SL admits serious medium term BoP issues due to structural reforms

By Cheranka Mendis

The Government has accepted that the country is facing some serious medium term balance of payment issues due to structural weaknesses and is therefore opting for an Extended Fund Facility (EFF) of US$ 1 billion from the International Monetary Fund (IMF).

UNP MP and Economist Dr. Harsha de Silva yesterday alleged that the Government had finally accepted that the country was going through this crisis by going for an EFF from among the various other facilities offered by the IMF for loans.

Dr. Harsha De Silva displays the IMF’s Extended Fund Facility website page on his iPad at the press conference yesterday – Pic by Lasantha Kumara

De Silva quoting the IMF website noted that the EFF is given “when countries face serious medium term balance of payment problems because of structural weaknesses that require time to address, and which the IMF can assist in the adjustment process”.

“This means we accept that the country is confronted with a serious medium term balance of payment crisis due to structural weaknesses. If not, the Government could have opted for another loan scheme as the IMF offers different types of facilities, whereas the EFF is particularly for countries that have these types of problems,” he said.

Arrangements under the EFF normally do not exceed three years at approval, with a maximum extension of up to one year where appropriate. The IMF website further notes that ‘a maximum duration of up to four years at approval is also allowed, predicated on the existence of a balance of payments need beyond the three-year period, the prolonged nature of the adjustment required to restore macroeconomic stability, and the presence of adequate assurances about the member’s ability and willingness to implement deep and sustained structural reforms’.

There is a Special Drawing Rights (SDR) interest rate for the loan which has currently depreciated to a low 0.6%. A fee is however added to the interest depending on the quota taken by Sri Lanka from the IMF. If the quota exceeds 200% then it is 2%, he said. If it is three years since exceeding the 200% quota, then it is 3%. “Our quota with the IMF is 400%. Therefore the minimum should come close to 3% including other fees.”

With negative outlooks for the country as is evident going by reports from the likes of Standard Chartered Bank and Fitch, going for an EFF shows the true nature of the problems the country is now facing. Fitch listed Sri Lanka among the world’s 12 riskiest countries alongside the likes of Mongolia.

“It shows that the risk for Sri Lanka is great and that if the country gets loans from the international market, they will have to pay far more than the 3%,” he said.

The repayment term is within 4½-10 years from the date of disbursement.