THE International Monetary Fund has rejected a request by the Sri Lankan government of President Maithripala Sirisena for a $4bn loan in order to restructure debt repayments on high-interest Chinese loans negotiated by the government of former president Mahinda Rajapakse.

The decision was announced in Colombo on March 4, after a nine-day review of the Sri Lankan economy by the IMF’s Post-Programme Monitoring Mission team headed by Todd Schneider. The IMF insisted that the government had to maintain its targeted budget deficit of 4.4pc of GDP this year.

The IMF’s blunt rejection of the loan follows Finance Minister Ravi Karunanayake’s meeting last month in Washington with IMF chief Christine Lagarde. Karunanayake told the media after his Washington meeting that “there is a lot of international goodwill and we can get finance from the IMF and World Bank at 0.5pc.”

The finance minister’s illusions were quickly shattered, however, on March 4, when Schneider told the media in Colombo that there was no need for a bailout. Sri Lanka’s foreign reserves were ‘comfortable,’ he said, and the current situation was different to 2009 when the previous government obtained a bailout loan of $2.6bn loan to avert a balance-of-payment crisis. While he said the situation could be reviewed, the IMF warned Sri Lanka was vulnerable to shocks due to high commercial loans.

The real reason for the IMF refusal is not Sri Lanka’s ‘comfortable’ foreign reserves but disagreement with the Sirisena government’s recent budget, which promised salary and pension increases for public sector employees and limited increase of social welfare measures.

—Courtesy: WSWS

Published in Dawn, Economic & Business, March 30th , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play