IMF facility expected soon | Sunday Observer

IMF facility expected soon

8 January, 2023

With significant progress being made at present in relation to the interaction with Sri Lanka’s creditors, the envisaged International Monetary Fund (IMF) facility is expected to materialise soon.

Parallel to the implementation of near-term economic stabilisation measures, negotiations with the IMF for an EFF arrangement were launched by the Government and a staff level agreement was reached in September last year.

“Measures are also underway to secure financing assurances from official creditors for the debt restructuring process aimed at ensuring medium term public debt sustainability,” a release from the Central Bank stated.

Headline inflation is expected to move along a disinflationary path with a deceleration in the first half of 2023 and reaching the desired levels of inflation towards the end of this year.

The rapid acceleration of inflation that began from early 2022, turned around in October 2022, supported by the tight monetary policy measures implemented to contain inflationary pressures, the fiscal consolidation efforts and supply side policies of the Government, along with the relative easing of price pressures globally, among others.

As guided by the near-term inflation outlook, market interest rates could adjust downward, yet maintain reasonably tight monetary conditions until inflationary pressures are sufficiently contained.

If any upside risks to inflation emerge in the period ahead, that would be addressed through appropriate policy measures. “Inflation expectations remain well anchored along the projected disinflation path.”

Further measures were initiated to improve foreign exchange liquidity in the domestic foreign exchange market with the repatriation and conversion requirements of foreign exchange, thereby disincentivising activity in the grey market.

Meanwhile, an array of measures was implemented to preserve stability in the financial system, thereby avoiding any far reaching consequences on the entire socioeconomic structure.

The Government has embarked on long-overdue reforms to rectify structural deficiencies in fiscal operations and other sectors of the economy, that are imperative in ensuring a sustained recovery of the economy.

Foreign exchange outflow, which were spared due to the suspension of certain debt servicing, helped make the immediately required operational space to contain the burgeoning BOP pressures, along with inflows of foreign exchange from friendly nations and multilateral Foreign exchange outflows were further contained by several other measures, including the prioritisation of imports.

These measures ensured the availability of foreign exchange for essential imports, including fuel, coal, cooking gas, medicine, and food items, among others, thereby relieving socioeconomic unrest to a great extent.

“The demand management measures imposed on curtailing certain imports will be assessed vis-à-vis the foreign exchange liquidity and monetary conditions.”