Saturday July 25, 09:19 AM
IMF approves $2.6 bln loan for Sri Lanka
WASHINGTON (AFP) - The International Monetary Fund has approved a 2.6-billion-dollar loan for Sri Lanka to support its economic reform program and help the country weather the severe global downturn.
The IMF executive board approved the loan late on Friday as the Asian country emerges from a 37-year civil war.
The so-called Stand-By Arrangement is in an amount equivalent to 1.65 billion Special Drawing Rights (SDRs), an IMF asset that is based on a basket of currencies -- the dollar, yen, euro and pound -- and calculated daily.
The 20-month loan is worth about 2.6 billion dollars, the IMF said.
A first instalment of about 322.2 million dollars is immediately available to Sri Lanka, while the remainder will be phased in "subject to quarterly reviews," the multilateral institution said.
"The key objectives of the authorities' economic reform program supported by the fund are to strengthen the country's fiscal position while ensuring the availability of resources for much needed post-conflict reconstruction and relief efforts."
The IMF said the program also was intended to rebuild international reserves and strengthen Sri Lanka's domestic financial system, "and to protect the most vulnerable in the country from the burden of the needed economic adjustment."
Britain abstained from voting on the loan after politicians indicated they could not support it.
British Financial Secretary to the Treasury Stephen Timms said it was "not the right time for the program," in light of the political situation on the island threatening its success.
Britain wanted to "secure long-term peace and prosperity" for Sri Lanka through reconciliation between its communities, Timms wrote in a letter to the multi-party parliamentary groups on Sri Lanka and Tamils.
"While we remain determined to help Sri Lanka avoid a damaging balance of payments crisis that would disproportionately affect the poorest and most vulnerable, we judged that the immediate risks of a Sri Lankan default have recently diminished in the light of recent capital inflows and an improved reserve position."
The IMF loan, under negotiation with Sri Lankan authorities since March, came two months after the end of the civil war with the rebel Tamil Tigers that claimed up to 100,000 lives and left some 300,000 war-displaced civilians in the north.
Colombo crushed the Tamil Tiger rebels -- who had been fighting since 1972 to carve out a separate state for minority Tamils -- in May.
The Sri Lankan government had requested a 1.9-billion-dollar IMF loan in March to help stave off its first balance of payments deficit in four years after foreign currency reserves fell to around six weeks' worth of imports.
"The global financial crisis has had a significant impact on Sri Lanka's economy," said Takatoshi Kato, the IMF deputy managing director and acting chairman of the board.
"The government's ambitious program, supported by the IMF, intends to restore fiscal and external viability and address the significant reconstruction needs of the conflict-affected areas, thereby laying the basis for future higher economic growth," he said.
Kato said the government's program would entail "difficult" economic reform measures.
"Nevertheless, the government should take advantage of the opportunity created by the end of the conflict to ensure national reconciliation, restore macroeconomic stability, and promote strong and durable growth," he said.
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