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Sri Lanka writes to IMF

03 Feb 2022

 
  • Basil says technical assistance sought
  • IMF team due in Sri Lanka
  • Proposals to be presented to GoSL by IMF
The Government of Sri Lanka (GoSL) has written to the International Monetary Fund (IMF) requesting technical assistance and a mission from the IMF will visit Sri Lanka in the near future to assess the country’s economic situation and provide a set of proposals for the way forward. This was disclosed by Finance Minister Basil Rajapaksa at a press conference yesterday (2), in response to repeated questions by journalists on whether the GoSL has sought IMF assistance and whether it will enter into an IMF programme. Rajapaksa added that Japan is facilitating the visit by the IMF delegation and that discussions between the GoSL and the IMF are ongoing. This is the strongest signal yet that the GoSL may enter into an IMF programme considering the current economic crisis and appears to directly contradict the statements made by Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal that Sri Lanka would not opt for an IMF programme. If Sri Lanka does decide to, it would be the 17th such programme that Sri Lanka has entered into with the IMF in its history. In late November, the IMF told The Morning that its staff stands ready to discuss options with the Sri Lankan Government, during the visit of the fund’s representatives to Sri Lanka in December. The IMF disclosed this in response to media inquiry regarding the Article IV mission to Colombo in December. “A staff team from the IMF is scheduled to visit Colombo during the period from 7 to 20 December to conduct the 2021 Article IV consultation with Sri Lanka. The IMF has not received a request for financial support from Sri Lanka recently, but the staff stands ready to discuss options if requested,” noted IMF Mission Chief for Sri Lanka Masahiro Nozaki at the time. However, during the Monetary Policy Review press conference, held the next day, Cabraal stated that Sri Lanka is neither afraid nor has hindrances to approach the IMF for financial assistance, but it simply chooses not to, merely because it does not feel the need for it. “We have sought IMF assistance in 2009 and 2010. We, certainly, do not have any issues in going to the IMF if really required to do so. The reason why we have chosen not to seek their assistance is that our international sovereign bonds (ISBs) shot up to $ 15 billion by mid-2019 from a mere $ 5 billion in 2014. However, the gross domestic product (GDP) did not proportionately increase. As a result, we have begun looking for alternative financing options and that is what the IMF wants too. That is what they call ‘debt restructuring’,” Cabraal added. He further noted that if they are to seek IMF assistance, the fund might require the Government to depreciate the Sri Lankan rupee, increase interest rates, cut down the number of public servants, slash pension schemes, and sell state properties, which is a reform agenda the Government is not willing to comply with at the moment. Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva stated at a press briefing on 12 December that the GoSL could have gotten into the IMF train eight months ago and the country could have also managed without a debt default. He stated: “Paying debts – we will have to restructure it the way we can know. The IMF’s structural assessment or stabilisation, that train has gone. Now the problem is deeper. Tell the Cabinet that we cannot pay our debts and we need a few years to go back to normal, with international help. We are ready to support the Government; for the sake of the public, we are willing to leave political differences aside. “If this (forex crisis) was discussed in November last year (2020), the country could have managed. The application for the IMF was postponed on multiple occasions, saying that money comes from here and there, and then swaps,” said Dr. de Silva, criticising the delay. Subsequently, United National Party (UNP) Leader and Parliamentarian Ranil Wickremesinghe said that the USD crisis in the country has reached a “severe point” as businesses are closing, the middle class is under pressure, people are losing jobs, and farmers have been abandoned. “The Government is yet to come up with a solution. The Government must either go to the IMF or come up with a credible alternative. Neither has taken place so far. In the meantime, the people are suffering and the national mood is turning hostile to the Government.”


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