An Echelon Media Company
Tuesday December 5th, 2023

Sri Lanka to lend US$2.5bn to US and top-rated borrowers in 2023 under IMF deal: analysis

ECONOMYNEXT – Sri Lanka is projected to lend 2,533 million US dollars mainly to the US and Euro areas during an International Monetary Fund deal in 2023 including a mandatory 1.4 billion US dollars collected from exports and remittances, according to official documents.

Sri Lanka is expected to get two tranches of 331.2 million dollar (254 million special drawing rights each) in March and September 2023 from the IMF.

In 2023 Sri Lanka has to repay 256.4 million dollars from an earlier IMF loan taken during an earlier currency crisis triggered by inflationary open market operations to target artificially low policy rates under flexible inflation targeting.

Net inflows from the IMF would be 406.12 million US dollars in 2023 if the first review is completed in September 2023.

Sri Lanka has committed to collect at least 1.4 billion US dollars from remittances and exports and lend to the US and other developed nations during 2023 under the IMF deal.

A large volume has already been collected after a credit collapse and liquidity trap conditions in the domestic banking system, after a defined surrender rule which determined a transparent exchange peg was lifted.

An ad hoc peg is now operated under the IMF deal to buy dollars and export to the West, as ‘below-the-line outflows. Sri Lanka’s foreign reserves are usually loaned to highly rated sovereign or sovereign linked borrowers, mainly in the US.

But there have been amounts of Euro assets in Sri Lanka’s foreign reserves at times, triggering forex losses when the dollar to Euro parity changed.

Under the IMF program there is a performance criterion to increase net international reserves by 1,948 million dollars during 2023.

Sri Lanka is also expected to repay a 200 million US dollar swap to Bangladesh during 2023, which will also raise the NIR.

At the moment Sri Lanka’s central bank is in debt after borrowing from India, Bangladesh, India including on Asian Clearing Union dues as well as the IMF. Year end net international reserves would still be negative.

Sri Lanka’s gross reserves are expected to rise by 2.5 billion US dollars to 4.4 billion US dollars in 2023 indicating that the Indian Ocean island will lend 2.5 billion US dollars to the US and other highly rated borrowers. It may include re-invested interest coupons.

Sri Lanka is also expected to get 650 million dollars from the Asian Development Bank and 250 million dollars from the World Bank as part of partner support for the IMF deal. Outside of core monetary reserves linked to reserve money, balances in Treasury accounts are also counted as forex reserves.

A country can build reserves or repay loans – which are identical operations – long as there is a market interest rate to curtail domestic investment and consumption and there is no inflationary domestic operations by the central bank which are in conflict with the balance of payments to destroy the credibility of the peg.

Under the IMF program a new monetary law with overt money and exchange policy conflicts and legalizing inflationary open market operations for stimulus (output gap targeting) which critics had blamed for recent serial currency crises and default are to be legalized.

Though an intermediate regime central bank can maintain a strong exchange rate and collapse inflation and amid negative credit, under modern IMF programs due to conflicts coming from inflation targeting (the monetary policy consultation clause) currency crises come within programs.

A NIR target which is not complemented by falling ceiling on net domestic assets of the central bank can also lead to depreciation and inflation taxes on the poor, analysts have warned. (What Sri Lanka’s IMF program should look like).

The current program has a ceiling on domestic assets of the central bank but it is not downward sloping to complement the NIR target and maintain currency stability.

In the current IMF program, there is also a provision to use Fund credit for the budget after ‘converting rupees’, according to officials.

Questions by journalists whether the operation is likely to lead to changes in reserve money was not immediately answered by IMF officials.

IMF transactions in the past have been reserve-money-neutral and did not cause inflation or currency trouble.

In third world so-called ‘basket case countries’ with output gap targeting stimulus and inflationary open market operations, central banking is barely understood, critics say.

Monetary troubles in South Asia, Africa and the Middle East (outside of GCC pegged countries which have no money and exchange policy conflicts without active inflationary open market operations or a policy rate), is due to lack of knowledge of note issue banking, critics say.

