Harsha to ask Govt. to make its stand known on IMF loan in Parliament

UNP MP and its chief spokesman on the economy Dr. Harsha de Silva is expected to ask in Parliament today the Government stand on the remaining tranche worth US$ 800 million of the IMF assistance via its Stand-By-Arrangement (SBA).

There hasn’t been a clear stand on the part of the Government during and following the 10-day long visit of the IMF review mission except the Central Bank Governor Nivard Cabraal indicating that the Government wasn’t keen to go for the remainder of the IMF assistance.

Dr. de Silva is expected to raise the issue via an adjournment question in Parliament today. “We must know clearly the Government’s stand,” the UNP MP told the Daily FT.

Under the SBA so far six IMF reviews have been completed and $ 1.8 billion disbursed with $ 800 million remaining.

The IMF too during its media briefing prior to departure didn’t give a conclusive answer to queries on the future of the balance funds.

As per previous announcements, Central Bank Chief had suggested that there wasn’t a dire need for further IMF assistance which however is at highly concessionary rate of interest.



Nevertheless, Cabraal has also gone on record saying the Government may consider floating a US$ 1 billion sovereign bond later this year. The latter however would be more expensive than the IMF option, according to analysts.

The apparent decline on the part of the Government according to analysts is largely to do with its unwillingness to adhere to some of the conditions of the IMF such as greater flexibility with regard to the exchange rate. Furthermore, the Government has also failed to honour quantitative SBA target with regard to Net International Reserves since late 2010.

Analysts believe that raising the Government’s stand on the future of the IMF program in Parliament would shed light on the actual situation.

During its 10-day stay, the IMF review mission met with Economic Development Minister Basil Rajapaksa, Deputy Finance Minister Geethanjana Gunwardena, Senior Minister for International Cooperation Dr. Sarath Amunugama among others.

The IMF staff mission led for the last time by Dr. Brian Aitken told the media last Friday that while they were happy with the economic growth, as a side effect of it the twin challenges of widening current account deficit and credit growth needed to be contained.

He noted that it was a key focus during discussions with the Central Bank and the Government and insisted that the former should use all tools to deal with the situation.

“We need to see the Government taking action to maintain flexible monetary policies and a sustainable current account deficit going forward. The Central Bank must make use of all its instruments to tighten credit growth. We have seen a change in the stance of the Government regarding flexible foreign exchange rates, which is a step in the right direction, but policies need to act nimbly to rectify the present situation,” he said.

Dr. Aitken was optimistic about the 3% depreciation that was done by the Government in November, but urged greater flexibility. The Central Bank has spent nearly US$ 1 billion to defend the rupee and this together with a high trade deficit has resulted in reserves dipping.

In the Stand-By Agreement it was specified that Sri Lanka could not let its reserves dip below 3.5 months of imports, but Dr. Aitken pointed out that this had been the case in December, resulting in the need for the Central Bank to increase rates.

“The discussion focused largely on the Government’s strategy to address the external imbalances that emerged in the second half of 2011 and ensure that the economy’s recovery continues without undue disruption. There was broad agreement that a decisive policy response was needed to put the economy on a sounder macroeconomic footing, especially given the current uncertain global environment.”

The IMF also stated that it was encouraged by the monetary policy adjustments as well as the strong commitment by the Government to further reduce the budget deficit to 6.2% in 2012 and address losses of key State-owned enterprises.