• Sri Lanka receives new letter of financial assurance from China’s EXIM Bank on Monday night
• Upon receipt of the financial assurance a Letter of Intent signed by President and CB Governor has been sent to IMF 
• IMF Executive Board likely to approve SL’s loan facility by third or fourth week of this month, President tells parliament

• By Indika Sakalasooriya

President Ranil Wickremesinghe yesterday said Sri Lanka signed a Letter of Intent (LoI) on Monday night to be

presented to the Executive Board of the International Monetary Fund (IMF) to gain approval for the envisaged US$ 2.9bn loan package from the multilateral fund.

Making a special statement in parliament, Wickremesinghe revealed that Sri Lanka received the required financing assurance from China—which remained the last obstacle, to unlock the bailout package from the IMF—on Monday.

“We received the letter of financial assurance from Exim Bank of China on Monday night. Upon receiving it, on Monday night itself myself and the Central Bank Governor signed the Letter of Intent and sent it to the IMF for the board approval,” Wickremesinghe told parliament. 

Sri Lanka entered into a staff level agreement with the IMF for a US$ 2.9 billion, 4-year programme under the Extended Fund Facility in early September, last year. However, the approval of the Executive Board of the IMF for the disbursement of funds was contingent upon Sri Lanka securing financing assurances from its creditors to make its debt sustainable.

While Sri Lanka’s major bilateral creditors India and Paris Club nations gave their financing assurances without much delay, assurance from China—Sri Lanka’s largest bilateral creditor—remained a sticking point for Sri Lanka to access IMF financing. 

About a month ago, Exim Bank of China announced a 2-year debt moratorium for Sri Lanka, which fell short of the financing assurance sought by the IMF.
However, with China now coming on board by issuing a letter of financing assurance, President Wickremesinghe said the IMF Executive Board is likely to approve Sri Lanka’s loan facility by the third or fourth week of this month.

The IMF Executive Board meets three times a week. 
During the latter part of last week and early part of this week President Wickremesinghe held discussions with IMF Managing Director Kristalina Georgieva and the United States Treasury Secretary Janet Yellen about Sri Lanka’s financing facility with the IMF.

Last week, after raising policy rates by 100 basis points to tame underlying inflation in the economy—largely on the IMF’s behest— the Central Bank said Sri Lanka had completed all the ‘prior actions’ agreed at the staff level pact to receive IMF financing.  Meanwhile, President Wickremesinghe said IMF agreement would be tabled in parliament for consideration following the conclusion of IMF proceedings.  He also indicated that after the IMF Executive Board approval, Sri Lanka would receive the first round of financing from the World Bank and the Asian Development Bank, which has been already lined up.  “This time, there is no room for failure in completing every task agreed upon with the IMF, unlike the previous 16 occasions. 

If Sri Lanka fails to fulfil the tasks agreed upon with the IMF, it could result in the IMF discontinuing its collaboration with the country, and this could in turn lead to other multilateral and bilateral financial institutions being unable to work with Sri Lanka,” Wickremesinghe told parliament. 

“An annual amount of approximately US$ 6-7 billion of foreign loans are due to be paid until 2029, and we do not have the foreign exchange to pay this debt. Thus, we need the IMF to continue the agreed debt sustainability discussion with foreign creditors,” he added. Wickremesinghe meanwhile warned about groups that can influence the society to disrupt the programme with the IMF.

“…if this programme is disrupted, the country will be pushed to a far more dangerous place than the state it was in during February- March 2022. At that time, many people thought that salaries would be lost, pensions would be lost, jobs would be lost, industries would be closed, schools would be closed, etc. We have controlled this situation to a certain extent. 

However, if the groups that can influence the society disrupt the programme that we have proposed through various measures, the social alternative that will emerge from it will be extremely dangerous. It could lead to period of unprecedented woes in our society,” he stressed. 
“We accept the people’s right to freedom of speech. But, that should be done peacefully. Holding meetings and holding protests is not a problem. But, I would like to say that if this programme is disrupted through this agitation, this government will act strongly on it,” he added.

