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Program to be considered by Executive Board on July 24:

Sri Lanka to get $ 2.5 billion

First instalment - $ 313 million:

Indices higher

The news that the International Monetary Fund has provisionally agreed to grant the Sri Lankan Government US$2.5 billion as a standby facility drove the indices at the Colombo Stock Exchange higher. The ASPI gained 51 points (+2.1 percent) to close at 2,474 while the MPI gained 48 points (+1.9percent) to close at 2,749. Turnover of Rs 1 billion and the percentage gain of over 2 percent was the highest since June 19 this year.

Interest mainly centred on John Keells Holdings which generated business of Rs 222 million, with the share gaining Rs 2.25 to close at Rs 135.25.

NDB Bank gained Rs 5 to close at Rs 161, while Sampath Bank gained Rs 6.75 to close at Rs 112.00. Ceylinco Insurance saw three crossings totalling 800,000 shares all done at Rs 200.00, resulting in a turnover of Rs 160 million. Dialog Telekom saw large parcels changing hands adding another Rs 62 million to the market turnover. The share closed unchanged at Rs 5.25.

Source: First Guardian Equities

An International Monetary Fund (IMF) staff mission reached agreement with the Sri Lankan authorities on an economic program that could be supported by a 20-month Stand-By Arrangement for an amount equivalent to SDR 1.65 billion (about US$2.5 billion).

The program is expected to be considered by the Executive Board on July 24. The approval by the Executive Board would enable Sri Lanka to draw an amount equivalent to SDR 206.7 million (about US$313 million) immediately, said Managing Director of the International Monetary Fund (IMF), Dominique Strauss-Kahn in a media release.

“The end of the conflict provides Sri Lanka with a unique opportunity to undertake economic reform and reconstruction, which would be key to laying the basis for higher economic growth in the years ahead.

To this end, the Government has formulated an ambitious program aimed at restoring fiscal and external viability and addressing the significant reconstruction needs of the conflict-affected areas.

The IMF staff supports this program, specifically the Government’s goals of rebuilding reserves, reducing the fiscal deficit to a sustainable level and strengthening the financial sector. It is also essential that the program cushions the most vulnerable from the needed adjustment”, he said.

The IMF also said that the reconstruction effort will be a large undertaking, with significant spending needs. The Government’s program aims at meeting these needs while safeguarding debt sustainability by boosting revenue and reducing spending in other areas. This program will also provide a framework for international donors to assist the Government in financing its reconstruction effort.

The strong measures that the authorities are taking under the program justify the exceptional level of access to Fund resources-equivalent to 400 percent of Sri Lanka’s quota in the IMF. The IMF also called upon the Sri Lankan authorities to work with the donor community to ensure an adequate level of financing for the reconstruction effort to lay the foundation for future growth.

“The Central Bank of Sri Lanka (CBSL) had three missions with the IMF and we coordinated the IMF staff throughout providing the information and data. At present we have submitted all the technical aspects and are awaiting the result on July 24 from the IMF,” Acting Additional Director, Economic Research Department, Central Bank of Sri Lanka, K.D.Ranasinghe told Daily News Business.

“The importance of the IMF standby loan is that when they grant this loan it will build confidence among investors. Also the multilateral and bilateral investors will invest in Sri Lanka in various financial projects.

We also saw a positive response from the private sector in investments as soon as the news of the IMF was known. This will boost the inflow of foreign exchange towards the country’s economy as well. Our international reserve will increase with the IMF loan as a balance of payment support”, he said.

“The IMF standby loan interest rates will be lower than the market rates and it will not increase beyond the capability of the debt service ratio of the country”, Ranasinghe said.

Deputy Finance Minister, Ranjith Siyambalapitiya said, “The CBSL requested the IMF for a standby loan of US$ 1.9 billion and they agreed to provide a loan of US$2.5 billion. We will get our first instalment of US$ 313 million at an interest rate of five percent. The approval of the IMF loan will enhance the economy to achieve the targeted goals of the Government and will assure foreign investors as well.”


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