IMF approves $1.5 mln loan for Sri Lanka

The International Monetary Fund (IMF) has reached agreement with the Sri Lanka government for a US$1.5 billion loan facility.

The Washington-based fund said in a statement that this is subject to its board approval in June. In the past loan approvals by the board after a recommendation by the team assigned the task is just a formality.

Commenting on the move, Moody’s Investors Service, a rating agency and lead sovereign analyst for Sri Lanka, said the deal will have three benefits for Sri Lanka’s external financing profile.
* First, program disbursements together with forthcoming multilateral and bilateral loans will provide external liquidity to ease immediate financing pressures. It could reverse the decline in official foreign-exchange reserves and reduce Sri Lanka’s vulnerability to a sudden stop in capital inflows.
* Second, the financing will likely be at more favorable terms than Sri Lanka can avail of through the market, which alleviates debt servicing cost pressures. 
*  Third, if the agreement restores investor confidence in Sri Lanka’s policy framework, it could ultimately support more stable private external inflows, such as FDI.

“The agreement comes as Sri Lanka’s sovereign credit profile is increasingly under pressure from its large fiscal deficits, high debt levels and poor debt affordability.  If the program supports Sri Lankan authorities' efforts to boost tax revenues and better manage state-owned enterprises, it would address constraints on economic growth and reduce fiscal imbalances, thus improving the sovereign's credit profile.  However, we expect bumps in the fiscal consolidation path due to difficulties in implementing revenue raising measures and the possible crystallization of some contingent liabilities,” Moody’s said. - ENDS -