Central Bank Governor Dr. Nandalal Weerasinghe expressed optimism over a staff level agreement that would be reached between Sri Lanka and the IMF and a program to be in place to support the country’s balance of payments within the next three months.
“I am confident we could reach an agreement with the IMF to get on with the supported program within around three months which thereafter, would infuse some stability to the economy,” Dr. Weerasinghe said.
According to the CB chief, the first round of discussions with the global lender on the sidelines of the IMF spring meetings in Washington recently had been satisfactory.
“We are pleased with the outcome of the first discussion with the IMF senior staff in Washington where the IMF assured its support to help Sri Lanka,” the Central Bank Governor said. However, the international lender said recently that Sri Lanka faces “solvency” issues because of risks stemming from unsustainable debt levels that jeopardise the nation’s economy.
A summary of the report released stated that Sri Lanka faced unsustainable debt levels and needed a “credible and coherent” strategy to restore stability.
It stressed that an approval of an IMF-supported program for Sri Lanka would need adequate assurances that debt sustainability will be restored.
“Based on staff analysis, the fiscal consolidation necessary to bring debt down to safe levels would require excessive adjustment over the coming years, pointing to a clear solvency problem,” the IMF said in its Article IV consultation report, released last month in Washington.
Sri Lanka will arrive at an agreement for an Extended Fund Facility program as it did in 2009 to support the country get over the balance of payments crisis.
On the discussion with creditors, the Governor said the IMF will commence its program following the progress with the discussion with creditors.
The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors at its meeting in Washington last week.
Elaborating on plans to boost forex remittances to the country, the Governor said a Gazette will be published shortly to ban imports through informal channels to promote transactions through the formal banking sector.
The regulator hopes that through the mechanism, the gap between the blackmarket rate and the formal channels would be bridged.