SL to raise $5b after IMF negotiations

by Chandani Jayatilleke

Sri Lanka hopes to raise five billion US dollars following negotiations with the International Monetary Fund (IMF) for a financial safety net in mid April.

“The final negotiations with the IMF team will begin soon after Prime Minister Ranil Wickremesinghe’s visit to China in April,” Central Bank (CB) Governor Arjuna Mahendran told Sunday Observer Business.

“I would say we expect to receive five billion dollars including one billion dollars from the IMF. We need the IMF’s positive signal soon. Thereafter, the rest will come through the World Bank, Asian Development Bank, JBIC, JAICA, EXIM Bank of India, EXIM Bank of China and China Development Bank,” he added. “There are very tough negotiations ahead of us; the IMF wants us to prove that we can collect better revenue and sort out our other financial issues.”

Sri Lanka has already had lengthy discussions with the IMF about financial assistance as a measure to come out from the balance of payment difficulties in the post-war period. The country received a US $ 2.6 billion bailout package in 2009-2011.

The Governor said the country has borrowed a lot in the past. “We cannot continue to carry on further with these borrowings because we will run short of foreign currency soon. The current reserves of six and a half billion dollars would be sufficient only for four months of imports – assuming we don’t get a single dollar for the next four months,” he said in an interview.

However, the Governor said the CB would not want to stay in that position. “We keep topping it up from borrowing from various sources.” The IMF and Sri Lanka maintain cordial relations and the IMF understands that the country has got into this difficult situation due to bad policy decisions such as import substitution policy, low tax collection, and the sharp reduction in the proportion of export earnings, according to Mahendran. “The import substitution policy of the previous government was a big mistake. Our export sector urgently needs to be revitalised and the IMF also wants us to collect more taxes. Our tax collection is only a 10% of the GDP which is very pathetic. Even the Maldives collects 25% and Yemen 20%,” he said.

Meanwhile, Prime Minister Ranil Wickremesinghe told parliament last week that the government will charge the newly proposed taxes from April and September 2016, as a measure to bring down the budget deficit and stabilise the economy.