Sri Lanka receives another IMF tranche
The International Monetary Fund (IMF) on Monday approved another tranche of US$426.8 million to Sri Lanka under the Stand-By Arrangement (SBA-loan), in a welcome injection to the country’s once, strong foreign reserves.
This came after the board of executive directors approved the seventh review of SBA loan but contrary to expectations only approved half of the $800 million, the final installment under the $2.6 billion programme.
The Central Bank, in a separate statement on Tuesday, said that despite the relatively higher interest rate, Sri Lanka considered opting for this tranche favourably in view of the current uncertain global environment.
The Fund said in a statement that “the Executive Board approved an extension of the arrangement period to July 23, 2012, to allow time for the completion of the eighth and final review (and approval of another $400+ million)”. The programme was due to end in December 2011 but the last tranche had been delayed. The country’s reserves fell to $5.9 in December 2011 from $8 billion in August of the same year owing to the Central Bank pumping in dollars to prop up a sagging Rupee.
Min Zhu, Deputy Managing Director and Acting Chair, in the statement, said that while Sri Lanka’s strong economic recovery continued in 2011, and inflation remained subdued, a combination of rapid credit growth and a tightly managed exchange rate caused the external current account deficit to widen and external reserves to fall sharply. As a result of higher oil prices, the state energy enterprises also continued to run significant losses.
“The authorities have recently introduced a broad package of measures to rein in the current account deficit, stem the reserve loss, and bolster fiscal performance. Monetary and credit policy have been tightened, petroleum and electricity prices increased, petroleum taxes raised, and the rupee trading band abolished to allow the exchange rate to adjust more flexibly. The authorities are taking steps to mitigate the adverse impact on the most vulnerable.”
It said the authorities intend to further strengthen the financial system while continued structural reforms to place the state owned energy enterprises on a financially sound footing will reduce demands on the budget.
“The adjustment measures implemented by the authorities have placed the economy on a more sustainable trajectory. However, it will take time for the new monetary and exchange rate regime to become fully established, and the authorities will need to stand ready to adjust policies further to stabilize external reserves, especially if the global environment becomes less favorable.” -Ends -
