Jan 04, 2013, (LBO) – Sri Lanka is planning to discuss a loan of up to a billion US dollars if the International Monetary Fund is willing to provide budget support, Treasury Secretary P B Jayasundera said. “We are asking IMF to extend budget support,” Jayasundera told reporters in Colombo.
“That money cannot go the central bank.”
The IMF usually gives a loan to a central bank to boost external monetary reserves with fiscal funding being left to its Bretton Woods twin, the World Bank.
However in the case of Europe where there is one supra national central bank with a floating exchange rate, the IMF has given money for budget support, particularly as they were unable to tap markets.
Money that goes to foreign reserves cannot be spent domestically and is usually invested in US or other liquid debt in reserve currency countries, effectively financing their deficits.
Jayasundera said Sri Lanka had adequate foreign reserves but if the IMF willing to give cheaper funds for development spending, Sri Lanka would welcome it.
This year Sri Lanka is not expected to sell a sovereign bond in international capital markets.
An IMF team is due at the end of the month on a two week vis