- Ex Dep. Governor says interest likely to soar due to US rate hikes
- EFF has 4.5-10 year repayment period, 12 equal semi-annual installments
Sri Lanka could end up repaying the $ 2.9 billion Extended Fund Facility (EFF) by the International Monetary Fund (IMF) at an interest rate of over 8% after 2026 as a result of surcharges and continuance hikes in US interest rates, Former Deputy Governor of the Central Bank of Sri Lanka (CBSL), Dr. W.A. Wijewardena said.
Speaking at a webinar held by CMA Sri Lanka on Monday (27), he said that repaying the IMF facility is not costless to Sri Lanka, as the interest rate on the EFF is a variable interest rate subject to the basic rate of charge applicable to SDRs plus another margin of 100 basis points.
He said that the present basic rate of charge applicable to SDR is about 3.363% and when another margin of 1% is added to it, the basic rate of charge would go up to 4.363% annually.
Moreover, he said that since another 50 basis points are charged as a service charge on each fund drawing, and there are two drawings each year, Sri Lanka will have to pay a total of 1% as a service charge annually, taking the total basic rate of charge to about 5.363% annually.
The $ 2.9 billion EFF facility to Sri Lanka for over four years would have eight tranches or drawings of funds and would be given a 4 ½ to 10 year repayment period with 12 equal semi-annual installments.
Dr. Wijewardena said that since the EFF funds are directly given to the government instead of the central bank, as part of budgetary financing, the IMF loan will become a part of the government debt and not central bank debt.
Further, he said that according to the interest rate clause of the EFF repayment, the IMF has tried to discourage the borrowing countries to go for a loan of more than 187.5% of their IMF quota (which is SDR 578.8 million for Sri Lanka or $ 759 million) by charging surcharge rate of 300 points added to the basic rate of charge after the 3rd year of the EFF programme.
“So after 2026, the actual cost of the borrowing of IMF to Sri Lanka will go up to 8.363% as it is now but if the interest rates in the US go up in the future from 4.8% at the moment, the interest on the IMF facility will go up to a further value,” he added.