Sri Lanka is going on bended knee to the International Monetary Fund (IMF) – an institution it chased away two years ago – for a bailout package worth 1.9 billion US dollars, as authorities scrape the barrel for foreign exchange.
The value of the country’s imports are now much more than its exports and foreign exchange reserves, which have normally averaged over three months worth of imports.
The crisis is two-fold: sagging export income and the Central Bank using the few dollars it has to intervene in local money markets to defend the rupee from depreciating against the US dollar.
On the other hand, the government’s access to cheap commercial borrowings from foreign sources to fund the costly war against separatist Tamil rebels and other high spending state sectors has dried up with the global financial meltdown. The government bit the bullet and announced it was in negotiations with the IMF for a 1.9 billion dollar standby arrangement.
While the country’s gross official reserves by end December 2008 stood at 1.7 billion dollars, sufficient just for 1.5 months of imports, compared to more than 3.5 billion dollars in December 2007, the irony of the wakeup call is that the government is seeking help from an agency it had virtually thrown out from the country in January 2007.
The offer was made for a facility without conditions as per Central Bank Governor Ajith Nivard Cabraal. But how can we trust that statement? Will see. However as the Sri Lankans, we are going for a deep financial problem. Can be a start of another war