SL not to pursue new IMF funding programme
Since completion of the Stand-by-Arrangement successfully with the
IMF in July 2012, the Sri Lankan authorities and the IMF have been
engaging in a dialogue on the future relationship between Sri Lanka and
the Fund.
In the meantime, Sri Lanka has moved to a more market oriented
exchange rate determination regime and the country's reserves have
increased to a much higher level when compared to the position at the
beginning of the Stand-By Arrangement. In fact, Sri Lanka's external
reserves have now reached a level of approximately US$ 7 billion, from
just over US$ 1 billion in early 2009 when Sri Lanka commenced the
Stand-By Arrangement with the IMF. Accordingly, there appears to be a
very limited need to build up a further cushion in external reserves
through traditional IMF Balance of Payment support programmes, such as
Stand-By Arrangements and Extended Fund Facilities. In that background,
the Sri Lankan authorities had expressed their interest in
a future IMF programme, only if such programme entailed support to
finance the budget within the announced fiscal consolidation process by
which the Government has already committed to bring down the fiscal
deficit to 5.8 percent of GDP in 2013 and below 5 percent of GDP in the
medium term.
However, during consultations, the IMF has indicated that the Fund
may not be in a position to consider any direct or indirect budget
support to Sri Lanka, since the current improved status of Sri Lanka
does not warrant unconventional and exceptional financial support to the
Government of Sri Lanka from the IMF.In view of above circumstances, Sri
Lankan authorities have decided not to pursue a new programme with the
IMF, but to continue maintaining the close relationship with the Fund
under standard consultation processes similar to many other member
countries.
Economic Research Department
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