Will SL go to IMF?

ECONOMYNEXT – Sri Lanka may go for an International Monetary Program sources said as efforts are under way to float the exchange rate to end forex shortages amid high budget deficits and rising oil prices which are creating additional deficits in state energy companies, authoritative sources said.

Sri Lanka’s forex reserves have been depleted to 2.3 billion US dollars by February 2022.

An IMF programs involves both a monetary program and a complementary fiscal program. Sri Lanka has been reluctant to raise fuel prices as global prices rose and the currency was floated. Soft pegged central banks usually float the currency after running out of reserves.

Though tourism in recovering, Sri Lanka has been hit by sharply higher oil prices after Russia’s invasion of Ukraine, thes spources explained. An IMF program would allow both the fiscal and monetary policy to be co-ordinated, a source aware of the matter said.

Former Deputy Governor of the Central Bank W A Wijewardena, said an overall co-ordinated program is needed though the float was step in the right direction.

“A piecemeal attack will not help,” Wijewardena said. “We need a macro-economic plan that will cover the interest rates, exchange rate, monetary policy and the budget.”

Wijewardene together with then Central Bank Governor Nivard Cabraal operated a tight reserve money progam as the country was buffeted by the Greenspan-Bernanke bubble collapse and an intensifying civil war.

Quite separate from the forex problem rates have to be raised to contain inflation, Wijewrdena said. Inflation had risen to 15.2 percent by February.