Central Bank Governor Dr Nandalal Weerasinghe expressed optimism that a staff level agreement would be reached between Sri Lanka and the IMF and a program to be put in place to support the country’s balance of payments in the next three months.
“I am confident that we could reach an agreement with the IMF to continue the supported program in about three months, which thereafter would inject some stability into the economy,” Dr Weerasinghe said.
According to the BC chief, the first round of talks with the global lender on the sidelines of the IMF spring meetings in Washington had recently been satisfactory.
“We are pleased with the outcome of the first discussion with senior IMF officials 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 was facing “creditworthiness” problems due to risks stemming from unsustainable levels of debt that are jeopardizing the country’s economy.
A summary of the published report said Sri Lanka was facing unsustainable debt levels and needed a “credible and coherent” strategy to restore stability.
He stressed that approval of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored.
“Based on staff analysis, the fiscal consolidation needed to bring debt down to safe levels would require excessive adjustment over the next few years, indicating a clear solvency problem,” the IMF said in its Article IV consultation report, released last month in Washington.
Sri Lanka will reach an agreement for an expanded financing facility program as it did in 2009 to help the country overcome the balance of payments crisis.
Regarding the discussion with creditors, the Governor said that the IMF will begin its program following the progress of discussions with creditors.
The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors at their meeting in Washington last week.
Elaborating on plans to boost foreign exchange remittances to the country, the Governor said a Gazette will be issued shortly to ban imports through informal channels to promote transactions through the formal banking sector.
The regulator hopes that through this mechanism, the gap between the black market rate and the formal channels would be bridged.