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Govt. turns to IMF

18 Jul 2021

  • $ 800 m SDR allocation by IMF likely next month
  • A separate programme not connected to existing facilities
By Yoshitha Perera Following the Covid-19 outbreak, the International Monetary Fund (IMF) decided to pass a new Special Drawing Rights (SDR) allocation for its member states, and according to the Government, Sri Lanka will probably gain around $ 800 million next month. SDR allocations are IMF reserve assets that are exchangeable for certain currencies such as dollars, euros, sterling, yen, and yuan. The IMF issues SDR allocations to the central banks of its member countries and member states could exchange it for hard currency with another central bank. If the member states cannot exchange the money, the IMF has the power to declare which state should accept the SDR allocation. As per the reports, so far, the IMF has allocated SDR 204.2 billion, which is roughly equivalent to $ 285 billion. Speaking to The Sunday Morning, State Minister of Money, Capital Market, and State Enterprise Reforms Ajith Nivard Cabraal said that for the current SDR allocation, the IMF had selected many states, particularly the emerging nations that have undergone a serious challenge with the Covid-19 situation. “The IMF had recognised that there is a need to increase its SDR allocation universal basis considering the Covid-19 pandemic situation and challenges,” he said. Explaining further, the State Minister said that according to the proposal by the IMF, it had allocated a sum of $ 650 billion to be distributed as new allocations amongst all its member countries. “A similar allocation was conducted by the IMF way back in 2009, when there was a global financial crisis. At that time, Sri Lanka received $ 500 million as its share of the SDR allocation,” he added. Cabraal said that with the new allocation of $ 650 billion worldwide, Sri Lanka will stand to gain around $ 800 million probably in the next month, adding: “This is a separate programme by the IMF which is not connected to any individual facility.” Responding to The Sunday Morning query on whether there are any conditions which the country has to agree upon prior to the receiving of the SDR allocation, Cabraal said that there are no conditions to such an allocation from the IMF. “This programme is a special one which is not in line with its normal disbursements. It is not a special loan or a standby arrangement that the IMF is giving; it’s an overall credit to all its member states,” he explained. According to reports, in 2020, the IMF prematurely ended a loan programme to Sri Lanka after disbursing $ 1.3 billion of an agreed $ 1.5 billion facility, and this was an individual loan facility obtained by the previous Government. State Minister Cabraal said that the earlier IMF programme was an individual one, and with that, the country had to agree to certain conditions. “The former Government had a programme with the IMF and there is what is known as a letter of intent that they provide to the IMF, which sets out what initiatives we would take in line with the agreement. Those would be part of privatisation programmes reducing the recruitments, privatising some other state-owned enterprises, etc.” He explained that the current Government did not want to go ahead with the same conditions the previous Government had agreed with the IMF. “We allowed that programme to lapse. At the same time, we took many measures to deal with the economic situation as well as the weaknesses that were there, which we continued with or without the IMF’s assistance. The previous programme was over; if not, it would have been really difficult for our country people to emerge from the Covid-19 pandemic situation,” he said. However, many economists and academics in the financial sector warn that if the Government and the Central Bank continue to have the current short-term policy measures without addressing the declining finance situation, the Sri Lankan rupee will crash further. They also pointed out that in this given situation, receiving an SDR allocation too would not assist the economic growth with the worsening crisis. Speaking at an online discussion organised by the Advocata Institute in the first week of July, former Central Bank Deputy Governor Dr. W.A. Wijewardena explained further the receiving of $ 800 million SDR allocation from the IMF. He said the US is yet to reach an agreement with the IMF to purchase the new SDRs issued by the IMF to its member states. Therefore, he said the anticipated SDR boost for economic growth might become irrelevant if there is no major country keen to exchange it for US dollars or any other main currencies.


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