Lanka prefers high cost credit to IMF conditions

The closure of the IMF’s Colombo office in February follows moves by the Sri Lankan government to resort to costly commercial borrowings sans conditions, economists said.

“The government doesn’t want to be burdened by conditions that come with IMF loans. When the country gets low interest loans, it comes with conditions like no subsidies, lower budget deficit, etc,” one economist said.

The IMF said last week it was closing the Colombo operation based on the absence of a current programme and in line with a general restructuring programme.

IMF officials said that given budget constraints the fund was focusing its offices in countries with or near a programme, financial centres and countries of strategic importance like India and China even though the two latter types of countries did not have a programme. Commercial borrowings come at very high interest rates. The economist said that the Treasury thinking is that with higher economic growth, the government would be able to pay back this debt. He said however that even though the IMF doesn’t have a lending programme in Sri Lanka, the fund would still prefer countries to be dependant (on it).

“I don’t think this is the last time we will see the IMF. They are going to be around and involved in the Sri Lankan economy in some form,” he said.