(Refiles to remove extra word in headline)
COLOMBO Feb 12 Sri Lanka has decided not to
pursue a new loan from the International Monetary Fund after the
global lender indicated the government had made considerable
progress in stabilising its finances, the central bank said on
The island nation and the global lender started preliminary
discussion for an extended fund facility last July and the
central bank had said the plan should support development
But after several months of discussions, the central bank
said the IMF had indicated Sri Lanka does not warrant further
unconventional and exceptional financial support in light of
recent improvements in its fiscal situation.
"Sri Lankan authorities have decided not to pursue a new
programme with the IMF, but to continue maintaining the close
relationship with the Fund under standard consultation processes
similar to many other member countries," the bank said.
"The IMF has also been of the view that Sri Lanka has now
developed well-established access to international capital
markets and therefore budget support, if necessary, could be
conveniently accessed from such market sources and hence there
is no need to access the Fund for such budget financing."
A $2.6 billion IMF loan programme agreed in 2009 has helped
Colombo keep its inflation rate in the single digits, boost its
badly-depleted reserves to a record high and reduce the fiscal
deficit and debt-to-GDP ratio to manageable levels. The final
tranche of that loan was disbursed last summer.
Under the plan, Sri Lanka took a series of steps, including
allowing a flexible exchange rate and raising interest rates.
Koshy Mathai, the IMF resident representative for Sri Lanka,
declined to comment on the latest development. The IMF has
scheduled a media conference on Wednesday at 0715 GMT.
Both the central bank and IMF have declined to comment on
the size of the loan that was being dsicussed, but two central
bank sources have told Reuters Sri Lanka could have gone for up
to $1.6 billion under the extended fund facility.
Sri Lanka has successfully issued five sovereign bonds since
its debut $500 million bond in 2007 and all of the issues were
oversubscribed, with the island nation was able to tighten the
yield curve gradually.
The central bank said the authorities had expressed their
interest in a future IMF programme, only if such a programme
entailed support to finance the budget within the announced
fiscal consolidation process.
The Sri Lankan government has already committed to bring
down the fiscal deficit to 5.8 percent of the gross domestic
product in 2013 and below 5 percent in the medium term.
Danushka Samarasinghe, the research head at Colombo based
TKS Securities said expensive borrowing will discourage Sri
Lankan government from un-necessary spending and thus keeping a
tab on inflation.
Sri Lanka's foreign direct investment in 2012 was half of
its projected target $2 billion and the government is in need of
foreign money to fund its ambitious post-war infrastructure
Political risk consultancy Eurasia Group said in a note that
though the $59 billion economy's foreign exchange reserves are
at a strong position, it is potentially more vulnerable than it
"The country's high external debts, weaker than expected
exports, and lower than projected FDI could strain reserves, and
the government is also due to repay the equivalent of nearly $1
billion in rupee-denominated bonds that mature this year."
In January, Treasury Secretary P.B. Jayasundera said the
discussion with IMF was for a two-year special facility.
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Kim