ECONOMYNEXT – Sri Lanka may qualify for a 400 percent of quota Extended Fund Facility from the International Monetary Fund though the exact program size will have to be decided once a financial gap is assessed, Central Bank Governor Nandalal Weerasinghe said.
“It is too early to say,” Governor Weerasinghe said in response to a question about whether Sri Lanka could quality for 535 percent of quota exceptional access at peak program from the IMF.
“They have to assess the external financing gap. In 2009 we got 400-pct of quota. I do not see why we cannot get at least that amount.
“Now the financial gap is much, much higher than what we had at that time.”
A 400 percent of quota program would put Sri Lanka’s next program at around 3.0 billion US dollars.
Governor Weerasinghe said an EFF may be the “most relevant” given the structural reforms needed.
Sri Lanka is to begin formal talks with the IMF from April 18 when a delegation visits Washington to take part in annual IMF-World Bank meetings.
Finance Minister Ali Sabry has said a billion dollars each may be disbursed over three years under Sri Lanka’s next IMF program.
By 2025 Sri Lanka’s IMF loans would fall to around 60 percent of quota, allowing a drawdown of around 470 percent of quota at the peak, in a 535 percent access program.
A recent program for Argentina, the archetypal soft-pegged defaulter, got 1200 percent quota access.
Analysts have speculated that a front-loaded Stand-by or an EFF may be assigned to Sri Lanka and have suggested that given the monetary instability that had come from flexible-inflation-targeting-with-a-peg in the past a reserve money program should be followed.
Under a reserve money program, complementary targets such as a floor on the central bank’s Treasury bills stock and foreign reserves can be programmed, and the rupee easily stabilized, provided interest rates are not rigidly enforced with open market operations.
Concerns have been raised that a monetary policy consultation clause in the last program compatible with FIT-with-a-peg had led to external instability and missed reserve targets and excessive foreign borrowing once forex shortages emerged as in 2018.
However, Governor Weerasinghe said Sri Lanka will stick with the (flexible) inflation targeting arrangement that has been used in the recent past. (Colombo/Apr15/2022)