Central Bank denies any talks with IMF on financial assistance

• Governor Lakshman says govt. expects to resolve SL’s forex problems on self-reliant basis

Denying any negotiations with the International Monetary Fund (IMF) for a Rapid Financing Instrument (RFI) or any type of bailout packages, Central Bank Governor Prof. W.D. Lakshman yesterday said Sri Lanka would prefer to deal with its foreign exchange related challenges in-house and expects a relatively successful outcome of the chosen policy. 

RFI is an instrument made available by the Fund for member countries with balance of payment needs. 

Responding to a query whether the Central Bank has approached the IMF for support, Prof. Lakshman said, “There is no definite series of negotiations between the Finance Ministry, the Central Bank and the IMF,” although they continuously engage with the Fund for various other technical matters. 

“It is the government’s policy to work as much as possible to resolve our foreign exchange problems on a self-reliant basis, on the basis of domestic efforts, and also through  discussions with the institutes, organisations and countries who are willing to assist on a relatively non-interventionist basis,” Prof. Lakshman said.

Despite a number of well-known economists and theorists advocating the government to approach the IMF for a bailout package, the government has so far held its ground on the basis that the strings, which are typically attached to such a programme includes severe austerity measures that generally lead to a contraction in the economy. This was abundantly clear during the 2016-2019 period, when the growth sputtered under an IMF programme. 

Professor Lakshman stressed that Sri Lanka survived last year amid a raging pandemic despite the “unfounded” sovereign rating downgrades by all three global rating agencies.

He showed the most recent turnaround in Sri Lanka sovereign bond yields and the phenomenal run in the Colombo Stock Exchange as two parameters to show the enthusiasm of the foreign and domestic investor community on the prospects of the Sri Lankan economy, which is contrary to what the rating agencies try to portray. 

“The external sector has performed better than expected. The trade deficit is expected to have contracted by more than US$ 2.0 billion in 2020 due to low oil prices, temporary suspension of non-essential imports and the better than expected revival in exports”, he said. 

He pointed out that the rupee depreciation in 2020 was contained to 2.6 percent against the US dollar despite honouring the full foreign debt settlements of US$ 4.5 billion last year.

Meanwhile, Prof. Lakshman also said he expects the domestic production to witness a robust increase in response to the fiscal and monetary stimulus that is underway and the results are already seen. 

“The improvements in the domestic front would help the country to stand on its own and address its stability concerns that are being highlighted in time in a substantial manner.”