Sri Lanka credit ceilings not proposed by IMF

Apr 28, 2012 (LBO) – Administrative controls imposed on Sri Lankan banks as part of a package of measures to combat a balance of payments crisis, were not among the preferred measures advocated by the International Monetary Fund, an official said. “Most economists would say a price mechanism is a good way of matching demand,” IMF’s resident representative Koshy Mathai said.

“We probably would have relied more on interest rates rather than on credit ceilings.”

He was questioned by a senior economist at an economic forum on whether the IMF supported an 18 percent credit ceiling imposed on banks for 2012.

Mathai said that that IMF was happy at the commitment shown by authorities to tackle the balance of payments crisis overall, which was the key need.

Detail

“If you ask me ‘Is it better to do it through a price instrument or a credit ceiling that applies across the board to all banks in a way that may be, doesn’t serve allocative efficiency as well as a price mechanism does?’ Clearly we are not,” Mathai said.

“The main issue was getting the balance of payments under control.”

A bank that raises deposits from customers domestically and loans them to borrowers do not create any new demand in the economy. Suc