Time is running out for Sri Lanka to start talks with the International Monetary Fund (IMF) at its spring meetings in Washington on April 18 -24 as the country is yet to restore political stability. Political stability of a country is essential to reduce the risk of default on loan repayments and minimise moral hazards [...]

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Sri Lanka runs out of time for IMF bailout

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Time is running out for Sri Lanka to start talks with the International Monetary Fund (IMF) at its spring meetings in Washington on April 18 -24 as the country is yet to restore political stability.

Political stability of a country is essential to reduce the risk of default on loan repayments and minimise moral hazards as most IMF lending arrangements are conditional on the member country involved agreeing to implement a set of economic policies approved by the IMF, IMF sources revealed. Street protests which began a month ago are continuing and it has intensified recently demanding the ouster of the President.

This crisis situation triggered due to economic hardships faced by the people will have to be normalised restoring the confidence of international donor agencies, several economists said.

A new Central Bank Governor and Finance Ministry Secretary with a wide knowledge of IMF affairs have been appointed to fill the void created due to resignations of former heads of these monetary and fiscal authorities.

After a request for financial support from a member country, an IMF staff team holds discussions with the government to assess the economic situation.

Typically, a country’s government and IMF staff must then agree on a programme of economic policies to be implemented in return for a loan.

This is a long procedure and it will take at least 3-6 months to  materialise, one source said adding that the government will have to initiate soon the procedure of debt restructuring with IMF mediation. It has to repay an International Sovereign US$1 billion in June this year.

The $1 billion Indian credit line and the Chinese government pledge of $2.5 billion in loans were the only hopes for Sri Lanka as its foreign reserves dropped to $1.9 billion in March from $ 2.3 billion, he added.

This situation was not sustainable, and put the government at risk of being forced to restrict imports, as well as default on external government debt repayments due to a lack of foreign currency. The loan from the IMF directly contributes to raising the country’s foreign exchange reserves at an affordable cost.

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