By: Staff Writer
December 23, Colombo (LNW): The Government’s portrayal of the IMF’s Rapid Financing Instrument (RFI) as a low-interest, stabilising solution following Cyclone Ditwah deserves careful scrutiny. While Finance and Planning Deputy Minister Dr. Anil Jayantha Fernando has highlighted favourable borrowing terms and swift disbursement, the broader economic trade-offs associated with the facility remain underplayed.
The IMF approved SDR 150.5 million (around US$206 million) to help Sri Lanka cope with the cyclone’s aftermath, citing urgent humanitarian and reconstruction needs. There is little dispute that immediate liquidity support is necessary. However, framing the RFI as an almost cost-free intervention risks blurring the line between emergency assistance and additional debt accumulation.
Dr. Fernando has pointed to the current SDR-linked interest rate of approximately 3.27% as evidence of affordability. Yet, IMF lending costs evolve over time. SDR rates are influenced by global monetary conditions, meaning Sri Lanka remains exposed to external interest rate movements beyond its control. Furthermore, IMF surcharges triggered by access levels and duration can significantly raise effective borrowing costs in later years.
Equally important is the question of impact. The RFI is designed to plug short-term balance-of-payments gaps, not to finance long-term reconstruction or growth-enhancing investment. As such, its capacity to “protect recovery momentum,” as claimed by the Deputy Minister, may be limited unless accompanied by decisive domestic reforms, targeted public investment, and disaster-risk financing strategies.
The Government has also announced temporary banking relief measures, including repayment moratoriums and concessional loans. While welcome, these interventions primarily defer financial stress rather than resolve it. Businesses facing destroyed assets, disrupted supply chains, and weakened demand may struggle once moratoriums expire, particularly if interest costs accumulate in the background.
A further concern is the signalling effect. Repeated reliance on emergency IMF facilities may reinforce investor perceptions of vulnerability rather than stability, especially if shocks whether climatic or fiscal continue to push the economy back into crisis mode. Confidence is built not only through access to funding, but through credible medium-term planning and institutional preparedness.
None of this diminishes the immediate value of IMF support in a humanitarian emergency. However, a balanced narrative must acknowledge that emergency financing is a stopgap, not a solution. The real test lies in how Sri Lanka uses the limited fiscal space created by the RFI to build resilience, reform public finance, and reduce exposure to future shocks.
Absent such a strategy, low-interest emergency loans risk becoming another layer in an already complex debt landscape, postponing rather than preventing the next crisis.
