CB welcomes IMF program continuity

Central Bank said yesterday the approval of the latest tranche from the International Monetary Fund (IMF) and continuity of the Extended Fund Facility program augurs well for the medium term future of the country.

“Continuation of the EFF would help the country boost market confidence, enhance competitiveness, strengthen external resilience and improve macroeconomic stability, thereby supporting the achievement of medium term growth trajectory,” said the Central Bank, following the IMF’s release of $ 162.6 m under the EFF.

With the disbursement of the second tranche, a total of $ 325 m has been received thus far by Sri Lanka on account of the EFF. 

Central Bank said the first review of the three-year EFF obtained by Sri Lanka has been successfully completed by the IMF and the second tranche to the value of SDR 119.894 million (approximately $ 162.6 m) has been disbursed on 18 November 2016.

The EFF aims at supporting the balance of payments and the broad economic reform agenda of the Government. The IMF mission, that visited Sri Lanka in September, particularly welcomed the fiscal consolidation measures implemented by the Government and tightening of monetary policy, which has contributed to improved market confidence and an easing of pressures on the external sector. 

The mission appreciated the efforts of the Government and other institutions in achieving all quantitative performance criteria through end-June. The members of the IMF Executive Board also have expressed their satisfaction on the achievements of Sri Lanka under the ongoing EFF program, the Central Bank said.

Rupee firmer after IMF loan

Reuters: The Sri Lankan rupee ended firmer on Monday as exporter dollar sales surpassed early greenback demand from importers on worries capital outflows would increase as incoming U.S. President Donald Trump’s policies were seen guiding U.S. rates higher and strengthening the dollar.

Foreign investors might pull out of emerging markets, including Sri Lanka, if the Fed raises interest rates next month, dealers said.

The International Monetary Fund (IMF) released a second tranche of loans worth $ 162.6 m and said Sri Lanka’s macroeconomic and financial conditions have begun to stabilise.

Pressure on the rupee is expected to ease on the IMF loan, with investors waiting to see what action the central bank would take after the loan money flows in, dealers said.

Rupee forwards were active on Monday. The spot-next hit a low of 148.85 per dollar in early trade due to importer dollar demand but ended at 148.55/65, compared with Friday’s close of 148.75/85.

“We have seen some exporter conversions in the latter part of the day,” said a currency dealer, requesting anonymity.

“Some exporters must have taken IMF as a positive development.”

The Central Bank on Friday revised the spot rupee reference rate to 147.95 per dollar from 147.75.

The spot rupee was hardly traded on Monday, but was quoted at 148.20/149.00.

The rupee currency has been under pressure as exporters were reluctant to sell dollars due to global concerns and uncertainties in the Sri Lankan market following the national budget, which has proposed a revision in corporate and withholding taxes.

The rupee is also under pressure as foreign investors exit Government securities due to new taxes proposed in the budget, dealers said.

Foreign investors net sold Government securities worth Rs. 37.12 b in the five weeks ended 16 November, data from the Central Bank showed.