Sri Lanka vs other beneficiaries of IMF’s Extended Fund Facility

By Madhusha Thavapalakumar

With less than a year left for Sri Lanka to conclude its three year bailout under the Extended Fund Facility (EFF), the International Monetary Fund (IMF) has suspended the disbursement of its sixth tranche of $ 250 million of the loan, owing to the prevailing economic instability in the country.

“The programme is on hold pending further clarity on the political situation,” said IMF official spokesperson Gerry Rice responding to a query by The Sunday Morning.

Meanwhile, during a press conference last Wednesday (14), the Central Bank of Sri Lanka Governor Dr. Indrajith Coomaraswamy informed: “There is a delay, because IMF wants to see what the government does and whether policies are in place.”

According to Coomaraswamy, following a review in September, IMF entered into a staff level agreement with Sri Lanka on 26 October, agreeing on several policies to satisfy the IMF in terms of the Extended Fund Facility.

Under these circumstances, The Sunday Morning Business delved into the economic performance of other beneficiaries of IMF’s Extended Fund Facility (EFF) programme.

IMF approved $ 2.9 billion for Tunisia in May, 2016 under the EFF programme.
Completing the fourth review last month, IMF noted: “The recovery has proceeded broadly as expected in the Third Review, despite elevated socio-political tensions and a further increase in oil prices.”
“Growth accelerated to 2.8% in the second quarter and inflation decelerated to 7.5% in August whiles the current account deficit for the first half of the year improved by 1% of GDP.”
However, investment remains weak, unemployment is high especially among the youth and women, and the Tunisians’ purchasing power is eroding.
The review further said that the authorities met all Quantitative Performance Criteria and implemented two out of the three Structural Benchmarks due for the Fourth Review, notably the competitive central bank foreign exchange auctions.
Last month, Moody’s Investors Service changed the outlook to negative from stable on the Government of Tunisia’s issuer ratings and affirmed the ratings at B2.
In May, Fitch affirmed Tunisia’s Long-Term Foreign- and Local-Currency IDRs at ‘B+’ and revised the Outlook to Negative from Stable.

Mongolia secured a $ 434.3 million loan under the EFF program in February, 2017.
Statement by the IMF Mission on the Fifth Review of Mongolia’s Extended Fund Facility:
“Recent macroeconomic performance has been strong with key targets met and growth is reviving although significant vulnerabilities remain.”
“Good progress has been made especially regarding structural reforms and policies to rehabilitate and strengthen the financial sector. Discussions including on the macroeconomic policy mix will continue in the near future.”
Moody’s Investors Service says that the credit profile of Mongolia (B3 stable) balances the sovereign’s still-high external and liquidity risks, against its strong medium-term growth prospects from the extraction of plentiful natural resources.
Meanwhile in July, Fitch Ratings upgraded Mongolia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B-‘. The Outlook is Stable.

Georgia secured a $ 285.3 million bailout under the EFF program in April, 2017.
Concluding the third review IMF said: “The reform program is advancing well, with most program targets for the third review met. Growth in 2018 was robust through July, due to strong economic activity in main trading partners and domestic demand, but it has softened recently.”
However, IMF revised 2018 growth forecast downward to 5.0% (from 5.5%) and to 4.6% for 2019. Despite strong growth in exports, tourism, and remittances, the current account deficit is expected to deteriorate slightly in 2018-19.
In March, Moody’s said that the Government of Georgia’s (Ba2 stable) credit profile reflects the country’s high potential growth, strong and improving institutions, and a moderate debt burden, but also low income levels, a small economy, external vulnerability from the economy’s reliance on foreign-currency denominated funding, and latent geopolitical risks.
Meanwhile in August, Fitch Ratings has affirmed Georgia’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at ‘BB-‘. The Outlook is Positive.

IMF approved a $ 214.29 million for Gabon in September 2018.
After its second review in September IMF noted: “In Gabon, macroeconomic conditions are slowly improving. Activity is stabilizing, with 2017 growth revised to 0.5% —a slowdown broadly in line with trends envisaged at the time of the program request a year ago.”
“Oil and mining exports helped narrow the 2017 current account deficit. The overall fiscal deficit (cash basis) declined by 3.25% of GDP, but the adjustment relied on large cuts in public investment.”
In June, Moody’s downgraded Gabon’s sovereign debt rating for the second time in 12 months to CAA1, citing liquidity pressures which are making debt repayment tougher.
Meanwhile in October, Fitch Ratings revised the Outlook on Gabon’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at ‘B’.

Sri Lanka
In June 2016, Sri Lanka secured a three year $ 1.5-billion bailout from IMF, the second bailout since 2009, after a serious Balance of Payment crisis.
In order to secure the loan Government agreed to tough fiscal and monetary policy measures including tax reforms, changes in fiscal consolidation and a flexible currency exchange rate.
According to Reuters, completing a review earlier this year IMF has stated “The economy remains vulnerable to adverse shocks given the still sizable public debt and low external buffers”.
The review also highlighted delays in policy implementation.
The IMF Executive Board approved the completion of the fourth review on June 1st, disbursing about $ 252 million while the fifth review mission took place during September 13-27.
However, now delaying promised implementations further, Government is behind the schedule on introducing automatic electricity pricing and has brought down fuel prices by breaking the fuel price formula – structural benchmarks under the IMF program.
According to Fitch Ratings the delay in the budget also expects to jeopardise compliance with IMF targets under the IMF-supported program, which is due to expire in mid-2019.
Regardless of the prevailing political crisis, few weeks ago, IMF revised down its projection for Sri Lanka’s economic growth for the year 2018, to under 4 %, from June’s forecast of 4%, owing to weaker economic environment and delays in policy implementation.
The external debt stock of Sri Lanka is equivalent to around 60% of GDP, and almost 30% of this (around $ 15 billion) matures in 2019-2022.
Moody’s expects that debt will remain above 70% of GDP by 2020 and that interest payments will continue to absorb about 40% of revenue in the next couple of years.
However, Sri Lanka’s public debt-to-Gross Domestic Product (GDP) ratio is already 77.6%, which is well above the 62.9% median for sovereigns rated ‘B’ or lower.
In a statement last week Moody’s said that Sri Lanka’slarge external financing needs and substantial foreign currency government debt raise its vulnerability.
“External payments due over the next year are materially higher than foreign exchange reserves, reflected in our forecast of an EVI of 161% for 2019. The government’s gross borrowing requirement of about 16%-20% of GDP and significant foreign currency borrowing on commercial terms also make Sri Lanka sensitive to external financing conditions. Lengthening average government debt maturities mitigate this risk. Uncertainty about the direction of future policy following the recent political crisis could have a large and lasting negative impact on international investors’ confidence, undermining Sri Lanka’s ability to refinance forthcoming external debt at affordable costs,” Moody’s said in the statement.