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CB optimistic of wrapping up IMF staff-level deal towards end of this month

19 August 2022 12:09 am - 13     - {{hitsCtrl.values.hits}}


  • Says IMF mission due in Colombo towards end of this month to reach staff-level agreement
  • Stresses that no change in govt.’s position about not opting to restructure domestic debt 
  • Reiterates that domestic debt restructuring will have detrimental effects on banks and it will delay economic recovery process
  • Expects inflation to peak next month around 65%, lower than previous forecast of 70%, and then it will begin to ease 

By Nishel Fernando
The Central Bank (CB) is optimistic of wrapping up the much-anticipated staff-level agreement with the International Monetary Fund (IMF) for a bailout package during the upcoming staff team visit scheduled for end of this month.

“An IMF mission is planning to visit Sri Lanka towards the end of this month with the intention of reaching the staff-level agreement on the policy package. Once we reach the staff-level agreement for the programme, we will have to start approaching our external creditors on debt restructuring along with our advisors,” CB Governor Dr. Nandalal Weerasinghe said.

He was speaking at the post monetary policy press briefing held at CB premises yesterday.

Addressing the growing fears of a possible restructuring of domestic debt fueled by President Ranil Wickremesinghe’s recent remarks, Dr. Weerasinghe stressed that the government’s stance remains unchanged on limiting the debt restructuring process to external debt as there’s no requirement to restructure domestic debt.

“In my view, what the President said was that financial advisors Lazard is looking at different scenarios towards achieving debt sustainability over a period of ten years. However, the government’s position still remains limited to restructuring external debt,” he said.

However, he acknowledged that foreign creditors, in particular ISB holders, may question the treatment on domestic debt when the government approaches them. He cautioned that restructuring of domestic debt is detrimental to the banking sector and could weigh on economic recovery.

“Our position is that if we were to restructure domestic debt, that will have serious implications on the financial sector including the banking sector. 

That will not help external creditors to recover whatever the relief that they are going to grant us. We will face recapitalisation of banks and numerous issues and that will not help economic recovery in the medium term. We want to minimise the impact on the domestic banking system in order to maintain the financial sector stability, so the economy can recover faster and external parties recover their liabilities sooner,”he elaborated.

Meanwhile, the CB expects the headline inflation to peak to around 65 percent or below that level in September.

“Inflation is likely to peak somewhere in September and then it will be trending down. The latest projection is adjusted downwards when compared to our previous projections. There will still be a gradual increase because we have to factor in the increase in electricity prices. Earlier, we projected the inflation to peak to 70 percent, but we expect the headline inflation to peak to 65 percent or below that level,” he said.

Amid faster than anticipated easing of headline inflation coupled with the marked slowdown in private sector credit growth, the Monetary Board at its meeting held on Wednesday decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 percent and 15.50 percent, respectively.

However, Dr. Weerasinghe outlined that the CB would mainly focus on curtailing the inflation despite high interest rates, which have hit the private sector credit growth. He emphasised that restoring price stability is critical for economic recovery despite high interest rates-led increased finance cost for businesses.

“The high inflation is the main reason for high cost of production. That’s why we need to maintain the tight monetary policy to contain the inflation. Once inflation comes down, we can expect an improvement in the operating environment,” he added. 



  Comments - 13

  • Lion Friday, 19 August 2022 10:21 AM

    According to the recent revelation this man was very closed to Ajith Nevard cabral and Arjun Mahendran during their period of work in the central bank . As this man was holding a position just below the governor he should have known all the actions committed by those 2 people. I don’t think that any positive results could be expected from this man.

    C Fernando Friday, 19 August 2022 02:41 PM

    So you have a more competent person who you think should be appointed? And what "recent revelations" do you mean. Please do enlighten us

    Chumley Pinto Friday, 19 August 2022 03:54 PM

    You are either very pessimistic person or gets sadistic pleasure in seeing srilanka suffer. Give the man a chance. He is our best chance unless you can do better.

    Mahila Sunday, 21 August 2022 01:00 AM

    "As this man was holding a position just below the governor". very smart, but ill-informed comment, presumably hasty, resulting inadvertence and is excusable?! You think every Dick, Tom and Harry, (let alone Cabraal and Mahendran) if they want to ‘rook the system’ will confide in his Deputy???! Very Smart, but not intelligent thinking!! Is It??!! Retired, as Deputy Governor, CBSL, after 20 years service because he was overlooked for almost 10 years by the corrupt, Kleptocratic Government, to Post of Governor CBSL, retired as Deputy Governor in utter frustration in 2020??!! Instead be thankful to him for the recovery!!!

    Mahesh Friday, 19 August 2022 10:39 AM

    Lol. Pm is trying to give compensation for already rich officers where slpp says they were political victims of yahapalanaya. Do you have any plan to stop this kind of public money wastage. Imf should not give a single penny unless these kinds of things are stopped, pension cut for parliament members, privatization of all loss making institutes and automate government services where possible. Also best would be to force the government to go to an election.

    Nihal S Friday, 19 August 2022 11:26 PM

    So IMF do not care for those conditions they demanded including establishment of the rule of law, eliminate corruptions etc. Do we think IMF will support? I hope Dr Nandalal will not lose his credibility by end of the month.

    Dr. Gamini Wickrasinghe Saturday, 20 August 2022 02:54 AM

    This guy is not smart as we thought. This guy will say and do anything what Ranil Rajapaksa says. This guy is a another one just like Cabral.

    emily Saturday, 20 August 2022 01:00 PM

    You must take resposibility to make sure where the money is going before what happened was HALF THE MONEY goes to ministers private bank accounts so make sure this DOES NOT happen

    Punchi Saturday, 20 August 2022 05:17 PM

    When it is about our human rights, unresolved disappearances. Murders etc we tell external bodies not to interfere we have internal mechanisms to deal with these issues. Now that we are bankrupt due to our profligate spending and plundering we ask international organisations to interfere and acknowledge our internal mechanisms are incapable of fixing this. This cunning is what Robert Knox said we mistake as intelligence

    GIA LANKA Saturday, 20 August 2022 10:20 PM


    Quolp Saturday, 20 August 2022 11:25 PM

    IMF will never come to staff level agreement, as they are using as a TOOL their visit to Sri Lanka simultaneously Gotabaya Rajapaksa's visit to Sri Lanka to sabotage so many issues. As everyone knows, IMF acts as a PUPPET of the US to achieve their mission; i.e. SPLITTING the United Sri Lanka whereby creating TAMIL EALAM and Tamil LTTE Terrorism once again in Sri Lanka, and to trade WEAPONS through which the US believe to EARN big MONEY.

    Jewaka Appanam Sunday, 21 August 2022 02:19 AM

    I am sure that these funds will be used by Kappa to build houses - They will refuse any funds due to these people in the cabinet as loving pets of the government!!

    The Great Reset Sunday, 21 August 2022 08:15 AM

    The economies of the vulnerable countries are in doldrums due to the Covid lock down and the printing of Trillions of US Dollars Fiat Currency - the so called "Petrodollar". Adding insult to injury is the Biden administration's 'fatwa' against buying cheap Russian oil. But this 'Russian oil fatwa' is applied selectively, only to punish the vulnerable countries like SL to bring them into line for 'The Great Reset'. But the western puppets like India goes scot free importing cheap Russian oil and then sell it at a premium to poor SL. If not for this ill fated US 'fatwa' SL could simply barter Tea for Russian oil. Mean while India goes on the buying spree and gleefully declares, "India plans to continue with purchases of Russian oil". So where is the much hyped "economic equality' and fair play in all of this?.

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