A Potential Borrowing From IMF Under Discussion For SL’s Next Project

By Chrishanthi Christopher

The size of Sri Lanka’s next program with the IMF has not been discussed yet, but over a billion US dollars could potentially be available without triggering “exceptional access procedures,” says the International Monetary fund (IMF) Sri Lanka & Maldives, Resident Representative, Colombo, Koshy Mathai referring to the extended fund facility Sri Lanka has requested from the IMF hot on the heels of receiving the last tranche of US $400 million Stand By Agreement  (SBA) of the IMF  last week.
Mathai clarified that, “Every country has a certain ‘quota’ or contribution made to the IMF and is allowed to withdraw a certain multiple of that quota in a time of need, via an IMF program. IMF staff, in discussion with the authorities, come to a judgment as to the amount of money the country needs.
Up to 600 percent of quota is considered ‘normal access’ to funding, and anything beyond is considered ‘exceptional access’ and requires some additional justification.” He further explained that, “Sri Lanka has already drawn 400 percent of its quota in its SBA  of US $2.6 billion which just concluded last week.”
Koshy Mathai says that the central bank has had only preliminary talks with the IMF and the amount Sri Lanka expects to borrow was not discussed. “The amount was not determined.  Talks are at preliminary stage with the government.
The amount will depend on the circumstances of each country. Sri Lanka  can borrow up to US $ 1.25 billion without triggering exceptional access procedures” he says. However if Sri Lanka needs to access a larger size of  its allocated quota it has to go through some ‘bureaucratic requirements’ he says. Mathai assures  that an IMF team will be here in the fall  between September and December to discuss matters.”The type of program–whether an extended fund facility (EFF) or something else–the length of the program, and the size  will be discussed then” he  contends.
“The interest rate for any further loans under an EFF will stand at around 3.1 per cent” he adds. “As usual we will be looking at Sri Lanka’s prudent management of fiscal, monetary, and external policies to disburse the loan” he says. The government may also use an EFF to lay out an agenda for improving revenue administration, public financial management, and state enterprise performance. The IMF  in its web site says that it has beefed up its lending capacity to support countries during the global economic crisis by offering higher amounts and tailoring loan terms to suit ailing economies.

Ajith Nivard Cabraal, Governor for the Central Bank responded to questions posed to him by The Sunday Leader….

01)  What is the amount you are looking at as an EFF from the IMF?
At the moment, the exact amounts and nature of the programme has not been worked out.  We intend discussing this in detail at the next IMF mission.

02) Why do we need the loan now?  You have mentioned that our reserves are full, if so why do we need it?  Any specific programme?
The world economy is facing one of its most turbulent periods in its entire history.  The Eurozone is experiencing massive challenges, while today’s worldwide economic debate is focusing on what is termed the “US’s fiscal cliff”, where the challenges posed by the US debt and fiscal deficit are being discussed.  Let us also not forget that the former World Bank President, Robert Zoellick described the world economy in 2011 as being at a “dangerous” phase. In this tough background, although the Sri Lankan authorities have been able to steer our economy in a comparatively stable manner, we still have to understand and appreciate that the global challenges are formidable.  Therefore, having the IMF as an external partner in the country’s economic journey over the next couple of years would be a significant advantage. Such an association will also give a strong signal to the foreign and Sri Lankan investors about the stability and strength of the Sri Lankan economy, an Extended Fund Facility from the IMF would serve as a clear endorsement of Sri Lanka’s economic health. I do agree that our reserves are today at adequate levels, but notwithstanding that strength, the other advantages that I mentioned will be important in the final decision making process.

03) Will it not be very expensive at the high interest rate of 3.1 per cent?  Will we be able to pay it back?
The interest rate for a possible EFF has not yet been finalized as yet, and we could respond to your question fully, only after we have done so. As a general rule, however, in the case of any loana borrower would take into consideration, the interest rate. In this instance, in addition to the interest rate, we shall also have to consider the other benefits that the country would enjoy, as a result of a new IMF programme. As far as the pay back is concerned, Sri Lanka has had a 100% track record in its repayments. Further, we have now been able to reduce the country’s debt to GDP level below 80% for the first time after 30 years.  That achievement suggests that we are on the right path to ensure the sustainability of the country’s debt situation and its ability to pay back.  At the same time, if the EFF is taken into the Central Bank’s account, as was the case with the previous SBA, there too, there will be no question about our ability to pay back, because the Central Bank Balance Sheet is very strong.  So, from both aspects, as a country and as the Central Bank, we are well positioned to pay back any new facility.