Sri Lanka gets more IMF cash; warned on excess liquidity

Apr 05, 2011 (LBO) – The International Monetary Fund has given Sri Lanka 218.3 million dollars under its 2.5 billion US dollar program but called on the Central Bank to tighten liquidity management to prevent further inflation. Authorities expect Sri Lanka to generate less inflation after April.

Sri Lanka is also expected to change the inflation index weights around May, a practice that is used to understate inflation in almost all paper fiat money regimes. India however has a widely watched wholesale price index, which is less easy to manipulate.

Reserves

When excess reserves are loaned to the real economy it will either increase defined reserve money (monetary base) helping push inflation up or cause foreign reserve losses, or both.

Sri Lanka’s foreign reserves have been flat at around 6.6 to 6.7 billion rupees.

The IMF said it was giving 218 million US dollars, waiving key targets, bringing the total disbursed so far up to 1.75 billion US dollars under a 2.6 billion US dollar program.

IMF resident representative Koshy Mathai said the waivers were given because data was not available and not because targets were missed.

Compared to months of imports, Sri Lanka now has reserves equiv