Sri Lanka expands discussions for Fund-Bank program

http://www.economynext.com/Sri_Lanka_expands_discussions_for_Fund_Bank_program-3-1100-1.html
Economy Next
20 Feb 2015

Sri Lanka's Finance Minister Ravi Karunanayake has begun discussions with World Bank Managing Director Sri Mulyani Indrawati as part of raising an estimated 4.0 billion dollar financing package backed by the International Monetary Fund.

Indrawati had said the Bank would "favorably consider" a request for a Development Policy Loan Sri Lanka's embassy in Washington said.

A development policy loan allows a country access budget support funds or guarantees to make institutional reform, including improvements in public finances and can also provide support for countries that want to improve debt management.

World Bank’s Vice President for South Asia Region Annette Dixon is visiting Sri Lanka for consultations.

Karunanayake and Central Bank Governor Arjuna Mahendran also met IMF Managing Director Christine Lagarde. IMF's South Asia Chief will visit Sri Lanka later this month.

Sri Lanka is seeking Fund-Bank financing of 4.0 billion US dollars.

A comprehensive IMF backed program loan package could also involve program lending from other development partners including the Asian Development Bank and the Japan.

Sri Lanka's foreign reserves have taken a hit over the past few months from strong credit growth which has been eating into unsterilized excess liquidity which allowed to remain in the banking system due to a policy error and repayments of an earlier IMF program.

A budget revision in January which has expanded spending and cut taxes has also worsened pressure on the domestic credit system.

But corrective active is already being taken with Treasuries yields being allowed to adjust. Sri Lanka has in the past -repeatedly - generated balance of payments crisis by engaging in 'quantity easng' to buy Treasuries and keep rates down when credit growth was racing ahead.

Karunanayake also met senior officials of the US Treasury and had sought US technical assistance for capacity building in tax reforms.

Assistant US Treasury Secretary Ramin Toloui assured that official level discussion will continue to identify specific areas for technical assistance.

Karunanayake had also met with Nisha Biswal, Assistant Secretary of State for Central and South Asia.