Sri Lanka to seek an extension of IMF Extended Fund Facility
Sri Lanka is now considering the possibility of getting an extension to the International Monetary Fund’s (IMF) economic reform programme with additional financial facility as the 3-year US$1.5 billion Extended Fund Facility (EFF) is scheduled to end in the first half of this year.
The need to extend this facility has arisen owing to balance of payment issues along with the challenge of early refinancing of the country’s medium term debt settlements and economic repercussions of the political impasse triggered by the president.
Another reason was the delay in releasing the sixth tranche of about SDR 177.77 or US$ 250 million which was due in November or December following the approval of the IMF executive board which has suspended its decision.
The total loan was expected to have been disbursed with a seventh tranche by mid this year.
Sri Lanka’s unexpected change in government, political instability and policy paralysis has compelled the IMF to delay the release of the sixth tranche of EFF this year.
The suspension of the sixth tranche came at a time where the Executive Board of the IMF was due to complete the fifth review of Sri Lanka’s three-year EFF following the conclusion of its annual meetings in October.
“However IMF welcomed the resolution of the political crisis in the country and it is now standing ready to resume programme discussions,” Ting Yan, Information Officer in the IMF’s Communications Department told the Business Times in an e-mail statement.
“There is a provision for the EFF to be extended by a year,” Central Bank Governor Dr. Indrajit Coomaraswamy told a media conference in Colombo adding that the government could negotiate and arrive at an agreement on the amount of money needed for the country to tackle the balance of payment issue and other financial constraints.
The terms and conditions of the IMF for this additional facility could be negotiated, he said revealing that there was a provision to extend the fund facility for one more year.
Senior Deputy Governor Nandala Weerasinghe said that based on a request of the government the Central Bank could be able conduct negotiations towards this end.
The ad hoc tax and economic policy changes made by Mahinda Rajapaksa who was appointed as Prime Minister and Finance Minister by the President were completely against the commitments made under the IMF programme, a senior Treasury official told the Business Times.
He added those issues had to be rectified by IMF technical experts before releasing the sixth tranche.
The new administration inducted by the President on October 26 has revised tax reforms introduced in the Inland Revenue Act as one of the commitments of IMF economic programme under taken by the previous regime, he said.
However, the fuel pricing formula which was abolished during the 52-day political impasse had been reintroduced by newly appointed Finance Minister Mangala Samaraweera recently sticking to a commitment made to the IMF.
When questioned about the action taken by the 52-day regime to put the fuel formula into the dust bin, Dr Coomaraswamy noted that he was not aware of this and it had not been completely abolished in fixing fuel prices.
S.R. Attygale, former Finance Ministry Secretary of the short-term regime change and now a Deputy Governor of Central Bank, denied the allegation of disregarding the fuel pricing formula during his tenure in office claiming that the price of fuel has been brought down in accordance with a cost-based pricing mechanism.