SL economy to contract more than 6% with IMF loan stalled

Governor of the Central Bank Dr. Nandalal Weerasinghe says that Sri Lanka’s economy is likely to contract more than 6% in 2022.

The CBSL Governor Nandalal Weerasinghe said that in 2022, the contraction will be much higher than 6% as political instability has affected the discussions on finance relief with the IMF.

The Governor mentioned that top-level talks with the IMF on a multibillion-dollar bailout had stalled.

He said that the country urgently needs a stable political administration to progress discussions with the IMF on key structural reforms, as well as to secure short-term bridge financing from other countries and multilateral agencies to help pay for key imports like fuel, pharmaceuticals and fertilizers.

The Governor stated that a $500 million extension expected last month hasn’t materialized, exacerbating Sri Lanka’s fuel shortages.

Similarly, there had been no progress on a $1 billion currency swap with the Reserve Bank of India, nor has China relaxed conditions to allow Sri Lanka to use a $1.5 billion currency swap.

Governor Nandalal, speaking to the WSJ, said “if Sri Lanka had gone to the IMF at least a year earlier than it did, and sought to restructure its debts while it still had $4 billion in reserves in hand. That would have allowed Sri Lanka to still afford to pay for essential imports to keep the country running smoothly and ease the financial suffering of its citizens. Instead, the Government chose to wait.”