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SL prefers swap facility with China over IMF

01 Mar 2021

  • Expects to close $ 1.5 b deal within two weeks

  • No more reasons to depend on IMF, says Cabraal

  Regardless of many economists and the Opposition urging Sri Lanka to apply for the International Monetary Fund (IMF) facility, the Ministry of Finance instead opted for a swap facility with China, maintaining its firm stance of avoiding the Fund completely. The Ministry of Finance made a firm statement, highlighting that the Central Bank of Sri Lanka (CBSL) and the Ministry are planning on meeting the country’s debt obligations through foreign inflows, export income, and taxes; and clearly mentioned that Sri Lanka will not be accessing the International Monetary Fund.  “There are various instances where people ask us why we don’t want to access the IMF. It’s not like we have anything against the IMF – I know how to deal with the IMF, because we did access it in 2007 and 2008, the time I was the (CBSL) Governor,” commented State Minister of Money and Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal.   Cabraal revealed that the swap agreement between Sri Lanka and China is to be finalised in two weeks’ time, as there have been delays from what the Ministry originally estimated.  “We are very confident about getting the swap of $ 1.5 billion, which was actually raised in 2014. We had $ 2 billion with China in 2014, which unfortunately lapsed under the previous Government. “This is unfortunate, because if the current Government received this opportunity, there would’ve been no issue. Nevertheless, we are renegotiating this, and we are confident that in the next two weeks or so, we should be able to finalise all these matters.” “We had the largest-ever facility where Sri Lanka had obtained $ 2.6 billion, which we took and repaid as well. But, at that time it was necessary, because we had certain reasons based on which we went to the IMF at that time. Now those reasons are not there anymore,” Cabraal declared. Furthermore, Secretary to the Treasury and Ministry of Finance S.R. Attygalle, in his comparison of corporate taxations of 2019 to that of 2020, revealed that there has been economic growth regardless of the fact that the economy was undergoing challenges due to the pandemic and the lockdown that followed.  “In regards to the data from February 2020, which consists of the corporate taxations collected in the previous year of 2019, Rs. 61 billion was the total corporate tax involved,” Attygalle revealed.  “Currently, taking that the tax percentage decreased from 28% to 24%, and that manufacturing tax has decreased from 28% to 18%, into consideration, the Government recorded receiving Rs. 65 billion in 2020. What does this imply? The turnover has increased, even though this was during the first and second wave of the pandemic.” Cabraal further highlighted that in every country, the Government builds reserves; however, Sri Lanka has reportedly been investing its relevant reserves in various Western countries. Thus, the country is able to derive an income of 1.5%. On the other hand, State Minister Cabraal noted, there are disadvantages posed by the IMF’s dictations, as well as general ratings agencies’ requests.  The Ministry of Finance also mentioned the incentives of coming to a swap agreement with China as a source of emergency funds.   “When we enter into a swap, like what we did the last time, we want to hold it as a buffer, to draw on it at any time, or as a fallback position. Thus, it’s going to be very helpful, and that is why we are pursuing it,” Cabraal revealed.   “In fact, we have raised this issue with the Pakistan Prime Minister as well. As they are also doing the same thing, we are now looking at ways and means by which we can invest in each other’s instruments.” The Ministry of Finance stated that there have been discussions over acquiring funding via the IMF and the aforementioned swap facility, after which the conditions and regulations of the swap were decided to be more favourable to the country.  When inquired about the reason why the Ministry decided against IMF funding, State Minister Cabraal explained: “We don’t want to go for the IMF. Why do you want us to go for IMF? Why do you want to have these problems in this country? The first thing they will say is to depreciate the currency. There are so many countries that have done that. We ourselves have done that. We know the regulations, and we ask that you trust us. We will make sure that the conditions are favourable so that people can carry out their businesses.”


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