Sri Lanka partly shielded from Greek crisis by IMF, donor loans: S&P

May 08, 2010 (LBO) – A fiscal and monetary prudence program backed by the International Monetary Fund and donor loans will partly shield Sri Lanka from the fallout of a European credit confidence crisis, a rating agency has said.

Sri Lanka hit a balance of payments crisis in late 2008 and some foreign lenders refused to roll over debt. Others sold out of liquid treasuries. The yield on Sri Lanka’s 7.25 percent 5-year sovereign bonds rose close to 20 percent at the height of the crisis.

Confidence was restored in May 2009 with an IMF program which committed the country to 7.0 percent budget deficit. Hundreds of millions of dollars poured into rupee government debt after the program and foreign reserves recovered.

In February the program was effectively suspended by the IMF pending better spending better fiscal management. On May 12 an IMF team is due start discussing a budget for 2010 which authorities are planning to bring to parliament by June.

High spending Greece was one of the first countries to be hit by jittery investors who are nervous about rolling over loans.

Other European nations with weak fiscal management and high debt, including Spain and Portugal have also been feeling the effect of nervous