Dollar crisis has ended, asserts Central Bank governor

IMF board to approve $2.9 billion loan tomorrow

Amidst the appreciation of the rupee, has the US dollar crisis ended? “It has,” says Central Bank (CB) Governor Dr. Nandalal Weerasinghe.

“The dollar crisis has ended. We have enough dollars to service all sectors,” he told the Business Times this week in an interview which dealt with foreign exchange, inflation, GDP growth and the timelines of the muchawaited International Monetary Fund (IMF) facility. He was speaking days before the IMF board meets tomorrow (Monday) in Washington to (most likely) formally approve the US$2.9 billion bailout package.

Detailing out the timelines of the widely-awaited loan, Dr, Weerasinghe said around $390 million in SDR terms would be made available on March 21, a day after the loan is approved. Thereafter tranches would come every six months after biannual reviews, the first in June. The mission to Sri Lanka would look at inflation targets, restructure benchmarks, foreign reserves, government revenue targets, - indicative and quantitative targets.

He said for the first time in Sri Lanka IMF support would be available for the government as budgetary support in addition to beefing up foreign exchange reserves. With various other funding coming to the government as budget support, it would reduce government borrowings.

Debt restructuring negotiations must be completed before the first IMF review in June under the 4-year programme where eight tranches would be disbursed.

The Government is already engaging with bilateral and commercial creditors. Asked whether the negotiations involve a haircut and interest/ capital delayed payments, Dr. Weerasinghe said: “That I can’t tell you. Depends on the negotiations.”

Debt restructuring negotiations must be completed before the first IMF review in June under the 4-year programme where eight tranches would be disbursed

The approval of the IMF loan will unlock new funding of $4.5 billion from the ADB and World for budget support.

“The whole idea of IMF funding is to provide some stability to the economy. It’s not only the $2.9 billion as some people say. It is an endorsement of our medium to long term programme which will instill confidence and bring back other private investment. There would be more foreign direct investment,” he said.

With more dollars available in the market, the rupee began gaining and to reduce any further depreciation of the dollar, the Central Bank last week bought $500 million from the market, he said, noting that they would intervene in the market either way (bought or sell dollars) to reduce any volatility.

“Everyone was selling dollars (last week). We prevented the currency (dollar) crashing. If we didn’t intervene the dollar would have depreciated to

Rs. 200. We need to avoid any volatility in the market. It’s a good lesson for hoarding currency as the grey market rate is now lower than the bank rate,” he said, adding that the dollar supply has increased and is more than the demand. There is no shortage of dollars for fuel purchases and all customers can service their import needs, their education needs,

The rupee however appeared to depreciate this week. “We don’t any more supply foreign exchange to the Ceylon Petroleum Corporation which deals with the banks for their requirements,” he said.

He was confident of inflation coming down to a single digit by end December 2023 from 50 per cent currently. He was asked: “Isn’t that too ambitious?” “Take my word for it… it will come down,” he said confidently.

GDP growth in 2022 was close to - 8 per cent (contraction). The IMF projection for 2023 is a contraction of 3.7 per cent, “but we think it would be much lower”, he said.