June 20, 2009 (LBO) – An International Monetary Fund loan for Sri Lanka is still not ready for approval for its executive board, an official said, though the country is rapidly emerging from a balance of payments crisis.
Declining foreign reserves makes investors jittery and can trigger capital flight, while rising interests can cause banking and economic crises.
A float breaks the dollar-selling and money printing cycle, and is the main tool behind an IMF program.
IMF cash go directly into the Central Bank balance sheet and has no effect on the domestic economy, though the funds boost reserves instilling “confidence”. Ironically, for a central bank committed to a flexible exchange rate, reserves are no longer needed.
Central Bank governor Nivard Cabraal has said the IMF loan was no longer urgent.
Following the float in late March Sri Lanka’s central bank has been able to boost reserves, buying 378 million US dollars and the government has also repaid a 125 million US dollar commercial loan this month.
On Friday, a 50 million US dollar bond offer was oversubscribed and the government raised 115.8 million US dollars.
The debt office said 190 million US dollars had also flowed into rupee