Business Times

IMF mission discusses 3rd tranche

A mission from the International Monetary Fund (IMF) has arrived in Colombo to discuss the latest developments with the Sri Lankan government along with their policy plans. The mission began its work on Tuesday this week and is expected to remain in the island for a week and a half. So far, two tranches of the IMF’s US$2.6 billion stand-by facility approved on 24 July 2009 has been released to Sri Lanka, each tranche amounting to approximately US$330 million.

IMF Resident Representative Koshy Mathai said the Sri Lankan government and others have long said that meeting the December 2009 fiscal targets would be challenging. "That and along with the fiscal plans going forward are certain some of the main things the mission is focusing on in its discussions with the government."

Treasury sources say budget targets may be difficult to achieve this year owing to rising election-related government spending. According to an IMF statement on its website released in early February 2010 on new rules for access for low cost loans, several countries including Sri Lanka, Albania, Angola, zerbaijan and even India and Pakistan will graduate from access to concessional IMF financing in April 2010. Dr. Mathai said it is a positive sign that Sri Lanka’s income has increased. It means also means that Sri Lanka will no longer be able to access the very cheap money but he said it does send a positive message that the country has moved to a new level.

The IMF statement said the new framework will determine access to the IMF’s low-cost loans that are part of the Fund’s Poverty Reduction and Growth Trust (PRGT), a new range of financing and support instruments designed to help alleviate poverty and support growth in the poorest countries.

Under the new framework, countries are added to the list of members that can tap cheap loans under the PRGT, if their annual per capita income is below a defined poverty line and they do not have substantial and sustained access to international financial markets.

This poverty line is based on the threshold that helps determine eligibility for support by the International Development Association (IDA), and is formulated in terms of a country’s gross national income (GNI) per capita. For this year, the threshold has been set at $1,135, the IMF said.

Furthermore, the IMF added that the rules determining when a country graduates from PRGT eligibility have also been tightened to avoid premature graduation and to reduce the risk of countries having to fall back onto concessional loans. A country would no longer have access to PRGT funds if it had a persistently high level of income, exceeding twice the IDA threshold, or if it were deemed able to access international financial markets on a sustained basis. A second prerequisite for graduation according to the IMF is that the country does not face serious near-term risks of a sharp decline in per capital income, loss of market access, and/or debt vulnerabilities.

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