IMF offers options for Sri Lanka to continue fund facility
The International Monetary Fund (IMF) has offered the option for Sri Lanka to take it or leave the last tranche of Extended Fund Facility (EFF) that would also unlock substantial multilateral and bilateral financing (possibly debt relief as well),
The Fund stands ready to discuss all options of engagement with Sri Lanka, including financial support, if requested by the authorities. The preconditions for financial support are the same as for any other member, Masahiro Nozaki, IMF mission chief for Sri Lanka told the Business Times.
In an email response to a request for comments on the present stand of the IMF, he noted that they continue to engage with the Sri Lankan authorities and are considering the full set of options for engagement.
The continuation of the EFF policy reform programme will increase the prospects of improving the sovereign rating, a senior economist who has in-depth knowledge in dealing with the IMF in the past told the Business Times.
He added that in this case, a successful restructuring would be difficult and costly.
He pointed out that government will be compelled to engage with the IMF to execute the restructuring.
If no new IMF and private sector credit comes in, gross reserves would fall to about US $3.7 billion by end of 2021, he predicted.
The $1.5 billion EFF arrangement approved in 2016 expired on June 2, 2020. Given that the final review under the arrangement was not completed, Sri Lanka could not avail of the last disbursement under the EFF, amounting to SDR118.550 million equivalent to around $.200 million.
Disbursements under any Fund arrangement can only be made during the period between the date of its approval by the IMF Board and its expiration date, IMF mission chief Masahiro Nozaki said.
Therefore at this point, for Sri Lanka to access any additional Fund resources, the IMF Board approval of a new arrangement would be needed, he disclosed.
In April 2020, IMF received a request from the Sri Lankan authorities for emergency financial support under the Rapid Financing Instrument (RFI),
Assessing relevant conditions for the RFI has taken longer than for other countries, due to Sri Lanka’s daunting economic challenges, high public debt, and Parliamentary elections in August. The RFI request remains in place, Mr. Nozaki pointed out.
“We have sought but not reached understanding yet on how to fulfill key requirements for the RFI, which include policies to continue ensuring debt sustainability”, he said.
The authorities have a range of options to ensure debt sustainability and the IMF stands ready to discuss all options with the authorities, he assured.
Defending the ability to continue debt servicing, State Minister for Finance Ajith Nivard Cabraal said that the Government was also negotiating with India for a $1 billion currency swap, which is in addition to the $400 million it received in July.
Sri Lanka will also receive $ 700 million as the second tranche of a $1.2 billion syndicated loan from the China Development Bank. The first $500 million was transferred in March this year.
The Government will also revisit a $ 500 million Samurai bond, which the Central Bank began laying the groundwork for in 2018, and possibly a Panda bond as well, Mr. Cabraal said.
A $1 billion repurchase arrangement with the US Federal Reserve, announced in July, also made the list.