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Sri Lanka says puts own terms for IMF loan

COLOMBO (Reuters) - Sri Lanka said on Thursday it will put conditions of its own before the International Monetary Fund to continue a $2.6 billion loan programme, which helped boost investor confidence after the end of a 25-year war.

The International Monetary Fund (IMF) logo is seen during a news conference in Bucharest March 25, 2009. Sri Lanka said on Thursday it will put conditions of its own before the International Monetary Fund to continue a $2.6 billion loan programme, which helped boost investor confidence after the end of a 25-year war. REUTERS/Bogdan Cristel/Files

An IMF mission is in the island nation to review its third tranche of the loan, which was delayed in February as Sri Lanka breached the global lender’s end-2009 budget deficit target.

The IMF has urged the government to speed up fiscal reforms and produce a more comprehensive deficit-cutting plan if it wants to get the loan back on track.

“Basically they (IMF) have come along with us, but we will stand with our own conditions,” Keheliya Rambukwella, the cabinet spokesman told reporters. He did not elaborate on the conditions.

“When you have a facility from either IMF or World Bank or ADB particularly, there are certain conditions they lay and there are certain condition that we stand by what we can and what we should.”

The government wants the IMF loan programme to focus on medium term deficit targets rather than the short term, officials have said in the past. It also wants the option to deploy the funds for post war development instead of only replenishing foreign exchange reserves.

The loan was approved in July to avert a balance of payment crisis after Sri Lanka’s foreign reserves fell to an eight-year low of $1.27 billion. Reserves now are over $5 billion.

Analysts say delays in IMF disbursements could undermine foreign investments into the country despite the end of the civil war last year and a politically stable government now in power.

The delay also could raise the costs of borrowing via a 10-year, $500 million sovereign bond sovereign bond the government expects to sell later this year and may also increase interest rates if it is compelled to depend on domestic market for funds.

P.B. Jayasundera, the secretary to the finance ministry and the treasury, said the discussions with the IMF were positive.

“Review is satisfactory and country can draw the next tranche soon, although there is no balance of payment needs at present.”

Officials from the IMF were not available for comment.

According to the loan terms, the IMF had expected Sri Lanka to bring down the budget deficit to 7 percent in 2009, 6 percent this year and 5 percent in 2011. The IMF targets exclude post-war reconstruction spending.

The deficit in 2009 was 9.8 percent and the central bank has estimated it to be 7.5 percent this year and 6.5 percent in 2011, higher than the IMF targets.

“The government seems to have no interest in pursuing fiscal targets and reforms agreed with the IMF,” Mario Kuusisto, an analyst at Eurasia Group said in a note to investors.

“While the IMF is likely to continue engaging with Sri Lanka, it may not release further funds until the government takes concrete steps toward fiscal reform.”

Editing by Sanjeev Miglani

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