Govt will not seek IMF bailout

Sri Lanka will not have to seek an International Monetary Fund (IMF) bailout, Central Bank Governor Ajith Nivard Cabraal said yesterday.

“We can overcome the current economic impasse without recourse to the IMF. The current economic issues are not only evident in Sri Lanka but also common to many countries.Better times are ahead,” Governor Cabraal said at a news briefing held at the Central Bank.

The Governor cited two main factors that have led to the current situation – the repayments of loans taken by the previous Yahapalana Government and the loss of around US$ 4.5 billion from tourism due to the pandemic.

Sri Lanka currently has US$ 1.6 billion in foreign reserves and it is expected to rise to US$ 3 billion by December 31. This will be augmented by Government-to-Government SWAP arrangements and several other financial instruments, the Governor said.

The Governor declared that all remaining foreign debt obligations will be fulfilled in the coming months and years without IMF support.

He pointed out that IMF assistance comes with many conditions. If Sri Lanka goes for an IMF bailout the country has to sign a ‘Letter of Intent’ (LOI) agreeing to all the conditions, which is not a viable option at this juncture.

They are likely to advise to float the SL Rupee which will result in the Rupee depreciating to around Rs. 240 to the US Dollar and import costs going up. This happened in 2014 when the Government sought IMF  assistance and the rupee depreciated from Rs. 132 to Rs. 185 to a Dollar.

Another likely condition from the IMF is a request to increase the interest rate which will have a negative impact on the economy. “The IMF is also keen to dispose of valuable State assets owned by the Government and even requests to privatise the state-owned banks and these too would be major issues for the country.”

He recalled that when the former President Mahinda Rajapaksa left the presidency in 2015, the GDP was at US$ 79 billion and in the next five years it only increased by US$ 5 billion.