Approval of IMF EFF agreement to unlock sizable int’l funding – First Capital Report

The Sri Lankan economy is projected to recover gradually towards the latter part of 2023 says First Capital’s Monthly Economic Watch report March 2023. The report says that this is supported by improvements in domestic supply conditions, enhancement in business and investor sentiments along with the anticipated improvements in foreign exchange inflows, envisaged reduction of market interest rates, and the impact of policy measures being implemented to strengthen the growth outlook. The successful approval of the IMF EFF agreement for USD 3 billion is expected to unlock a sizable amount of funding from other international financial institutions, while providing a comprehensive policy reform package with a specific implementation timeline, aimed at stabilising the economy and reinforcing the country’s growth potential.

This, coupled with the successful implementation of the debt restructuring process, is expected to ease the balance of payments constraint significantly in the period ahead. Foreign Reserves also increased by USD 98.0Mn to USD 2.2Bn in February 2023. Market Liquidity displayed slight improvement after continuous injections to liquidity via term reverse repos by CBSL, amidst significant volatility during March 2023.

The YoY inflation of CCPI for Mar was 50.3% and has decreased relative to the month of February. Food item prices have decreased to 47.6%YoY in March 2023 from 54.4% YoY in February 2023 while the Non-Food item prices increased to 51.7% YoY from 48.8% YoY in March 2023.

The contribution from food category for YoY inflation was 14.93% while the contribution of Non-Food items stood at 35.46% mainly due to the increase in Housing, Water, Electricity, Gas and Other Fuels, Transport, Restaurants and Hotels, Clothing & Footwear, etc.