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IMF approves Sri Lanka review, calls for monetary policy for stability
  • The International Monetary Fund (IMF) has approved a program review for Sri Lanka, unlocking a disbursement of 330 million US dollars, with a strong emphasis on using monetary policy exclusively for stability, prioritizing price stability, and refraining from monetary financing.
  • The IMF underscores risks to Sri Lanka's economic recovery, advocating for sustained revenue mobilization efforts, prompt debt restructuring in line with program targets, and the gradual removal of external controls to rebuild external buffers and facilitate external rebalancing.

 

The International Monetary Fund (IMF) has approved Sri Lanka's program review, allowing the disbursement of 330 million US dollars, while emphasizing the necessity of using monetary policy solely for stability. Despite calls for rate cuts to stimulate growth, the IMF underscores the importance of prioritizing price stability, refraining from monetary financing, and safeguarding central bank independence. Sri Lanka's inflation remains low, yet the operating framework of the monetary authority is criticized for lacking a credible anchor, particularly evident in conflicts arising from attempts to suppress rates along the yield curve through liquidity tools and extensive sterilization of forex interventions, deemed as 'monetary financing.'

Additionally, the IMF highlights risks to Sri Lanka's economic recovery, projecting moderate growth in 2024-25 amid constrained bank credit and fiscal consolidation. Uncertainties loom over debt restructuring and policy direction post-elections. To address vulnerabilities, the IMF stresses the importance of sustained revenue mobilization efforts, finalizing debt restructuring in line with program targets, and protecting social and capital spending. Furthermore, the gradual removal of external controls is recommended to rebuild external buffers and facilitate external rebalancing, emphasizing the need for continued exchange rate flexibility and phasing out balance of payments measures.


IMF approves Sri Lanka review, calls for monetary policy for stability | Economy Next

Economy Next
2024-06-13