IMF bailout only hope for Sri Lanka – CBSL Governor

An international Monetary Fund (IMF) bail out is the ONLY hope for Sri Lanka as foreign reserves are essentially at unimpressive levels, Central Bank Governor Dr. Nandalal Weerasinghe said making an address at the Colombo Club meeting held recently.

While stating he was very confident of a IMF bailout expected at the end of year he said these negotiations were significantly slowed down/paused due to the political situation in the country where three governments changed in three months and there was a huge political leadership vacuum.

“Until such time as the IMF bailout comes, we will import essential items (fuel, medicine, food) until we are dependent on bridge financing of US$1 billion and another US$ 500 million petroleum line of credit from India.

“India too held back on approving bridge financing until the outcome of elections. If India refuses Line of Credit, we need to plan for the worst case scenario and “live with what we have” until IMF approval is granted!”

Explaining the current impact export scenario he said that Sri Lanka currently brings in US$1 billion a month via exports but import spending amounts to US$2 billion. Austerity measures on imports will reduce spending to US$1.3 billion per month. “Though exports are viewed as essential services, however, if you DON’T bring US dollars via the legal banking system on USD earned, the whole economy will struggle, driving up inflation and eventually impacting exports as well. It will impact our ability to import essentials such as fuel, gas, medicines and food and this will further accelerate social chaos.”

He also appealed to the private sector to spend only on essentials. Don’t use “black money” to buy things like cars, phones and commodities that can wait six months to buy as Sri Lanka just can’t afford these right now.”

He said that the central bank raised interest rates to control inflation and cool off the economy. However, this will negatively impact businesses and big businesses with financial health will survive, but many will not.

“Sri Lanka has been to the IMF 16 times before, but this time will require significant restructuring to make the country credit worthy again and until such time no foreign government will fund us.

The government must cut all infrastructure spending, and will need to cut public sector employees and salaries (1.5 mn employees) and consider removing or reducing subsidies on electricity and fertilizer.”

It also needs to consider privatizing SriLankan Airlines, CPC, CEB which will require tremendous political will and courage by the new government. “Government needs to educate the public and tell the truth. No government has been able to push for privatization because of the large public sector (1.5 mn employees) impact and trade union impact. Restructuring could cost (lose) an election.”