IMF Approves USD 2.6 billion Stand-By Arrangement Facility for Sri Lanka
The Executive Board of the International Monetary Fund (IMF) on 24 July 2009 approved a 20-month Stand-By Arrangement (SBA) facility of
SDR 1.65 billion (approximately USD 2.6 billion), to Sri Lanka as a Balance of Payment (BOP) support. This accounts for 400 per cent of the
country’s current quota with the Fund and is the highest ever facility offered by the IMF to Sri Lanka. Immediately on approval of the facility,
the first tranche amounting SDR 206.7 million (approximately USD 322 million) was made available to Sri Lanka, and this is the single largest
disbursement the country had thus far received from the IMF. The remaining amount will be disbursed in seven tranches subject to the quarterly
reviews on economic performance of the country.
Despite the unprecedented increase in fuel and commodity prices, particularly during the first half of the year, economic fundamentals of Sri
Lanka had been improving steadily until the third quarter of 2008. However, by end 2008, the BOP turned into a deficit and external official
reserves dropped significantly as a result of several adverse factors, such as, the sudden withdrawal of investment in Treasury Bills and Bonds
by foreign investors, the hasty claims on short term credit facilities that were quite freely available for petroleum imports, the acute drying-up
of commercial financing required for counterpart funds for the implementation of foreign funded projects under the public investment programme
and severe valuation losses arising from the sharp depreciation of major international currencies against US dollar. Such factors have
exerted an unforeseen and unfavorable pressure on the country’s BOP and led to a substantial decline in external reserves.
In that context, in March 2009, Sri Lanka sought a SBA facility with exceptional access from the IMF amounting to USD 1.9 billion, 300 percent
of country’s current quota. In response to the request, a team of IMF officials visited Sri Lanka in late March to assess the impact of the
global financial crisis on Sri Lanka and to consider as to whether Sri Lanka was in need of such assistance. The IMF officials had several key
meetings with various government and non-government organizations to obtain first hand information. Further, the Sri Lankan delegation to the
IMF Spring Meetings held several rounds of discussions with senior staff of the IMF. A Safeguards Assessment mission from the IMF also
visited Sri Lanka to evaluate the reliability of information, procedures and processes of internal controls and concluded that the Central Bank of
Sri Lanka employs a relatively strong framework of safeguards. However, despite the successful completion of all technical level negotiations
and the finalization of the content of the Letter of Intent in April 2009, there was a delay in taking the SBA facility for discussion by the Executive
Board of the IMF.
Next year budget to achieve 7 % growth
The budget for next year will be based on a medium term economic plan aimed at achieving an economic growth of 7 percent.
The budget targets to increase the overall income next year to 15.7 percent of the GDP, the Ministry of Finance disclosed.
According to the Ministry, It also targets to increase tax revenue to 14.3 percent of the GDP. The budget also targets to reduce budget deficit
next year to 6.6 percent. Priority will be given to new projects in the north and east and lesser developed areas.
More focus is made on economic development through major projects.
Sri Lanka plans to raise US$500mn from foreign markets: July 31, 2009 (LBO) – Sri Lanka plans to raise 500 million dollars from foreign investors through a bond or syndicated loan, with an International
Monetary Fund endorsement under its belt, a media report said.
“We will take a decision in the next few weeks,” Sri Lanka’s central bank Governor Nivard Cabraal was quoted as saying in Bloomberg newswires
Friday, in Mumbai where he was meeting investors in one leg of a worldwide road show.
“We did an investor update in many parts of the world. We are here in India today to see whether there is appetite for syndicated loans, sovereign
India’s executive director to the IMF said a 2.6 billion dollar loan to the island with limits on government spending signaled a message that the
country was now safe for investors to come in.
Foreign funding dried up last year in the wake of turbulent capital markets and strained relations with the West, but the country is now looking
for cash for a major reconstruction drive as well as budgetary finance.
The Asian Development Bank has said it may give a 300 million dollar loan to Sri Lanka.
In 2007 Sri Lanka raised 500 million dollars through a sovereign bond.
In 2007, the bond yielded 8.25 percent, but it rose to around 20.0 percent levels at the height of the turmoil.
Now the bond is trading with a yield of around 9.60 percent.
Cabraal was quoted as saying that as the country managed to sell the bonds in 2007 when the war was still going on, “with the end of the war,
the outlook to raise funds abroad is much better.”
In the current road show Sri Lanka got HSBC and JPMorgan to arrange meetings with investors in the US, India, Hong Kong and Singapore to
promote the island’s prospects after the end of its ethnic war.
Government forces defeated the Tamil Tigers in May.