negotiations on an International Monetary Fund program has not started yet, Central Bank Governor W D Lakshman said.

“Generally we have links with the IMF, we continue to discuss problems with the IMfF but not specifically focused on the RFI instrument arrangement,” Governor Lakshman told reporters.

“We have not started any negotiations on that yet. It is the government policy to work as much as possible to resolve our foreign exchange policies on a self reliant basis.

“On the basis domestic efforts and also discussion with institutions and organizations and countries which are willing to assist on a relatively non-interventionist basis.”

Sri Lanka’s central bank has already got a 400 million dollar swap line from the Reserve Bank of India and is about to close a Renminbi/Rupee swapline from the People’s Bank of China.

However such support to the central bank does not involve correcting the underlying driver of a foreign exchange shortage which areliquidity injections to lower rates or monetize debt, that create an excess of rupees in the credit system, analysts say.

Meanwhile Governor Lakshman said the current strategy was to create foreign exchange inflows on a non-debt creating basis.

“That is the general policy and we are going to be relatively successful on the process as the negotiations that we are carrying on with the few countries and agencies international agencies come to a successful conclusion in time to come, probably the next couple of months”.

In the past Sri Lanka foreign exchange shortages have come from times of strong economic and private credit growth when the central bank printed money to keep rates down.

However in 2020 and 2021, there is also a severe confidence shock after sovereign downgrades from tax cuts and currency falls, making it more difficult to roll over government debt, private bank credit lines, triggering drain through the financial account. (Colombo/Jan20/2021)

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