Classical economists have pointed out that Western policy circles (mainly the US) lost the plot in the 1920 after John Maynard Keynes’ Economic Consequences of Peace which legitimized the activities of the Reichsbank after the First World War and the subsequent hyperinflation and default as a problem of the current account deficit and war obligations (the so-called ‘transfer problem’).

Read more: Transfer problem debate

German (as well as Swedish and French) economists tried without success to change the return to mercantilism in US and UK official policy circles (at least one economist called it the ‘spurious monetary doctrines of the Allies’) but failed.

Sri Lanka also sought ‘bridging finance’ and borrowed heavily in recent years under similar conditions amid inflationary open market operations, critics have said.

After World War II, the German economists rejected the premise and built the new Deutsche Bank. The theoretical backing for the German monetary policy came from the Austrian economic tradition, including Wilhelm Ropke.

Sri Lanka has gone to the IMF 16 times, earlier mostly after targeting artificially low interest rates or operating re-financing schemes and getting into external trouble, which are then blamed on ‘budget deficits’ and has hardly learned anything, critics say.

A notable exception was the IMF Extended Credit Facility in 2003, under then-central bank Governor A S Jayewardene, probably one of two greatest economists in South Asia, who had knowledge of monetary policy, along with BR Shenoy of India analyst say.

It may perhaps be the only occasion when Sri Lanka entered an IMF deal when foreign reserves were climbing. (Colombo/Mar25/2023)

Comments (4)

Your email address will not be published. Required fields are marked *

  1. Don says:

    According to Buddhist priests in Sri Lanka, there are 33 million gods looking after the interests of the 2.2 million population, this is too much, almost 16 gods to look after a single person, we could sell at least 30 million gods for a good price such as 300000 Billion US dollars to have a big reserve in CB.

  2. sacre blieu says:

    That’s funny, when we are in dire need of funds and our stratospheric debt is projected to be settled in eternity, we have to lend to foreign banks. Worse, who will decide, the President, Finance Minister, or the Central Bank? Most American banks are in a spion with some having to be rescued, and some likely to collapse. Ironically, we are selling good assets, bankrupted by dirty, dishonest politicians and bureaucrats, for a pittance. Most people have been driven into poverty and bankruptcy by the protected corrupt and fraudsters. Not a single rupee has been recovered so far.

  3. Bryan Ekenaike says:

    can anybody out there explain the statement in this report which says “that SL will LEND USD2.5 bill to the US and Euro under the IMF deal in 2023”?
    Does it mean ‘pay back’ to the US and Euro under previous loan arrangements? SL cannot be a lender in its present bankrupt status, or am I reading this wrong?

  4. Kumar says:

    If this is a requirement, usually these loans are guaranteed by the government.

View all comments (4)

Comments (4)

Cancel reply

Your email address will not be published. Required fields are marked *

  1. Don says:

    According to Buddhist priests in Sri Lanka, there are 33 million gods looking after the interests of the 2.2 million population, this is too much, almost 16 gods to look after a single person, we could sell at least 30 million gods for a good price such as 300000 Billion US dollars to have a big reserve in CB.

  2. sacre blieu says:

    That’s funny, when we are in dire need of funds and our stratospheric debt is projected to be settled in eternity, we have to lend to foreign banks. Worse, who will decide, the President, Finance Minister, or the Central Bank? Most American banks are in a spion with some having to be rescued, and some likely to collapse. Ironically, we are selling good assets, bankrupted by dirty, dishonest politicians and bureaucrats, for a pittance. Most people have been driven into poverty and bankruptcy by the protected corrupt and fraudsters. Not a single rupee has been recovered so far.

  3. Bryan Ekenaike says:

    can anybody out there explain the statement in this report which says “that SL will LEND USD2.5 bill to the US and Euro under the IMF deal in 2023”?
    Does it mean ‘pay back’ to the US and Euro under previous loan arrangements? SL cannot be a lender in its present bankrupt status, or am I reading this wrong?

  4. Kumar says:

    If this is a requirement, usually these loans are guaranteed by the government.

Sri Lanka stocks close up as some investor interest returns

ECONOMYNEXT – The Colombo Stock Exchange closed up on Monday, CSE data showed.

The All Share Price Index was up 0.22 percent, or 23.33 points, at 10,743.59.

