IMF to approve Lanka’s request for bailout today
The International Monetary Fund (IMF) is expected to approve Sri Lanka’s request for an IMF bailout today (Monday) and is scheduled to receive around USD 330 million as the first tranche of the Extended Fund Facility (EFF) tomorrow (Tuesday).
“This will help to restart the economic stabilization of the country and also to further stabilize the Sri Lankan rupee.” Economic analysts said.
“This is the ‘international stamp of confidence’ the country was waiting for to carry out the development plan to take Sri Lanka out of its worse economic crisis which even led to ousting of a President and a Prime Minister and the parliament appointing the then Prime Minister Ranil Wickremesinghe as the new President.”
Subsequently, a tight focused economic consolidation process was launched spearheaded by President Wickremesinghe which saw the ending of long queues for fuel, and gas, long power cuts and shortage of many essential goods. Wickremesinghe told parliament there were signs the economy was improving but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.
The IMF has a policy of not bailing out countries unless all its other creditors have first agreed to write down their loans and towards this the government obtained financing assurances from India, China and the Paris Club. China and India are Sri Lanka’s biggest lenders.
Subsequently, Wickremesinghe told parliament that Sri Lanka had completed all prior actions that were required by the IMF. IMF Managing Director Kristalina Georgieva welcomed the progress made by Sri Lankan authorities in “taking decisive policy actions and obtaining financing assurances from all their major creditors, including China, India and the Paris Club.
“These financing assurances paved the way for the IMF board to approve of the staff-level agreement reached on September 1, 2022, for a new Extended Fund Facility,” an IMF spokesperson later said in a statement.
“With the assurance of the International Monetary Fund, we will be able to return to the financial market, the pressure on the banking system will decrease, inflation will start to come down, restrictions will be relaxed, and the bank interest rate will decrease,” said the minister.
“With this approval lending Institutions like the World Bank, JICA, and the Asian Development Bank can operate normally. Because currently we only receive aid as emergency aid,” said Finance State Minister Shehan Semasinghe. “We are not just expecting 2.9 billion dollars in four years from the International Monetary Fund process. But the trust built in that, the assurance we get internationally is very important.”
Sri Lanka requested a bailout on March 18 last year from the IMF.
CBSL Governor Dr Nandalal Weerasinghe earlier said that the delay in seeking outside help (IMF) was a mistake.
“If we had decided to go to the IMF earlier, if we started the debt resettlement process one year before, we could have managed the situation without this kind of suffering in this country,” he said.
The Governor said once the IMF facility was in place, the Asian Development Bank and the World Bank would enhance their commitment through policy-based loans of $4.5 billion in new funding coming for budgetary support.
He said he believed economic recovery would start from the second half of this year while positive growth was expected in 2024. (SS)
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Rupee appreciates 7.8%
The Central Bank said that during the year up to March 17, 2023, the Sri Lankan rupee appreciated against the US dollar by 7.8%. Given the cross-currency exchange rate movements, the Sri Lankan rupee appreciated against the Japanese yen by 8.3 %, the pound sterling by 7.0%, the Euro by 8.0% and the Indian rupee by 7.6 % during this period.
The appreciation was driven by better dollar inflows from tourism and remittances, positive sentiment over imminent approval of an IMF deal and a downturn in imports, analysts said.