IMF backs Sri Lanka central bank stance

Feb 26, 2010 (LBO) – The International Monetary Fund, which put a deal with Sri Lanka on the shelf till at least May on a runaway budget, has backed the monetary policy stance of the island’s central bank. The central bank met its two performance criteria under the 2.6 billion US dollar deal, a target for foreign reserves and domestic reserve money, a very narrow money supply that is used to clear final transactions in the economy.

The central bank had collected five billion dollars by end-December 2009, though some of it was through ‘borrowed reserves’ which itself imposes a fiscal cost on the Treasury through higher-than-necessary interest payments.

Reserve Cushion

IMF mission chief Brian Aitken said the Central Bank had enough reserves to pay out the entire volume of about 1.2 billion US dollars of investments in government securities.

“Reserve cushion is very solid,” Aitken said. “Even if there is a full scale withdrawal, they (central bank) have reserves to cover it. Short of a major international calamity Sri Lanka is in a good position.”

The central bank has also met the 315 billion rupee reserve money ceiling target for December.

But the finance ministry had o