|
|
 |
 |
| Sunday, 27 April 2003 |
 |
|
 |
Business |  |
| News Business Features Editorial
|
Financial boost expected at Tokyo donor parley Sri Lanka is expected to receive around US$ 1,000 million at the forthcoming Tokyo aid conference, while other aid packages are also anticipated, Central Bank (CB) Governor, A.S. Jayawardena told the media last week. Sri Lanka entered an agreement with the International Monetary Fund (IMF) on April 18 to obtain SDR 413.4 million (US$ 567 million), equivalent to 100 per cent of Sri Lanka's IMF quota, when the Executive Board of the IMF approved two credit facilities under the Poverty Reduction and Growth Facility (PRGF) and the Extended Fund Facility (EFF). The three-year PRGF arrangement provides SDR 269 million (US$ 369 million or 65 per cent of the quota), while the three-year EFF arrangement provides SDR 144.4 million (US$ 198 million or 35 per cent of the quota). The PRGF-EFF supports the Government's medium-term economic and poverty reduction programme, articulated in the Poverty Reduction Strategy Paper (PRSP) titled 'Regaining Sri Lanka: Vision and Strategy for Accelerated Development'. The endorsement of the Government policy is expected to play a catalytic role in mobilising additional financial support amounting to more than US$ 2,000 million from other donors, and encouraging private investment inflows for accelerating growth and reducing poverty in Sri Lanka. Governor Jayawardena said that Sri Lanka had a good record of repayment. The funds would be used to strengthen monetary reserves. CB officials said the money would be sufficient to pay for five months of imports to Sri Lanka. He said the funds would be used prudently. Its utilisation would help bring down the budget deficit in the next five years. Sri Lanka is eligible to draw SDR 59 million (US$ 81 million) immediately, Jayawardena told the media conference. The remaining amount would be made available in six tranches of SDR 59 million each over a three-year period subject to achieving performance criteria set out in the programme. These performance criteria are based on the action plans in the Regaining Sri Lanka document. PRGF loans carry an annual interest rate of 0.5 per cent and are repayable over 10 years, with a five-and-a-half-year grace period on principal payments. The EFF is granted at the basis rate of 2.27 per cent in April 2003 with a 10-year repayment period and a four-and-a-half-year grace period. The IMF provides financial assistance to member countries under a variety of policies and facilities. The PRGF arrangement, a broader version of the previous Enhanced Structural Adjustment Facility, provides large financing at a more concessional rate for low income countries. It is based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a PRSP. The PRGF supports programmes aimed at making poverty reduction efforts a key and a more explicit element of a renewed growth-oriented economic strategy. This strategy would consist of a comprehensive framework for macroeconomic, structural and social policies which would foster sustainable growth, leading to higher standards of living and a reduction in poverty on a more sustainable basis. The EFF is an IMF financing facility that supports medium-term programmes seeking to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. The PRGF-EFF arrangements follow the IMF Stand By Arrangement (SBA) amounting to SDR 200 million (US$ 274 million), intended to strengthen the macroeconomy, stabilise the exchange rate and build up official reserves to a comfortable level. The SBA was to be a 14-month programme to be completed by June 2002. Adverse external shocks and political developments in the second half of 2001, including the attack on the airport, sluggish external demand, the prolonged drought and the General Elections, derailed the programme. Sri Lanka was able to renegotiate the SBA which could be successfully completed in September 2002, meeting performance criteria. The importance of a comprehensive PRGF-EFF programme lies not only in its direct support to strengthen the country's foreign reserves to withstand adverse shocks, but more in its potential to mobilise additional resources from other donors and encourage private capital inflows. The total assistance from the World Bank and Asian Development Bank (ADB) is expected to be over US$ 1,500 million during the programme period. Japan, the largest donor to Sri Lanka, and other donors are expected to commit a significant amount to support the programme at the forthcoming donor conference in June. The PRGF-EFF disbursements, including the Poverty Reduction Support Credit from the World Bank, ADB and other donors would be available to implement structural reforms aimed primarily at alleviating poverty. Under the programme, Sri Lanka aims to reduce the rate of inflation to around four to five per cent in the medium term and move to a higher sustainable growth rate. Sri Lanka envisages to achieve an average growth of at least 6.5 per cent during 2003-06 while aiming for sustained growth at 8-10 per cent per annum in the long run. The policies also aim at strengthening external sector stability while further strengthening official reserves. To achieve the envisaged growth targets, the programme has identified that there is an external financing gap of about US$ 400 million per year, on average. The gap is expected to be filled primarily by donors. Most of the donor assistance will be directed at the rehabilitation of war-ravaged areas in the North and East and poverty stricken areas in the rest of the country. Private capital inflows would further help economic growth, CB officials said. (EL) |
|
News | Business | Features
| Editorial | Security Produced by Lake House |
