Sri Lanka planning “appropriate arrangement” with IMF: PM

ECONOMYNEXT – Sri Lanka is seeking an "appropriate arrangement" with the International Monetary Fund as the country battles with a budget deficit and an uncertain global environment, Prime Minister Ranil Wickremesinghe said in Switzerland.

"Since the budget the whole global situation had changed," Wickremesinghe told reporters in Davos, Switzerland, where he is attending the World Economic Forum.

"I don’t think any country can forecast what the budget deficit will be. This is why we are talking with the IMF on what the program that we should have."

He was responding to a question on uncertainties over Sri Lanka’s budget deficit. In 2015 also Sri Lanka overshot the budget deficit, and debt monetized to finance it pushed the country in to balance of payments trouble.

"No one is sure how events will turn out in 2016," Wickremesinghe said. "Secondly we want to be strong enough to face any contingency and carry out our re-structuring.

"Everyone had found out in the last few months that they had to revise their budgets and revise their targets because of the uncertain situation.

"So it is not surprising that we are having discussions. And if need be we will come to an appropriate arrangement with the IMF."

He said the government had low tax revenues, and the country had to be restructured to get over balance of payments trouble.

He said the government had low tax revenues, and the country had to be restructured to get over balance of payments trouble.

Sri Lanka’s deficit spending and central bank accommodation of such deficits have created repeated balance of payments trouble since the agency was created shortly after independence. 

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Analysts have said it has too much discretion to create economic instability by suppressing rates and it either needs to be abolished in favour of a Hong Kong or Singapore style monetary authority or restrained with a tight inflation targeting law.

A steep state worker salary in 2015 hike is one of the key proximate causes of the balance of payments crisis. Many state workers who got a salary hike also borrowed more money to lease imported small cars because interest rates were low.

Wickremesinghe said global events including uncertainties over China were buffeting Sri Lanka and he wanted to be ready for any contingency.
 

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