Sri Lanka Seeking to Borrow as Much as $1.5 Billion From IMF

Sri Lanka is looking for a loan of as much as $1.5 billion from the International Monetary Fund, the central bank signaled, as the country seeks to lower borrowing costs and avert further rating cuts.

Officials from the country will sit down with the IMF next week, central bank Governor Arjuna Mahendran said in an interview on Bloomberg Television Tuesday. Somewhere between $1 billion to $1.5 billion is equivalent to about 100 percent to 200 percent of Sri Lanka’s quota under the IMF’s method of calculation, he said.

"We are more interested in the signal that an agreement with the IMF will give the markets," he said. “They will give us a sort of seal of approval that our policies are really going to take this country to its next level."

Sri Lanka’s financing gap on the balance of Payments is about $2.5 billion in 2016, and the country can easily reach out to the markets to finance the balance, the governor said. The island nation can also tap other sources like the World Bank, Asian Development Bank as well as lenders from Japan and Korea, he said.

"All these lenders are willing to come in, provided the IMF gives them that catalyst to move into the Sri Lankan market," he said.

Panda Bonds

The country is looking to raise funds in the market, and would be interested in issuing sukuk, he said. Sri Lanka also has the prospect of a Panda bond issuance in China, after the Chinese central bank chief offered the option, he said. “Interestingly, you can swap those onshore renminbi into U.S. dollars for a cheaper rate than borrowing directly in dollars, in the dollar market."

External help to refinance debt is crucial after Fitch Ratings in February lowered Sri Lanka’s credit ratings and Standard & Poor’s cut its outlook to negative last week. The rupee dived to a record low this month after worsening foreign-Exchange reserves and balance of payments forced the central bank to stop propping up the currency.

Mahendran on Feb. 19 raised benchmark interest rates for the first time in four years after having increased the statutory reserve ratio a month earlier. Sri Lanka’s Finance Minister Ravi Karunanayake said the same day that he saw an IMF loan agreement within two months and the two parties still needed to discuss the island’s fiscal deficit.

Asked if more rate increases are on the cards, Mahendran said monetary decisions will be data dependent.

"It could be, I mean I am not ruling it out, but at the moment I don’t think there is any necessity, because what we’ve already done to tighten monetary policy is having the desired effect," he said.

To contact the reporters on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net, Haslinda Amin in Singapore at hamin1@bloomberg.net, Niluksi Koswanage in Kuala Lumpur at nkoswanage@bloomberg.net. To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Stephanie Phang at sphang@bloomberg.net, Jeanette Rodrigues, Chris Bourke

By: Anusha Ondaatjie, Haslinda Amin and Niluksi Koswanage

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