IMF second tranche, other donor funding on the cards – CBSL

• Economic growth to enter positive territory in 2024
• Banks requested to reduce market lending rates

The International Monetary Fund (IMF) will approve the second tranche of the IMF-EFF programme following the IMF’s Executive Board approval of the First Review to Sri Lanka next month.

This would be followed up by a series of other donor funding, said Governor Central Bank Dr. Nandalal Weerasinghe at the CBSL Monetary Policy Press Conference on Friday.

He said that the IMF needed assurance from Sri Lanka’s creditors and the government was successful in obtaining them from China EXIM Bank and many other parties.

“We are making good progress in this regard. We expect more assurances from European creditors soon.”

Once this is done Sri Lanka will receive the second tranche of USD 330 million and it will be followed by other ‘flows’ from the Asian Development Bank and World Bank which will help government budgetary financing. He also said that though the third and fourth quarters had positive economic growth, due to negative growth in the first two, Sri Lanka will end 2023 on a negative growth but would return to positive territory from 2024.

Commenting on other aspects he said that the Merchandise trade deficit could expand as exports moderate and imports normalize. However, the current account remains strong and is expected to record a surplus in 2023-year end supported by the services sector and secondary income flows.

Gross official reserves were estimated at around US$ 3.6 billion by the end of October 2023 (including the around US$ 1.4 billion swap facility from the People’s Bank of China).

The CBSL expects to maintain inflation at under 5% over the medium to long term. “There may be a short-term increase in inflation given the expected increase in VAT to 18%. However, the exchange rate will remain stable and LKR appreciation against USD (thus far in 2023) around 11.0%.”

“Due to monetary policy measures carried out since June 2023, Market interest rates are expected to normalise in the period ahead. Market interest rates continued to adjust downwards. With the moderation of market lending interest rates, most benchmark interest rates have declined significantly and credit to the private sector is expected to increase further in the period ahead.”

Such adjustment in interest rates is imperative to ease the domestic monetary conditions further and the CBSL stressed the need for all licensed banks to take swift measures to reduce market lending interest rates to ensure that the benefits of the series of monetary policy easing measures are adequately passed on to businesses and households.

Meanwhile the Monetary Board of CBSL, at its meeting held November 23 2023, decided to further reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by -100bps to 9.0% and 10.0%, respectively.

The post IMF second tranche, other donor funding on the cards – CBSL appeared first on DailyNews.