Sri Lanka IMF program benefits may be short lived: Moody’s

ECONOMYNEXT – Sri Lanka may not get any lasting benefit from a program with the International Monetary Fund and the ability of the administration to implement reform will decide how the changes endure, Moody’s, a rating agency said.

The rating agency said fiscal strengthening under IMF programs tended to be shortlived.

"Generally, an initial narrowing of deficits diminished or reversed after a few years and the government’s debt burden continued to rise," the rating agency said.

"Although in the absence of an IMF program, there may have been no improvement or even further deterioration, the trends suggest that for most sovereigns, structural weaknesses in fiscal frameworks tend to reappear."

Though foreign reserves stabilized under IMF programs, reserves sometimes increased less than the loan, the rating agency said.

"IMF programs tended not to bolster institutional strength scores," the rating agency said.

"Although the programs included reforms that could enhance government effectiveness, tackling institutional weakness goes beyond the duration, focus and means of IMF assistance."

Moody’s said among countries with recent IMF programs, Romania stood out.

IMF’s main program is a so-called stand by program, which is given to countries with soft-pegged exchange rate regimes (central banks that print money and try to control the exchange rate simultaneously and get into trouble).

Over the last 20 years, such programs have stressed less on deep reforms.

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Sri Lanka has not struck a Extended Fund Facility, which usually contains deeper reforms than a standby.

However domestic analysts have called for deep reforms of the central bank or its abolition in favour of a hard peg, to prevent monetary instability. (Colombo/June23/2016).
 

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