Sri Lanka is likely to lose the Extended Fund Facility (EFF) of the International Monetary Fund (IMF) that would also unlock substantial multilateral and bilateral financing (possibly debt relief as well), increasing the prospects of improving the sovereign rating.
The Central Bank Governor has told local media that “we do not want to go for the conditionality of the IMF. We were told this arrangement is without any conditions. If that is the case, when the opportunity comes we will renegotiate it. It has to be negotiated on our conditions."
Adding to the confusing relations with IMF, Central Bank Governor Prof. W.D Lakshman has sent a negative signal against the IMF facility over local media thereby risking the possibility of accessing international capital markets, which would be necessary to secure the debt rollover.
Sri Lanka's stand on seeking the Rapid Financing Instrument (RFI) facility and the ongoing Extended Fund Facility (EFF) of the IMF highlighted by the Governor has pushed the country into a precarious position in its quest for international funding.
In the wake of Sri Lanka’s stance on IMF's Extended Fund Facility, the country’s ailing economy amidst COVID-19 could further worsen as the IMF has put on hold the final disbursement of the US$ 1.5 billion Extended Fund Facility.
"The country could not avail of the last disbursement under the EFF, amounting to SDR 118.550 million (around Rs. 200 million) due to incompletion of the final review of EFF arrangement which has expired in June 2020," Masahiro Nozaki, IMF Mission Chief for Sri Lanka told local media.
"Disbursements under any Fund arrangement can only be made during the period between the date of its approval (in this case June 2016) by the IMF Board and its expiration date," he pointed out.
For extended arrangements under the EFF, this period cannot be longer than four years, he added.
The EFF with the IMF was extended up to early June this year following the Easter Sunday terror attack last year and thereafter the new government has deviated from the EFF programme’s revenue-based consolidation strategy.
However, Mr. Nozaki noted that they continue to engage with the Sri Lankan authorities and are considering the full set of options for engagement. With regard to financial support, the IMF is assessing all relevant conditions on Sri Lanka’s request for a Rapid Financing Facility (RFI) worth US$ 800 million, taking account of the new government’s policies and efforts to address the daunting economic challenges posed by COVID-19, he added.
The country’s external debt service amounts to around US$ 3.8 billion from June to December 2020, including a US$ 1 billion international sovereign bond payment due in October.
Under this situation, no international funding agency, foreign bank or any other foreign source will provide funding for Sri Lanka without conditions or collateral, an eminent economic expert said.
He added that it is unbecoming for a personality like the 78 year old Prof. W.D. Lakshman to have made such a statement to print media claiming that there is no “urgency” of obtaining this IMF facility in any case as Sri Lanka has “other sources” of funding.
According to RFI criterion, a member country requesting RFI assistance is "required to cooperate with the IMF to make efforts to solve its balance of payment difficulties and to describe the general economic policies that it proposes to follow."