Japan to support Sri Lanka along with IMF deal

- economynext.com

ECONOMYNEXT- Japan will help Sri Lanka along with other development partners as a deal with the International Monetary Fund is worked out, the country’s embassy in Colombo said while giving humanitarian assistance following the collapse of a soft-peg.

Sri Lanka’s inflation rose 12.8 percent in the month of June 2022, taking annual inflation to 54.6 percent in a soft-peg (flexible exchange rate) meltdown after two years of money printing and a float busted by a surrender rule.

With rising food prices poor in particular have been badly hit by the soft-peg with low income groups unable to afford food and children facing malnutrition.

Flexible exchange rate regimes, which are neither free floating nor credible pegs and have inherent anchor conflicts are among the most dangerous monetary regime ever invented and are peddled by mainly US academics to the third world.

Japan is giving 3 million US dollars through United Nations and Children’s Fund and World Food Program “to provide medicine and food in a manner that would directly benefit the Sri Lankan people.

“Japan sincerely hopes that this assistance will be of help to overcoming the hardship faced by the people of Sri Lanka, Japan’s long-standing friends,” the Japanese embassy said.

“The Government of Japan would like to consider its further contribution to Sri Lanka in consultation with the Government of Sri Lanka and other developing partners, while giving attention to the situation of Sri Lanka and the negotiation progress between Sri Lanka and IMF.”

Japanese Ambassador to Sri Lanka Mizukoshi Hideaki who met President Gotabaya Rajapaksa had promised support and economic co-operation, the President’s media office said in a statement.

Japan, the World Bank and Asian Development Bank (in which Japan has influence) has helped Sri Lanka in the past including with direct budget support in past IMF bailouts, when currency crises erupted in the central bank.

Agencies like the World Bank is precluded from giving budget support at the moment as the country’s debt is deemed unsustainable. India however has been giving indirect budget support through credit lines.

Sri Lanka has made significant progress in reaching a staff level agreement with the IMF, the agency said after a mission came to Colombo and concluded a round of discussion with the Finance Ministry and Central Bank.

The staff level agreement can be used in a debt negotiation with the bond holders and other creditors with the help of legal and financial advisors Sri Lanka has appointed.

The IMF wants progress on loan restructuring to make debt ‘sustainable’ before entering into a formal agreement with board approval. (Colombo/July02/2022)

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