IMF Executive Board to consider SL’s programme on March 20th

International Monetary Fund (IMF) yesterday said its Executive Board will take Sri Lanka’s staff level agreement for

consideration on March 20, 2023 after China extended its financing assurance on Monday. 

 “I welcome the progress made by the Sri Lankan authorities in taking decisive policy actions and obtaining financing assurances from all their major creditors, including China, India and the Paris Club. I look forward to presenting for approval Sri Lanka’s IMF-supported programme to our Executive Board on March 20,” IMF Managing Director Kristalina Georgieva said.

 “The Extended Fund Facility (EFF) will support the authorities’ programme of ambitious reforms, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth,” she added.
IMF also noted that the Executive Board approvals would also catalyse financing from other creditors, including the World Bank and the Asian Development Bank. 
 

Rupee gains further against US dollar

Meanwhile, continuing the trend that started last week, the rupee further appreciated against the US dollar, yesterday.
The Central Bank yesterday quoted Rs.318.30 as buying rate for the US dollar and the selling rate was Rs.335.75 compared to Rs.335/348 on March 3.

Improved sentiment following the developments with regard to the IMF loan, dollar sales by exporters, relaxing of rules by the Central Bank and increased inflows have been cited as key reasons for the appreciation of the rupee. 

The Central Bank last week said from this week onwards it would do away with the forex trading band and mandatory sell-down rule of exporter proceeds imposed on banks. 

Stock market hits five-month high

The Colombo bourse hit a five-month high yesterday as China gave written financing assurances for Sri Lanka’s restructuring, clearing the biggest hurdle to secure the US$2.9 billion bailout from the International Monetary Fund (IMF). 

“That has given lot of investor confidence and with it, we have seen a bullish trend in the market, specifically in the banking sector. Even though Expolanka dipped in value, the decline was overshadowed by the banking sector run,”First Capital Research (FCR) Head of Research Dimantha Mathew told Mirror Business. The All Share Price Index (ASPI) of the Colombo bourse opened high and gained sharply during the first few minutes into trading to break 9,500-mark and continued to edge up higher during the remainder of the session to close the day at 9,643 gaining 198 points or 2.10 percent. 

 The more liquid S&P SL20 index was up by 30.96 points or 1.09 percent to close at 2,869.14 points yesterday. The market turnover was up by 20.3 percent reaching a one-month-high at Rs.3.44 billion.

As the global freight index reached an almost two and half year low, Expolanka stock fell by 10.2 percent to Rs.149.50 per share. The banking sector stocks led by HNB, Sampath Bank and NDB outperformed other stocks becoming biggest contributors to ASPI yesterday.

Although, foreign investors turned net sellers after a week with net foreign outflow of Rs. 181.3 million yesterday, Mathew noted that foreign investor interest is growing in the stock market in particular with the expected IMF programme.

“We think that will significantly increase once we go into an IMF programme. As we have seen globally across all the markets, we can expect a huge jump in foreign investment in equities once an IMF programme comes in line,” he added.

Commenting on the recent rupee appreciation against the US$, Mathew pointed out that recent gains by the rupee is unlikely to be sustained as it is likely to be stabilised in between Rs.340 - Rs.350.  “I don’t think this rupee appreciation is sustainable, because we will have to open up the economy with the IMF programme anyway. So, as a net importer, we will have a gradual deprecation naturally. It’s not prudent to let the currency to appreciate given that we have suspended most of our external debt repayments. The middle rate is around Rs.325, I don’t think it will be sustainable. Somewhere around Rs.340-350 maybe sustainable,” he said.

Meanwhile, FCR expects ASPI to finish the year at around 12,000 points despite volatilities in the first half of the year.
“We are very positive on the market. We still think that first half of the year is going to be volatile due to expected negative earnings. We expect positive returns in the second half of the year,” Mathew added.