Sri Lanka’s deal with the International Monetary Fund to unlock the US $ 2.9 billion Extended Fund Facility (EFF) will be mainly building international reserves to meet external payments and Support of macroeconomic adjustment and structural reform programmes amidst economic and political crises, Former Finance Minister Ravi Karunayake underlined.
Mr. Karunanayake who effectively handled $1.5 billion IMF bailout deal to boost foreign exchange reserves and avert a balance of payments problem in 2019 noted that it will be a catalyst to generate additional international financial assistance in three ways.
He explained that a macroeconomic adjustment programme with the IMF is often a prerequisite for obtaining World Bank ADB and other multilateral adjustment loans.
Secondly , as part of entering into a stabilization programme, the IMF arranges aid consortia of donor countries to assist the country, Most of the donor funds received under these consortia are outright grants or long-term loans that carry low interest rates.
Thirdly, credibility of the economic reforms gained by entering into an IMF programme helps raise funds at competitive interest rates from private capital markets.
The other significant benefit for the country after the unlock of IMF EFF would be the breathing space it provides for the government to make a series of delicate policy changes, he claimed.
The IMF conditionalities are often difficult to keep up with and could build added pressures on the domestic economy, as seen in Sri Lanka in the last decade.
,Sri Lanka’s government revenue contracted from 14.1 percent to 12.6 percent of GDP, and the growth rate slumped from 5 percent to 2.9 percent.
Sri Lanka’s lack of pragmatism with the IMF in the earlier stages of the crisis made things worse and reduced its options to avert this meltdown.
IMF extends policy advice to pave the easy capacity-building activities, and concessional financial support at below-market interest rates to Sri Lanka.
The IMF extends policy advice, capacity-building activities, and concessional financial support at below-market interest rates to Sri Lanka.
Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps.
Financing assurances to restore debt sustainability from Sri Lanka’s official creditors have been extended to the IMF and making a good faith effort to reach a collaborative agreement with private creditors were crucial before the IMF provides financial support to Sri Lanka.
The government will have to make these policy changes as fast as possible, in order to “build a highly competitive, export-oriented economy, he said , adding that it has to prevent economic hardships for large sections of the population.
The Finance Ministry and the Central Bank authorities have devised the country’s economic reforms programme in consolation and compromise with the IMF mission for Sri Lanka and it will be endorsed by the IMF executive board at its meeting today (Monday 20), IMF sources said.
There were 15 commitments made by the government’s to the IMF he pointed out adding that the Central Bank and the Finance Ministry top officials had the opportunity to make any Major tax reforms to raise government revenue for fiscal consolidation.
Among these commitments were the cost-recovery based pricing for fuel and electricity, in order to minimize fiscal risks arising from public sector enterprises and the restructuring of some of these SOEs.