Govt. to start talks on putting IMF program back on track

 State Minister of Finance Eran Wickramaratne

• Discussions on resuming program to start next week 
• Govt. to reach out to MCC on $480m grant and JICA funds 
• Confident of recommencing programs as Constitutional crisis resolved democratically 
• CB keen to reengage with IMF, awaits political guidance 
• Once IMF program restored, plans to reach out to rating agencies  

 By Uditha Jayasinghe 

The Government will kick-start discussions next week with several organisations, including the International Monetary Fund (IMF) and the Millennium Challenge Corporation (MCC), to put back on track key programs that were disrupted by recent political turmoil, a top official said yesterday.  State Minister of Finance Eran Wickramaratne told Daily FT that officials had already reached out to the different organisations and were awaiting the end of the holiday season to pursue discussions in earnest. 

“The constitutional crisis was resolved in a way that was positive for democracy. The outcomes showed that democratic institutions in Sri Lanka have grown stronger, and this is a positive for us. We plan to begin discussions with these organisations next week, and we are confident we can restore the situation back to normal,” Wickramaratne said. 

Wickramaratne added that the Government was focused on moving forward at a swift pace to set up and implement policy, and restoring the IMF program would be part of that effort. He also assured that the MCC grant, which had been postponed, would also be the focus of discussions, as the infrastructure projects it had largely been intended for were still on track.     

Following the appointment of current Opposition Leader Mahinda Rajapaksa as Prime Minister on 26 October by President Maithripala Sirisena, the IMF suspended their $1.5 billion Extended Fund Facility (EFF) program with Sri Lanka, which also included the release of the penultimate tranche. The three year program is due to conclude in June. 

The MCC had announced in September that it would be giving a $480 million grant to Sri Lanka and the Government was preparing to sign the necessary documents ahead of 26 October. Japan International Cooperation Agency (JICA) had also indicated it would wait till political stability had been restored before releasing project funds. JICA would also be reengaged with by the Finance Ministry and the relevant line Ministries. 

The Central Bank is also focused on putting the IMF program back on track, with relevant discussions already starting this week, according to top sources. “We are awaiting political guidance on how to proceed,” sources said. 

The resumption of the IMF program is seen as crucial to encouraging the Government to stick to its fiscal consolidation policies and bolster confidence of the Sri Lankan economy in international capital markets. This is critical for the Central Bank to raise funds for moderate interest rates for debt repayment purposes. According to Fitch Ratings, Sri Lanka will have to repay about $12 billion from 2019 to 2022, with the first repayment of $1 billion tabled for mid-January. 

“Once the IMF program is back on track, we will also request the rating agencies to reconsider their sovereign rating downgrade. The Central Bank has already responded to the downgrade, arguing that there was no fiscal slippage to justify the change, and the targets remain on track. The downgrading was more due to political challenges, and now that political stability has returned, we hope the ratings agencies will reconsider their decision,” State Minister Wickramaratne said.          

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