Central Bank Governor hopeful of assistance from IMF amid lingering uncertainties

By Sanath Nanayakkare

There is still possibility for Sri Lanka to arrive at a staff level agreement with the International Monetary Fund (IMF) by August 2022 to qualify for an extended fund facility, but the new government will need to demonstrate its ability to implement the required policies within an agreed upon time frame.” the Governor of the Central Bank Dr. Nandalal Weerasinghe told Hiru TV yesterday.

The following are some excerpts from the interview he had with Hiru TV.

“The Central Bank has taken the decisions and implemented what it can do independently, but to turn things around without a crash, political stability is critical. Now two governments have changed. What I see is still the economy hasn’t crashed and ripped apart. The accelerated slide towards the abyss was at some instances slowed having applied brakes for deceleration, but if there is no political stability it could slide further again.”

“I really can’t be satisfied that there is political stability. When I took on the responsibility as Governor of the Central Bank I thought stability would be achieved within 3-4 months. We need to get short term financing assistance from friendly countries and subsequently if we obtain an IMF facility and also restructure the foreign debt with our creditors, we will be able to handle the situation well.”

“Those from whom we are seeking help are watching whether the current government has stability and whether it can offer a guarantee that it can implement the required economic policies within a given time frame.”

When asked about an IMF programme, the Governor said, “I think there is still possibility to arrive at a staff level agreement with the IMF in August 2022. But it will be a rerality only if the new government has the ability to implement the required policies.”

When asked if the IMF would ask to privatize loss making SOEs and implement cost-reflective pricing for utilities such as water and electricity, he said,” Yes, those measures will have to be taken because when a loss is incurred it has to be absorbed somewhere.”

“We need USD 350-400 million to import oil on a monthly basis excluding for fuel needed to generate electricity. Our foreign reserves are at a very low level. If India or China helps us, we can resolve this issue without great difficulty. But now the situation is uncertain whether we will get such assistance. We have requested for assistance, but there is still no certainty that we will get it. Now let’s imagine that we get no support, then as we have used up our foreign reserves there will be oil supplies until the middle of next month for the payments made. How to get oil beyond that is an issue. We have paid for three diesel shipments and two petrol shipments. That is what we are receiving these days. That will be sufficient till the middle of next month with shortages in supplies.”

“If India or China agrees to give short term financing, say USD one billion, then we can meet with the oil requirement for three months until a more sustainable arrangement is made. If we get that short-term financing help, we might get oil or otherwise this fuel crisis will persist,”

“The beginning of an answer to this problem will be from the day we get an IMF fund facility. When that happens, there will be a lot better situation, I can say firmly. So, the uncertainty will remain in the period between now and the point of getting an IMF facility.”

“Let’s say that nobody gives us any financial support. Then we have our export earning s to rely on. We earn about 1 USD billion from it. Then we have our remittances which are about USD 300 million through the banking system. That means we have USD 1.3 billion in foreign exchange earnings. In the event no one helps, then we will have to manage our oil imports with that money. Although our export earnings amount to 1 USD billion, we see a problem there on the part of exporters. Data show that they don’t bring the total amount of their earnings into the country. In the first 5 months of the year we should have had USD 5 billion. But we see that only 20% of that money has been converted into Sri Lankan rupees. At least 40% of total export earnings should be added to the formal financial system of the country. So exporters have a responsibility at a very difficult time like this to bring in their foreign exchange through the banking system, and if that happens, then we can resolve the fuel crisis comfortably.”