- IMF urges more exchange rate flexibility
- CB defends interventions as necessary
- More discussions expected in Washington this week
Reuters: The International Monetary Fund (IMF) yesterday said there has been no timetable set for a review of Sri Lanka’s progress under a $2.6 billion loan, the precursor to disbursement of the programme’s eighth tranche.
The global lender’s comments come as the island nation’s Central Bank defended its intervention in the foreign exchange market after the IMF urged more flexibility in the rupee exchange rate.
“As always, discussions with the Government are continuing, but there is not yet any explicit timetable for board consideration of the seventh review,” IMF Country Representative Koshy Mathai told Reuters in an e-mailed statement.
The global lender, after its team came to Sri Lanka for a seventh review, broke with its usual practice of saying approval of the next tranche disbursement would be taken up with the IMF Executive Board.
But this time, the IMF said it would continue its assessment of Sri Lankan policy actions and resume discussions at the annual IMF meetings in Washington, scheduled later this week.
The IMF has already disbursed $1.8 billion and the remaining $ 800 million is to be given out in two tranches of $ 400 million each, Mathai said. The IMF held back the third tranche for six months after the government missed its deficit targets for 2009.
Earlier this month the global lender’s review team said the island nation’s non-borrowed reserves have declined steadily.
It also said the Central Bank’s dollar sales policy did not seem to be in line with the current economic fundamentals, and once again urged limited currency market intervention and more exchange rate flexibility based on market pressures.
The Central Bank has said inflows from remittances and post-war investment have caused upward pressure on the currency.
Central Bank Governor Ajith Nivard Cabraal told Reuters Sri Lanka had asked the IMF to do the review in December. “There is no urgency for the tranche and we are not having just $1 billion reserves,” Cabraal said on Tuesday in a phone interview, pointing to a record foreign exchange reserves total of more than $ 8.1 billion.