Sri Lanka’s political wrangles put IMF- EFF on hold

Sri Lanka’s unexpected change in government, political instability and policy paralysis have compelled the Inter nat i o n a l Monetary Fund ( IMF) to delay the release of the sixth tranche of about SDR 177.77 or US$ 250 million under the three- year Extended Fund Facility (EFF).

The Executive Board of the IMF was due to complete the fourth review of Sri Lanka’s three-year EFF following the conclusion of its annual meetings in October and release the sixth tranche in December this year.

But the disbursement is likely to be delayed until further notice due to a change of government and introduction of new economic policy measures.

The new administration has revised tax reforms introduced in the Inland Revenue Act, one of the commitments of the IMF economic programme undertaken by the previous regime ousted by the President, official sources said.

It has also abolished the fuel pricing formula which was another commitment made to the IMF. The price of fuel has been brought down in accordance with a cost based pricing mechanism, a senior Treasury official told the Business Times.

Responding to a question raised by the Business Times journalist, Central Bank Governor Dr. Indrajit Coomaraswamy told reporters: “The Central Bank is continuing to monitor the $1.5 billion EFF with the IMF with developments expected once the political situation settles.”

“As of October there was a staff level agreement, which means that the Government of Sri Lanka was able to agree on a programme that satisfied the IMF in terms of its EFF,” he said adding that from that point the path would have entailed the staff of the IMF presenting a paper about the middle of November and the Board of the IMF was to meet in the first week of December.

“But that is delayed now because the IMF would want to see what the Government in place would want to change. So we have to wait and see,” he disclosed.

Responding to an e mail query, media spokesman of the IMF Yan Ting told the Business Times that they are closely monitoring the present economic and political situation in the country

Economic experts warned that longer delays in IMF's sixth tranche would worsen the country's liquidity issues and could also escalate political tensions that have been running high at present.