The Central Bank Governor, Ajith Nivard Cabraal is likely to have pulled the plug from the conditional ‘Nirvana’ the Treasury Secretary, Dr. P.B Jayasundera was hoping to attain by obtaining budget support from International Monetary Fund (IMF), perhaps with limited conditions, according to the economic spokesman of the opposition.
The Central Bank yesterday dropped plans to negotiate a fresh facility with IMF—perhaps depriving the opportunity the Treasury Secretary could have carved out for budget support— citing the IMF’s unwillingness to channel funds directly to the government (Refer today’s lead story).
“Perhaps the Governor wanted to pull the plug from the conditional ‘Nirvana’ the Secretary was hoping to attain while starting on the reforms, the learned economist knows is essential. That is if IMF provided the Treasury the US $ 1 billion up front to be spent even with limited conditions, then that would have meant a huge relief for the Treasury and it would have been possible to undertake even on a staggered basis the reforms,” said United National Party’s Dr. Harsha De Silva.
It was only last month the Treasury secretary made public the intention of the government to obtain unorthodox budget support from IMF in order to fast track development projects.
The emphasis Dr. Jayasundera put while announcing his plans at the press briefing saying, “But the funds must come to the Treasury but not to the Central Bank”, clearly indicated the funds were not sought for reserves but for budget support.
Dr.De Silva further pointed out that Sri Lanka could have had the opportunity to obtain funds through an Extended Fund Facility (EFF) from IMF to support the budget. But such arrangements, as he pointed out, demanded a lot of economic reforms, particularly with state-owned enterprises.
“When Dr P B Jayasundara announced recently that the government was seeking budgetary support from the IMF, we pointed out this was highly unlikely, as IMF does not have such programs for middle income countries like Sri Lanka, as far as we are aware.”
“We argued that the government could have perhaps negotiated an Extended Fund Facility (EFF) given to countries facing serious medium term balance of payment problems due to structural weaknesses as in the case of Sri Lanka. But such negotiations we noted would have certainly included reforms that cannot be postponed and very well understood by the learned Secretary,” he noted.
In any case, neither EFF nor budgetary support is now available for the government with the Central Bank deciding to drop the negotiations.
“This is almost a tragi-comedy! The right hand does not seem to know, or care, what the left hand is doing. One the one hand, the Treasury is looking for budgetary support and on the other, the Central Bank is refusing balance of payments support,” Dr. De Silva remarked.
He further charged that the government was looking for budgetary support from the development partners under concessional terms as the latter had taken commercial borrowings to the hilt of which the repayments were beginnings to bite.
“With the World Bank confined to a project to spruce up Colombo and the ADB continuing with its limited infrastructure financing and no other donor in sight, it looks inevitable that the government has no choice but to go back to high cost and almost choking commercial borrowing and Chinese loans with extremely lucrative commissions for the arrangers; all of which will have to paid by the 99 percent of the hard working people of this country,” he added.