Sri Lanka wanted a program with the International Monetary Fund to signal investors that an economic strategy that has wide consensus was being carried out in the country, Central Bank Governor Arjuna Mahendran said.
“From my perspective it is import that we have an agreement with the IMF going forward that is respected by private fund managers and economists who want to be sure that the government has a strategy for the economy that wider consensus,” he told reporters.
He said it was not question of how much money the IMF gave as Sri Lanka has access to financial markets and could borrow.
Mahendran said Sri Lanka’s authorities and the IMF was ‘hammering out a way forward’ to repay debt and keep the economy growing.
He said World Bank and Asian Development and Japan International Co-operation Fund will also chip in with budget support loans, once an IMF deal was agreed.
The IMF had said Sri Lanka’s runaway budget was at the core of economic problems in Sri Lanka.
The central bank last year printed large volumes of money to keep interest rates down and prevent the government borrowing from ‘crowding out’ the private sector pushing credit growth to over 26 percent and generating a balance of payments crisis.
The loose policy also undermined the credibility of the dollar peg, sending rupee investors in bond running for cover.
The IMF has called for the government to cut the deficit by raising more taxes from the people to finance expenditure of the rulers.
Sri Lanka’s rulers sharply raised salaries and subsidies in a revised budget in January 2015 which de-stabilized state finances and the central bank compounded it with a rate cut in April.
Instead of state austerity (cutting spending) Sri Lanka has already depreciated the currency from 131 to 144 to the US dollar to destroy real wages and savings of ordinary people. (Economy Next)