The S&P SL20 index was up 0.68 percent, or 20.60 points, at 3,067.73.

Turnover was at 708 million. The banks sector contributed 189 million, while the food, beverage and tobacco sector contributed 176 million of this.

Sri Lanka’s stock market has seen some investor interest return after last week’s news that the country had managed an agreement on a debt restructuring deal with an official creditor committee, and foreign funds for some development projects resumed.

Top positive contributors to the ASPI in the day were Sampath Bank Plc (up at 71.50), LOLC Holdings Plc (up at 379.00), and Commercial Bank of Ceylon Plc, (up at 90.90).

There was a net foreign outflow of 52 million.

Citrus Leisure Plc, which announced that its banquet hall and revolving restaurant at the Lotus Tower would launch on or around Dec 9, saw its share price rise to 6.20 rupees. (Colombo/Dec4/2023).

Continue Reading

Sri Lanka rupee closes broadly steady at 328.10/30 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 328.10/30 to the US dollar on Monday, from 328.00/10 on Friday, dealers said.

Bond yields were stable.

A bond maturing on 01.06.2025 closed at 13.70/14.00 percent from 13.70/95 percent.

A bond maturing on 01.08.2026 closed at 13.90/14.10 percent from 13.90/14.05 percent.

A bond maturing on 15.01.2027 closed at 14.00/14.10 percent from 14.05/10 percent.

A bond maturing on 01.07.2028 closed at 14.20/35 percent from 14.15/25 percent.

A bond maturing on 15.05.2030 closed at 14.25/45 percent, from 14.20/45 percent.

A bond maturing on 01.07.2032 closed at 14.05/40 percent, from 14.00/45 percent. (Colombo/Dec4/2023)

Continue Reading

Gov minister highlights abortion rights, sex-ed for children, and Sri Lanka men killing their women

ECONOMYNEXT – Sri Lanka’s legislators have politicized the topics of rape and violence without addressing the elephant in the room, Jeevan Thondaman, Minister of Water Supply and Estate Infrastructure Development said in parliament on Monday (4).

“All the members here are talking about rape. What happens after that? We must talk about abortion rights. That is not something anyone wants to touch on, and that is why we are in this place right now,” Thondaman said.

“Despite alarming statistics on rape and violence, women are often blamed and punished for it. The criminalisation of abortion is a major example of this.”

Sri Lanka has some of the most restrictive abortion laws in the world. According to a 2016 estimate by the Health Ministry, he said, approximately 658 abortions take place a day, and close to 250,000 a year.

“That’s 250,000 women whose lives you are endangering.”

He added that what was needed at this point in time was comprehensive sexual education (CSE) for children and young people.

“Only through CSE in schools will children and young people develop, accurate, age appropriate knowledge attitude and skills; positive values such as respect for human rights, gender equality, diversity and attitude and skills that contribute to a safe, healthy and positive relationship.”

Thondaman pointed out that CSE plays a pivotal role in preparing young people for a world where HIV, AIDS, sexually transmitted infections, unintended pregnancies, and sexual and gender based violence still pose a risk to their well-being.

“CSE basically empowers children take control and make informed decisions freely and responsibly.”

Thondaman also highlighted the findings of a 2021 study (Fatalities_20211109_UNFPA) by the UNFPA and the University of Kelaniya that showed that a majority of women killed in Sri Lanka were murdered by those close to them.

“62 percent of homicides of Sri Lankan women are committed by either an intimate partner, ex-partner or family member. 84 percent are killed in their own homes by someone they know.”

Police and the judiciary have failed Sri Lanka’s women, the minister pointed out.

“Only 5 percent of these cases, between 2013-2017, were ever concluded. Men claim they were provoked, or are of unsound mind or have mental illness: These have been successful defenses. And the Police often express sympathy to this narrative as opposed to the victim’s.”

“We have a history of protecting oppressors.”

It takes 7-10 years for a child rape case to conclude, he pointed out.

Establishment of child courts are needed, he said, as well as several legislative amendments. “The government is working on a new law to reform the domestic violence act, reform of marriage and divorce laws to ensure there is an easier path to divorce: no one should be forced to remain in a marriage that is either abusive or not healthy.” (Colombo/Dec4/2023)

Continue Reading