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‘India does not care if Sri Lanka has IMF’

14 Feb 2021

  • Treasury Secretary points at solar project credit from India

  The Treasury categorically denies that India ever wanted Sri Lanka to go for an International Monetary Fund (IMF) programme if Sri Lanka was to seek financial assistance from India to service its upcoming external debt repayments. Treasury Secretary S.R. Attygalle told The Sunday Morning Business that India never told Sri Lanka to go for the IMF programme, and that it is the rating agencies that would like to see Sri Lanka reaching out to the IMF.  According to Attygalle, despite being pushed out of the Colombo Port’s East Container Terminal (ECT) deal by the Sri Lankan Government, India is willing to assist Sri Lanka financially at any given time.  “India has not rejected anything. The $ 100 million credit facility for solar energy or rooftop facility, which our President requested from India, is ready now. Within a week or two we are going to sign the agreement. Even though it is for a rooftop project, still, it is credit from India,” he added. However, local media reported that Sri Lanka recently settled its $ 400 million SWAP line that it obtained last year from the Reserve Bank of India (RBI), as further extension of the repayment time necessitated Sri Lanka to go for an IMF agreement, according to an Indian High Commission Spokesperson.  Meanwhile, Attygalle stated that it is completely up to Sri Lanka to decide whether the country should go to the IMF or not. Nevertheless, we learnt that Sri Lanka’s request to the IMF for a Rapid Financing Instrument (RFI) was still under review.  Responding to an email sent by us, IMF Mission Chief of Sri Lanka Masahiro Nozaki stated the following. “In April 2020, we received a request from the Sri Lankan authorities for emergency financial support under the Rapid Financing Instrument (RFI). Assessing relevant conditions for the RFI has taken longer than for other countries, due to Sri Lanka’s daunting economic challenges, high public debt, and parliamentary elections in August. We have sought but not reached (an) understanding yet on how to fulfil key requirements for the RFI, which include policies to continue ensuring debt sustainability. The authorities have a range of options to ensure debt sustainability, and the IMF stands ready to discuss all options with the authorities.” Following the global outbreak of the pandemic in the first quarter of last year, the IMF received about 102 requests from countries seeking RFI support. As of mid-September, about 76 out of these 102 requests had been approved, according to the IMF. This means that Sri Lanka was among approximately 20 or 30 countries that were not granted RFI support as of September last year.  The 76 approved countries include a number of Asia Pacific countries such as Bangladesh, Mongolia, Myanmar, and Nepal. On 29 May, it approved the provision of $ 488 million under the RFI to Bangladesh, while on 26 June, it approved $ 237.7 million for Myanmar. On 3 June, it approved $ 99 million under the RFI for Mongolia. The total figure of approved funds under this facility was $ 31 billion by end-September.  In mid-August last year, Central Bank of Sri Lanka (CBSL) Governor Prof. W.D. Lakshman told The Sunday Morning Business that Sri Lanka will obtain emergency financial support under the RFI only if the support would be provided with no conditionality.  Meanwhile, a Citi Research report in December last year noted that Sri Lanka’s debt is on an unsustainable path, though the Government of Sri Lanka (GoSL) is in denial, and an IMF programme is essential to avoid a debt disaster. In its report titled “Sri Lanka Economics and Strategy View”, Citi noted that it cannot see a credible strategy for achieving debt sustainability and (external) repayment capacity. “While officials continue to mention their willingness to pay, we cannot see a credible strategy for achieving debt sustainability and (external) repayment capacity beyond talking up their growth prospects and expecting this to attract FDI (foreign direct investment) and other portfolio equity inflows. The ability of financial repression to contain domestic borrowing costs is limited by rising debt ratios, still expected to grow amid a pro-growth 2021 Budget. We expect net FDI will finance about 40% of the current account deficit in 2021 FY, and the rest will not be wholly covered by official multilateral and bilateral lending, let alone commercial funding, in the absence of an IMF policy reform backstop.”  


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