Three benefits from IMF deal for SL’s external financing profile – Moody’s

April 30, 2016, 8:46 pm 

Sri Lanka’s 1.5 billion US dollars deal announced with the IMF will have three benefits for Sri Lanka’s external financing profile, Moody’s Investors Service said in a statement.

Marie Diron, Senior Vice President, Sovereign Risk Group, Moody’s Investors Service, and the lead sovereign analyst for Sri Lanka highlighted the three points below.

Firstly, program disbursements together with forthcoming multilateral and bilateral loans will provide external liquidity to ease immediate financing pressures.

Secondly, the financing will likely be at more favorable terms than Sri Lanka can avail of through the market, which alleviates debt servicing cost pressures.

Thirdly, if the agreement restores investor confidence in Sri Lanka’s policy framework, it could ultimately support more stable private external inflows, such as foreign direct investment.

The agreement comes as Sri Lanka’s sovereign credit profile is increasingly under pressure from its large fiscal deficits, high debt levels and poor debt affordability.

"If the program supports Sri Lankan authorities’ efforts to boost tax revenues and better manage state owned enterprises, it would address constraints on economic growth and reduce fiscal imbalances, thus improving the sovereign’s credit profile," Diron said.

"However, we expect bumps in the fiscal consolidation path due to difficulties in implementing revenue raising measures and the possible crystallization of some contingent liabilities."

Sri Lanka reached a three year staff level agreement Friday to borrow 1.5 billion US dollars from the International Monetary Fund subject to Executive Board ratification in June.