Sri Lanka economy adjusting, may receive USD1-1.25 bln from IMF: CB

arjuna mahendran central bank

Highlights from press conference:

* GDP grew 4.8 pct in 2015, vs 4.9 pct 2014
* Sri Lanka may receive around USD 1-1.25 billion IMF support: Governor
* USD500 mln renminbi bonds may be issued in coming months: Governor
* Worker remittances fell 0.5 pct to USD6.9 bln in 2015
* Official reserves at USD6.2 bln end of March

Apr 12, 2016 (LBO) – Sri Lanka’s Central Bank said the economy grew at 4.8 percent in 2015 versus 4.9 percent in 2014, with growth this year expected in the range of 5-5.5 percent.

Governor Arjuna Mahendran said monetary adjustments to the economy last year were having a positive impact. He was speaking at a press conference on the state of the economy.

“Imports are showing signs of plateauing,” he said, referring to monetary policy efforts to discourage imports.

Commenting on discussions with the IMF, Mahendran said he was hopeful around 1 billion to 1.25 billion dollars support may be on the cards.

The IMF said on Monday Sri Lanka had made significant progress towards concluding an IMF facility, and further discussions would be held on the sidelines of Spring Meetings in Washington D.C. this week.

“We hope we can conclude this in the next two weeks,” said Mahendran.

In terms of interest rates, the IMF has suggested that further credit tightening would support the economy, but Mahendran said that might not be necessary.

“I would say that that is not necessary if the economy continues to achieve a soft landing, if the economy goes according to plan. The Central Bank however reserves the right to increase rates,” he said.

Sri Lanka has sought IMF support to tide over an outflow of foreign investments from the bond market due to external factors as well as irresponsible government finances.

Mahendran said Sri Lanka needs to raise around 2.5 billion dollars for its government funding requirement this year, and would look at Chinese renminbi bonds as well as dollar bonds in coming months.

The renminbi bonds would initially target venture capital investors, and this was the beginning in establishing a long term benchmark for the island, he said.

Commenting on the rupee, Mahendran said pressure on the currency was easing.

“If you look at the real effective exchange, rupee at 150 was not on the cards. I think the rupee is settling.”