Sri Lanka can overcome the current economic constraints and would not have to seek an International Monetary Fund (IMF) bailout, said Governor Central Bank Ajith Nivard Cabraal.
The governor also explained that one of the reasons for this temporary economic issues is debt repayment due to loans taken by the previous government and also the revenue of around USD 4.5 billion not coming from tourism due to the pandemic. He said that Sri Lanka currently has USD 1.6 billion foreign reserves and it would be definitely increased to USD 3 billion by December 31, 2021 and further strengthened through several Central Bank to Central Bank , government to government and several other financial instruments.
“One must remember that the Sri Lanka foreign reserves stood at USD 800 million when the country was fighting the LTTE but it did not have any negative impact.”
The Governor also stressed that the foreign debt obligations were fulfilled and they would be honoured in the coming years as well without IMF support. Many small countries that sought IMF support have been unstable and in 2002 Argentina which took a bailout package from the IMF saw five Presidents being elected within a short span of 6 months. The Governor explained in detail at a special meeting in the Central Bank yesterday that IMF assistance comes with conditions.
“Firstly they will advise to float the rupee which will result in the rupee depreciating and moving to around Rs. 240.”
The Governor recalled that this happened in 2014 when the government took IMF assistance and the rupee rose from Rs. 132 to Rs. 185.Due to this all imported items would go up in price from about 20% which is not viable. Another likely condition from the IMF is a request to increase the interest rate which will have a negative impact on the economy. “Also they (IMF) will request the Central Bank not to give any money to the government which will hamper the payments to the public sector and several other areas. The IMF is always very keen to dispose of valuable State assets owned by the government and even requests to privatise State owned banks and these too would be issues. He explained that if Sri Lanka goes to the IMF for a bailout the country has to sign a ‘Letter of Intent’ agreeing to all these conditions and hence it’s not a viable option.
“The opposition knows these and that is why they are pressuring the government to go to the IMF.”
He recalled that when former President Mahinda Rajapaksa left the country GDP was at USD 79 billion and in the next five years it only increased by USD 5 billion and sovereign bonds increased from USD 5 to 15 billion. The governor also said that the current economic issues seen in Sri Lanka were not only evident here but were common in many countries and assured that things were improving and better times could be expected ahead.