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Sri Lanka says making progress with IMF program, budget support

ECONOMYNEXT – Sri Lanka is making progress with a program with the International Monetary Fund with other lenders also joining in with budget support, Treasury Secretary S R Attygalle said.

Other lenders would also provide more than a billion US dollars in budget finance along with the IMF program, Attygalle said.

Sri Lanka has lined up funding from a number of lenders including 300 million US dollars from the Asian Development Bank as well as France, the AIIB and the World Bank.

The World Bank has already disbursed some funds using emergency clauses in existing programs.

Sri Lanka has requested a debt moratorium from India who is not a major lender.

Attygalle said Sri Lanka was confident of repaying foreign debt and was not counting on debt moratoriums.

A billion US dollar sovereign debt that is coming up for redemption in October will also be repaid, he said.

China Development Bank has also given part of a 1.2 billion US dollar loan. The balance would come in the second half of 2020 officials say.

Sri Lanka is also seeking a billion US dollar repo from the Federal Reserve Bank of New York and 400 million US dollar swap from the Reserve Bank of India.

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Sri Lanka’s earlier Extended Fund Facility with the International Monetary Fund expired on June 02.

Sri Lanka then requested support under a Rapid Financing Instrument with the onset of the Coronavirus crisis and liquidity injections hit the currency amid tax cuts.

A new program will have pay close attention to debt sustainability and the IMF generally require budgets to be approved in parliament as benchmarks. Elections are due in August.

“We are engaging in discussion with the authorities to assess all relevant conditions and the full set of options for engagement,” and IMF spokesperson said last month.

Sri Lanka’s earlier program was derailed after pro-cyclical monetary policy involving rate cuts enforced with liquidity injections, a so-called ‘buffer strategy’ and liquidity created from dollar rupee swaps triggered a currency crisis in 2018, which then lend to an output shock and higher inflation.

Currency crises generally trigger consumption and growth shocks, which reduces tax revenues, which then pushes up the deficit. (Colombo/July07/2020)