SL not to pursue new IMF loan

12 February 2013 04:28 am

Sri Lanka has decided not to pursue a new loan from the International Monetary Fund as the global lender has indicated it may not be in a position to consider budget support to country, the central bank said on Tuesday.
 
The central bank said the IMF had indicated that Sri Lanka does not warrant unconventional and exceptional financial support in light of recent improvements in its fiscal situation.
 
"Sri Lankan authorities have decided not to pursue a new programme with the IMF, but to continue maintaining the close relationship with the Fund under standard consultation processes similar to many other member countries," the bank said.
 
The full statement
Since completion of the Stand-by-Arrangement successfully with the IMF in July 2012, the
Sri Lankan authorities and the IMF have been engaging in  a dialogue  on the future
relationship between Sri Lanka and the Fund. 
 
In the meantime,  Sri Lanka has moved to a more market oriented exchange rate
determination regime and the  country’s reserves have increased to a much higher level
when compared to the position at the beginning of the Stand-By Arrangement.  In fact, Sri
Lanka’s external reserves have now reached a level of approximately US$ 7 billion, from
just over US$ 1 billion in early 2009 when Sri Lanka  commenced the Stand-By
Arrangement with the IMF. Accordingly, there appears to be a very limited need to build
up a  further cushion in external reserves through traditional  IMF Balance of  Payment
support programmes, such as Stand-By Arrangements and Extended Fund Facilities. 
 
In that background, the Sri Lankan authorities had expressed their interest in a future IMF
programme, only if such programme entailed  support to finance the budget within the
announced fiscal consolidation process by which the Government has already committed
to bring down the fiscal deficit to 5.8 per cent of GDP in 2013 and below 5 per cent of GDP
in the medium term. 
 
However, during  consultations, the IMF has indicated that  the Fund may not be in a
position to consider any direct or indirect budget support to Sri Lanka, since the current
improved status of Sri Lanka does not warrant unconventional and exceptional financial
support to the Government of Sri Lanka from the IMF.  The IMF has also been of the view
that Sri Lanka has now developed well-established access to international capital markets
and therefore budget support, if necessary, could be conveniently accessed from such
market sources and hence there is no need to access the Fund for such budget financing. 
 
In view of above circumstances, Sri Lankan authorities have decided not to pursue a new
programme with the IMF, but to continue maintaining the close  relationship with the
Fund under standard consultation processes similar to many other member countries.