4 October 2023 03:30 am Views - 308
Dr. Nandalal Weerasinghe
Pic by Pradeep Dilrukshana
By Nishel Fernando
The Central Bank is confident the successful completion of the first review of the Extended Fund Facility (EFF) shortly would ensure the disbursement of the second tranche of the US$ 3 billion facility by the International Monetary Fund (IMF).
“The government and the Central Bank are continuing to make progress on the Extended Fund Facility (EFF) from the International Monetary Fund, which we managed to secure within a short period of time early this year,” the Central Bank Governor Dr. Nandalal Weerasinghe said.
“With the successful completion of the domestic debt restructuring process and the notable progress in the external debt restructuring front, we are confident of the successful completion of the first review which will enable us to receive the second tranche shortly,” he added.
Governor Weerasinghe made these remarks delivering the keynote address at the ceremonial inauguration of the 44th National Conference of Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) yesterday.
The first review, conducted in mid-September this year, assessed Sri Lanka’s performance up to end of June.
According to State Minister of Finance Shehan Semasinghe, the government is expected to reach a staff level agreement with the IMF on the second tranche shortly.
Upon obtaining approval from the IMF Executive Board, Sri Lanka will gain access to approximately US$ 338 million as the second tranche disbursement.
In March this year, the IMF Executive Board granted approval for a 48-month Extended Fund Facility (EFF) amounting to approximately US$3 billion.
This approval was a significant milestone in supporting Sri Lanka’s economic policies and reforms, representing a crucial step towards resolving the unprecedented economic crisis the country went through in 2022.
Sri Lanka immediately received an initial disbursement of about US$ 330 million under the EFF arrangement.
With the support of the IMF programme, Dr.Weerasinghe said the country’s economy is already on a growth trajectory starting from the second half of this year.
“Since the peak inflation of 69.8 percent in September 2022, we have seen inflation sharply decelerating to 1.3 percent a year later. Having seen continuous contractions in economic growth since early 2022, we expect the real contraction to have bottomed out and a gradual recovery to begin from the second half of 2023 onwards.
This is to be underpinned by the steady improvements seen in trade, workers’ remittances, tourism sector and of course the stable exchange rate which has recorded over 12 percent appreciation so far this year,” he said.
Meanwhile, as the country’s interest rate structure is set to adjust further downwards, the Governor stressed that the financial sector needs to stop relying on interest margins and come up with innovative products by learning from other countries.
“…it has to be understood that the interest rate structure will also adjust downward in line with the single digit inflation levels and lower risk premium. The financial sector will need to go back to the drawing board and take lessons from countries with low inflation to invent products that do not hinge only on interest margins but are more flexible, innovative and financially complex. Accordingly, this will also pave the way for much-needed financial deepening in Sri Lanka’s financial markets,” he elaborated.