The International Monetary Fund’s board of directors released $426.8 million to Sri Lanka after reviewing the country’s implementation of economic policies attached to a $2.56 billion loan.
Sri Lanka in February raised interest rates for the first time since 2007, let its currency weaken to a record low and increased fuel prices. The moves aim to curb imports such as oil, contain a trade gap and stem a decline in foreign-exchange reserves, as officials grapple with resurgent domestic demand following the end of the island’s civil war in 2009.
“The adjustment measures implemented by the authorities have placed the economy on a more sustainable trajectory,” IMF Deputy Managing Director Zhu Min, who presided over the board meeting, said in a press release.
“However, it will take time for the new monetary and exchange rate regime to become fully established, and the authorities will need to stand ready to adjust policies further to stabilize external reserves, especially if the global environment becomes less favorable,” he said.
The board of the Washington-based IMF also agreed to extend the period of the loan to July 23 to allow one more review of policies, it said in an e-mailed statement.
“The release of funds and IMF approval will be positive for stability, investment and the markets,” Sanjeewa Fernando, an analyst at CT Smith Stockbrokers Pvt. in the Sri Lankan capital Colombo, said before the IMF announcement. “It will help support the rupee.”
Sri Lanka’s foreign reserves fell about 26 percent to $5.96 billion by December from $8.1 billion in July as the trade gap swelled. The decline prompted Standard & Poor’s to lower the island’s sovereign rating outlook to stable from positive at the end of February. Fitch Ratings has said the depleted reserves have increased balance-of-payments risks.
source - www.bloomberg.com
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