Govt. and IMF begin talks for new staff level agreement

• Possibility to enhance program considered 
• Putting IMF program on track important to raising funds for debt repayments 

By Uditha Jayasinghe

A delegation from the International Monetary Fund (IMF) has been engaged in discussions with top officials this week on reaching a staff level agreement on continuing the $1.5 billion Extended Fund Facility (EFF). 

The delegation arrived in Colombo last Thursday, and has already had meetings with officials from both the Central Bank and Finance Ministry. Finance Minister Mangala Samaraweera and Central Bank Governor Dr. Indrajit Coomaraswamy, along with other top officials, participated in the meetings. Prime Minister Ranil Wickremesinghe is also expected to meet the delegation. 

During the talks, the two sides discussed the possibility of taking forward the EFF, which was suspended last year following the constitutional crisis. 

“The Government is considering enhancing the program and possibly expanding it to have a higher disbursement, but such a move could come with new structural goals,” a top source at the Finance Ministry told Daily FT. The IMF and the Government are expected to release a statement outlining the particulars of a new staff level agreement over the next few weeks. 

The IMF has disbursed over $ 1 billion out of a $ 1.5 billion three-year EFF loan it had agreed in 2016. Central Bank Governor Dr. Indrajit Coomaraswamy in the first week of January said the Sri Lankan Government has the option of extending the three-year program, which is scheduled to end in June, by one year, and also enhance the funding limit.  

The International Monetary Fund had approved a three-year extended arrangement on 3June 2016, in the amount of about $ 1.5 billion in six instalments. The 5th instalment of this loan facility was scheduled to be given in November last year. 

The IMF and the Government had reached a staff level agreement just hours before President Maithripala Sirisena appointed Opposition Leader Mahinda Rajapaksa as Prime Minister, triggering the constitutional crisis. 

Economists have pointed out that it is important for the Government to put the IMF program back on track, to boost confidence in international capital markets before it seeks to raise as much as $2 billion from international sovereign bonds, as well as panda and samurai bonds. The Government last month approved the Central Bank issuing bonds to raise up to $2 billion dollars, to finance $5.9 billion in debt for 2019. The Central Bank is expected to go to the markets as soon as possible to raise the funds.