The IMF intends to begin discussions with Sri Lanka on a program to support the country. Spokesman Gerry Rice said the island was facing heavy currency depreciation and inflation after an unusual battle of printing money to keep interest rates low.
President Gotabaya Rajapaksa said in a national address on Wednesday that he has permitted the IMF program to go ahead after meeting senior staff of the lender in Colombo.
Officials have also indicated that they are actively considering an IMF-backed program,” said IMF spokesman Gerry Rice.
During the Finance Minister’s visit to Washington in April, we will discuss with officials how best we can help Sri Lanka move forward.
The IMF has already called for tighter monetary policy to prevent liquidity injections that create foreign exchange shortages. The full report has not been made public, but key findings, including that the debt is volatile, are now known.
For some time Sri Lanka has not had a working exchange rate system, the credibility of a peg has been lost and the printing of money has led to the emergence of parallel exchange rates.
A float of currency is a pre-action to eliminate double anchor conflicts in a program. Although the exchange rate has been allowed to decline, a clean float has yet to be established.
Analysts said the central bank should do away with a surrender requirement which effectively imposes a strong side convertibility undertaking in a peg style and further weakens the rupee.
An IMF program typically includes a tight reserve money program to contain inflation and block verification of domestic prices as the currency weakens.
Tax hikes and spending cuts will reduce the budget deficit and household debt while keeping the corrective interest rate down. Sri Lanka’s private citizens are net savers and unable to trigger currency pressure.
Debt restructuring will also lead to a reduction in the corrective interest rate and the need to save more immediately for loan repayment and leave room for a reasonable growth trajectory.
India is offering US$500 million in loans and one billion dollars for food and medicines, which can be used to meet the deficit if not used for subsidies.
Analysts say medicine credits could be used directly for health budgeting or cash collected from private sector importers could be used to finance other expenses such as wage bills.
Unemployed graduates have grown progressively into the public sector and have become major consumers of society’s productive efforts.
Classical economists and analysts have called for central bank reforms to outlaw intermediate monetary regimes and a single anchor composed entirely of reserve-backed hard pegs or a clean floating regime with a low inflation-driven monetary base. be known for governance and have no foreign exchange. Stores.