Sri Lanka may not take last IMF loan tranche: Fitch analyst

July 19, 2011 (LBO) – There is a “strong possibility” that Sri Lanka may not take the final tranche from the International Monetary Fund under a 2.6 billion US dollar bailout program Fitch Ratings Asian Pacific director Art Woo said. IMF’s last review team decided to end quarterly reviews and move to 6-monthly reviews for the last stretch with the economy generally coasting along smoothly with the budget deficit set to fall to around 7.0 percent of gross domestic product this year.

“We have not had any recent discussions about moving to a precautionary arrangement, but it is up to the authorities to choose whether or not to draw a disbursement, and we’re always happy to engage in whatever way they find most helpful,” IMF’s Colombo representative Koshy Mathai said.

Sri Lanka’s foreign reserves (along with about 1.5 billion dollars of IMF loans) are now twice the domestic money supply, roughly indicating that the central bank has enough dollar reserves to meet its rupee obligations twice over.

Sri Lanka however has a ‘soft-pegged’ exchange rate regime which means that the central bank can sterilize the balance of payments in a expansionary manner to prevent domestic interest rates from going up.

A monetary authority