SL fails to stick to two IMF benchmarks

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By 2018-01-17

Sri Lanka was unable to fulfill the International Monetary Fund (IMF)'s benchmark limit for the debt burden of 70% of Gross Domestic Product (GDP) last year and the 'Gross Financing Need' benchmark of 15% of GDP, the IMF stated in its latest country assessment report.

"Despite the IMF's three-year programme, the Government became liable for additional debt of 10% of GDP in 2017 and the year-end debt-to-GDP ratio and Gross Financing Needs as a per cent of GDP were 87% and 19% respectively," the report said.
Sri Lanka last year raised US$ 1.5 billion via sovereign bond issue, and US$ 1 billion via syndicated loans.

The IMF also warned that larger rupee depreciation could pose a significant risk to the growth and inflation in the economy.
In the short run, tighter global liquidity and shifts in investor confidence could raise rollover risk vulnerabilities and costs.
However, the IMF said that the ratio of external debt to GDP is projected to decline gradually over the medium term. Under the anticipated scenario of the programme, external debt is projected to decrease from 57 per cent of GDP in 2016 to around 52 per cent in 2022.

This decline is expected to be driven by robust GDP growth, a steady pace of fiscal consolidation, and gradual adjustments in the current account of the balance of payments.
Nevertheless, vulnerabilities linked to inadequate reserve coverage, exchange rate depreciation, and de-leveraging could pose a risk for debt servicing.

"Although rollover risks are currently low due to the high share of medium- to long-term debt in the debt profile, there are lumpy repayments starting in 2019, requiring external financing at non-concessional terms, which could be substituted only gradually from substitute concessional financing; these point to a need to build up reserve buffers speedily," it stated.
It stated further that lower-than-expected GDP or export growth, along with delays in introducing fuel and electricity pricing mechanisms, could also lead to deterioration in debt dynamics.





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