Despite the Central Bank’s previous announcement that the US$2.6 billion Standby Arrangement with the International Monetary Fund (IMF) would be terminated, the government has said it hoped to sign a new Letter of Intent next month to obtain the balance US$800 million.

Senior Minister Sarath Amunugama, who is in charge of International Monetary Cooperation told Parliament on Thursday the government, had not terminated this loan facility with the IMF, though Central Bank Governor Ajith Nivaard Cabraal had earlier said the deal would be terminated because the government was confident of sustaining its economy without further IMF assistance.

On June 24, 2009, the IMF Executive Board approved a SDR 1.65 billion (about US$2.6 billion) 20-month Stand-By Arrangement with Sri Lanka to support the country's economic reform programme.

The key objectives of the IMF-funded economic reform programme was to strengthen Sri Lanka’s fiscal standing while ensuring the availability of resources for a much needed post-conflict reconstruction and relief efforts.

Sri Lanka had received US$1.8 billion of the loan facility in seven tranches. Last month, an IMF delegation arrived in the country to review the country’s fiscal situation. After the review meeting, Mr. Cabraal told the media that the country would be compelled to pay an interest of 3.1 per cent if the balance US$800 million was drawn, and therefore the government would not go ahead with it.

Dr. Amunugama said the government continued to maintain a healthy relationship with the IMF on this matter.

“We have not deviated from the process of securing the entire amount of the loan. If we are to get the remaining amount, we will have to sign a separate Letter of Intent in March,” he said and added that the government would take a decision based on our foreign reserves.

United National Party (UNP) parliamentarian and economist Harsha de Silva said the government devalued the rupee and reduced the budget deficit by increasing taxes only to fulfill the conditions laid down by the IMF for issuing this loan. The IMF had also asked the government to improve the financial standings of the Ceylon Petroleum Corporation and the Ceylon Electricity Board and maintain them at least at break-even levels, but this is yet to be achieved. (Kelum Bandara)