The IMF has disbursed over $1 billion out of a $1.5 billion three-year extended fund facility (EFF) loan it agreed in 2016. The aim was to avert a financial crisis and support the economic reform agenda of the government then in power.
That government was sacked on Oct. 26 by President Maithripala Sirisena due to differences with former prime minister Ranil Wickremesinghe, who was backing social market economic policies.
Since the removal of Wickremesinghe, Sirisena has dissolved the parliament and called for a fresh election, but the Supreme Court last week ordered a suspension of that decree until it had heard petitions challenging the move as unconstitutional.
In September, the IMF said its mission had made significant progress toward “reaching a staff-level agreement with the government on completing the fifth review of the EFF and discussions will continue during the annual meetings of the IMF and World Bank in October”.
On Tuesday an IMF spokesman told Reuters via email: “We are monitoring the situation and remain in close contact with our technical counterparts in Sri Lanka.”
“Program discussions on the 5th review of the IMF’s Extended Fund Facility are currently on hold, pending clarity on the political situation.”
After completion of the fifth review Sri Lanka would expect to receive a sixth tranche of about $250 million. The total loan was expected to have been disbursed with a seventh tranche by mid 2019.
The political crisis has hit the economy. Already the rupee currency has fallen about 1.8 percent since the crisis unfolded last month. On Monday, the rupee fell to a record low of 177.20 per dollar. Foreign investors have pulled out more than 30 billion rupees ($169.5 million) since the crisis unfolded on Oct. 26.
Moody’s also downgraded Sri Lanka on Tuesday for the first time since it started rating the country in 2010, blaming a political crisis for exacerbating already problematic finances.
(Reporting by Shihar Aneez, Editing by William Maclean)
(Except for the headline, this story, originally published by Reuters has not been edited by SLM staff)