Sri Lanka close to a deal on IMF loan

The International Monetary Fund has announced it has reached a $2.5 billion loan accord with Sri Lanka, which will be presented to the IMF board for approval on Friday, July 24.

The IMF announcement follows the submission of a Letter of Intent (LoI) on Monday July 20 by Sri Lanka, listing the conditions it will adhere to in return for the money.

“We have set out our intentions, which do not differ from the macroeconomic policy thrust that we have been following,” Central Bank of Sri Lanka Governor Ajith Nivard Cabraal told Bloomberg.

Cabraal declined to elaborate on the contents of the LoI but said Sri Lanka and the IMF would soon make a joint statement on a financial aid package.

Sri Lanka’s submission LoI comes just two weeks after the central bank chief declared that the country was in a ‘comfortable position right now’ and can go on without a major IMF bailout.

"If the IMF funds come, it will give us a comfortable buffer stock. I hope we get it. But we are otherwise in a comfortable position right now," Cabraal said in early July.

According to the IMF, a disbursement of $313 million will immediately be available to Sri Lanka once the loan is approved.

"The government has formulated an ambitious program aimed at restoring fiscal and external viability and addressing the significant reconstruction needs of the conflict-affected areas," the IMF said in its statement.

The end of Sri Lanka's 25-year civil war posed a unique opportunity to undertake economic reforms and rebuild areas damaged by the conflict, the IMF statement further added.

Rebuilding the country will require significant spending the IMF said, adding that the program will provide a framework for donors to help fund reconstruction.

"The IMF staff supports this program, specifically the government's goals of rebuilding reserves, reducing the fiscal deficit to a sustainable level, and strengthening the financial sector," the IMF added.

The announcement comes despite calls from western law makers to link the loan package to Sri Lanka adhering to human right norms.

Both the US Secretary of State, Hillary Clinton, and British Foreign Secretary, David Miliband, have previously stated that the loan should only be made available in an appropriate and responsible manner.

Despite, Sri Lanka continuing to hold hundreds of thousands of Tamils in illegal internment camps and with increasingly frequent calls for international war crime probe over the country’s conduct during the last phase of the brutal civil war in which over 20,000 Tamils were killed, IMF has announced that a staff level agreement has been reached. 

This latest announcement by IMF contradicts its previous statement,

a week ago, in which the IMF said the views of the international community would be considered at an Executive Board meeting before considering Sri Lanka’s loan application loan.

Caroline Atkinson, Director of External Relations at IMF in a press briefing said a mission to Sri Lanka which returned recently had discussions with the authorities and the first thing that will happen is reaching a staff-level agreement on the loan.

The spokesperson said the "first thing that happens is a staff-level agreement, then an Executive Board meeting would be where all of the international community's views would be considered."