The International Monetary Fund has asked for a recapitalization plan for the central bank after an extension of maturities of central bank held Treasuries to meet the lender’s gross financing need (GFN) targets led to valuation losses.
“After assessing the impact of the DDO on the CBSL’s balance sheets, done in close consultation with external auditors and IMF staff and by applying good accounting standards and valuation frameworks, the government should stand ready to inject capital into the CBSL, as soon as fiscal buffers allow it, so as to reach positive equity from 2025, which would increase to 2 percent of GDP by 2031.”
Based on longstanding principles before inflation and peacetime currency collapses became routine from the last century with the defeat of sound money by state-run central banks running on Anglo-American post-Keynesian inflationist doctrine, note-issue banks typically bought 90 to 95 day bills, generally known as the ‘bills only policy’, analysts say.
During a special media briefing, Cabinet Spokesman and Minister Bandula Gunawardena addressed misconceptions regarding the Government’s recent decisions, particularly about the International Monetary Fund (IMF) agreement and the upcoming Budget. The briefing aimed to clear up public misunderstandings about the country’s financial commitments and constraints.
The Minister explained that under the Extended Fund Facility with the IMF, the Government has secured funds to support the Budget through 2025-2027, and the salary proposals will not be revised within this period. Gunawardena stressed that any future government must adhere to these agreements.
Despite economic challenges, the Government has already granted a Rs. 10,000 allowance to public servants, with further relief promised as the economy recovers. A special committee was appointed by President Ranil Wickremesinghe to address wage disparities among public sector employees, and its recommendations will be implemented in the 2025 Budget.
This includes a 24% to 35% salary increase for all public sector employees starting January 2025, and an increase in the cost-of-living allowance to Rs. 25,000 for three years, with the minimum monthly salary for the lowest-ranking Government employee expected to reach Rs. 55,000.
The Government faces a Budget deficit estimated at $5.018 billion for the coming year. To address this, the IMF will provide $700 million, with additional support from the World Bank ($400 million) and the Asian Development Bank ($300 million). The total projected debt relief amounts to $3.655 billion.
As preparations for the 2025 Budget continue, the Government seeks input from other political parties on their economic plans for governing the country from January 2025.
Gunawardena underscored the importance of this year’s Budget process, especially with the upcoming Presidential election on September 21, and noted that financial provisions must be allocated within 100 days as required by the Constitution.
