The International Monetary Fund has delivered the final instalment of a $2.6 billion loan, as Sri Lanka looks to seek out further loans from the fund to bolster their country’s foreign reserves.

Announcing the completion of Sri Lanka’s longest engagement with the IMF and the single largest loan ever obtained by the country from a multilateral institution, the Central Bank said,

"Sri Lankan authorities now look forward to the continued close engagement with the IMF and intend to discuss the possibility of financial support for its economic development agenda.”

AFP stated that Sri Lanka will be looking for at least $500 million  help combat a trade deficit which widened to a record $10 billion last year.

According to Lanka Business Online,

"Sri Lanka runs into frequent balance of payments crises due to contradictory exchange and monetary policy involving manipulating interest rates by the Central Bank in the wake of excessive state spending, usually to manipulate energy prices."

"The IMF program which began with a BOP crisis ending in 2009, helped push growth to above 8.0 percent for two years and more importantly helped keep inflation to single digits until early 2011. But a failure to tighten monetary policy in time, in the face of massive state spending to manipulate energy prices from mid 2011 plunged the country to another balance of payment crisis from around August 2011."

"Sri Lanka lost more than two billion US dollars of reserves until February 2012 with more than 200 billion rupees of money printed from around August 2011. From February foreign reserve losses started to tail off as sterilized foreign exchange sales reduced, though inflation rose due mainly to currency depreciation."

See their full report here.

Labelling Sri Lanka’s economic policy as “adequate”, Naoyuki Shinohara, Deputy Managing Director of the IMF said,

“The slowdown in economic activity and declining imports are adversely affecting fiscal revenues, while interest payments on government debt are higher than budgeted. The authorities are committed to meeting their 2012 deficit target by restraining expenditure, but a redoubling of effort to strengthen revenue administration is needed. Furthermore, continued structural reforms are required to put state-owned energy enterprises on a sound financial footing."

See the full press release here.

See our earlier posts:

Sri Lanka owes over $15 billion in foreign loans (20 July 2012)

Sri Lanka to seek further bailouts from IMF (15 June 2012)