Financial support for Sri Lanka from the International Monetary Fund (IMF) is on the cards as the global lender is assessing all conditions on the request of the government for a new financial support program, said a top official of the IMF Mission to Sri Lanka on Friday.
“We continue to engage with the Sri Lankan authorities and are considering the full set of options for engagement,” IMF Mission Chief for Sri Lanka Masahiro Nozaki said.
On financial support, she said the Mission is assessing all conditions on the request of the Government for a Rapid Financing Instrument (RFI), taking account of the new government’s policies and efforts to address the daunting economic challenges posed by Covid-19.
The global lender said on an earlier occasion this year that it was mulling Sri Lanka’s plan to replace the Extended Fund Facility (EFF) arrangement with a RFI as the EFF program with the lender was due to be completed this year. Sri Lanka’s three-year extended arrangement was approved on June 3, 2016, of about SDR 1.1 billion (US$1.5 billion, or 185 percent of quota in the IMF at the time of approval of the arrangement.
The government called for emergency financial support from the IMF under the rapid financing instrument this year while expressing interest in a range of options for future engagement with the Fund.
A staff team from the IMF led by Manuela Goretti visited Colombo from January 29 – February 7, 2020 to meet the new administration and discuss its policy agenda. At the conclusion of the IMF staff visit to Sri Lanka in February this year the IMF noted, given the high level of public debt and refinancing needs in the country, ensuring macroeconomic stability calls for fiscal consolidation, prudent monetary policy, and sustained efforts to build international reserves.
“Ambitious structural and institutional reforms remain critical to raise the country’s growth potential and promote inclusiveness,” the team said.
The IMF projected economic growth to rebound to 3.7 percent this year on the back of the recovery in tourism, and assuming that the novel Coronavirus will have only a limited negative effect on tourist arrivals and other economic activities.
However, growth during the first quarter this year was 1.6 percent and projections for the second quarter is negative growth.