Business

IMF support only if unconditional: Governor

By Charindra Chandrasena

Sri Lanka will obtain emergency financial support under the Rapid Financing Instrument (RFI) of the International Monetary Fund (IMF) only if the support would be provided with no conditionality, according to the Central Bank of Sri Lanka (CBSL) Governor.

“We do not want to go for the conditionality of the IMF. We were told this arrangement is without any conditions. If that is the case, when the opportunity comes we will renegotiate it. It has to be negotiated on our conditions,” Governor Prof. W.D. Lakshman told The Sunday Morning Business

According to him, negotiations pertaining to Sri Lanka’s request from the IMF for emergency financial support are on hold at the moment and the resumption of negotiations would depend entirely on the stance of the IMF with regard to the current economic policies of Sri Lanka.  

The Governor noted that the negotiations came to a standstill some time back and none of the parties have yet started renegotiating. He added that there is no “urgency” of obtaining this facility in any case as Sri Lanka has “other sources” of funding.

However, a country requesting RFI assistance is required to co-operate with the IMF to make efforts to solve its balance of payments difficulties and to describe the general economic policies that it proposes to follow while prior actions beyond these may also be required where warranted. Therefore, it is as yet unclear how much bargaining power Sri Lanka would have if it was to enter an RFI. 

It also remains to be seen if this instrument would fit into the Government’s policy framework, which has leaned towards nationalistic and inward-looking trade policies.

Sri Lanka submitted the request to the IMF for emergency financial support under the RFI in April this year. In mid-April, IMF Acting Mission Chief for Sri Lanka Masahiro Nozaki confirmed to The Sunday Morning Business that this request was being reviewed. Nozaki added that the RFI, if approved, could potentially replace the $ 1.5 billion existing Extended Fund Facility (EFF) arrangement of Sri Lanka with the IMF from which Sri Lanka has so far received $ 1.3 billion.

In May, IMF Communications Department Director Gerry Rice, during a virtual meeting, stated that the IMF will be working in close co-ordination with the Government to assess all relevant factors related to that request. 

“I can also say that the Sri Lankan authorities also expressed interest in a range of options for future engagement with the Fund, and, in this context, again, we’re discussing the authority’s intention to replace the Extended Fund Facility arrangement that they had with the rapid financing instrument,” Rice added. 

The seventh and final review of the current EFF programme was scheduled to take place after mid-April, but was postponed indefinitely due to the Covid-19 pandemic. The eighth and final tranche of $ 190 million was scheduled to be provided to Sri Lanka following this review but is yet to be received by the Government. The IMF is yet to disclose the value of the RFI being discussed with Sri Lanka or whether the value of the final tranche of the EFF would be added to the RFI.

The RFI provides rapid and low-access financial assistance to countries facing an urgent balance of payments need, without the need to have a full-fledged programme in place. The RFI is designed for situations where a full-fledged economic programme is either not necessary or feasible. Financial assistance provided under the RFI should be repaid within three-and-a-quarter to five years.