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IMF hesitant to fund Sri Lanka state spending

Sri Lanka has dropped plans for another $1 billion loan from the International Monetary Fund following disagreements over how the money should be spent, AFP quoted the central bank as saying.

The IMF usually extends loans to cover countries’ difficulties in meeting foreign exchange obligations, but Sri Lanka wanted to spend the loan at home.

However, “the IMF has indicated [it] may not be in a position to consider any direct or indirect budget support to Sri Lanka,” the central bank said.

The Political risk consultancy Eurasia Group said in a note that though Sri Lanka’s foreign exchange reserves were at a strong position, it was potentially more vulnerable than it appeared (see Reuters’ report here):

“The country's high external debts, weaker-than-expected exports, and lower-than-projected foreign direct investment could strain reserves, and the government is also due to repay the equivalent of nearly US$1bil in rupee-denominated bonds that mature this year.”

See our earlier related posts:

SL seeks new $1bn IMF loan (Jan 2013)

Sri Lanka … looks for further bailout (July 2012)

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