IMF stands ready to resume Extended Fund Facility Programme discussions
The International Monetary (IMF) has pledged to resume the 3-year US$1.5 billion Extended Fund Facility (EFF) Programme discussions to release the sixth tranche of about $ 250 million after the end of the 52- day political impasse triggered by President Maithripala Sirisena.
“The IMF welcomes the resolution of the political crisis in Sri Lanka and it is now standing ready to resume programme discussions” Ting Yan, Press Officer in the IMF’s Communications Department conveyed to Business Times in an e-mail communiqué.
Sri Lanka’s unexpected change in government, political instability and policy paralysis compelled the IMF to delay the release of the sixth tranche of EFF this year
The suspension of the sixth tranche came soon after the sudden change in Government on October 26 at a time where the Executive Board of the IMF was due to complete the fourth review of Sri Lanka ’s three-year EFF following the conclusion of its annual meetings in October. It was scheduled to be released in December this year.
However the disbursement of the $250 million tranche is likely to be delayed further as the IMF authorities remain in contact with their technical counterparts and since it is premature to assess the economic reform programme implications, following the political crisis.
The impact of ad hoc tax and economic policy changes made by Mahinda Rajapaksa who was appointed as Prime Minister and Finance Minister by the President was in direct violation of the IMF programme which now needs to be rectified before releasing the sixth tranche, IMF sources said.
The new administration inducted by the President had revised tax reforms introduced in the Inland Revenue Act as one of the commitments of IMF economic programme undertaken by the previous regime, official sources said.
It has also abolished the fuel pricing formula which was another commitment made to the IMF.
The price of fuel has been brought down in accordance with a cost based pricing mechanism, a senior Treasury official told the Business Times.
“As of October there was a staff level agreement, which means that the Government of Sri Lanka was able to agree on a programme that satisfied the IMF in terms of its EFF,” Central Bank Governor Dr Indrajit Coomaraswamy has said.
“From that point the path would have entailed the staff of the IMF presenting a paper about the middle of November and the Board of the IMF was to meet in the first week of December,” he added.
“But that is delayed now because the IMF would want to see what the Government in place would want to change any of the elements of what was agreed on October 26. So we have to wait and see”, he disclosed.
Economic experts warned that the longer delay in IMF sixth tranche would worsen the country’s liquidity issues and also escalate political tensions that have been running high at present.
Sri Lanka will be tightening policy spaces in the monetary, fiscal and external fronts amidst subdued economic performance under the present economic and political situation in the country, Central Bank sources said.
Private sector led growth is to be facilitated with prudent, consistent and far reaching reforms that support increased productivity in the economy, officials said.
However a push to adopt more populist measures with an election in sight could be restrained by Sri Lanka’s programme with the IMF till mid-2019 and the challenge of early refinancing of the country’s medium term debt settlements from 2019, economic analysts said.