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SL seeks new $1bn IMF loan

The Sri Lankan government is to seek out a further loan from the International Monetary Fund after the failure of foreign investment to materialise. See LBO's report.

Interestingly, Sri Lankan Treasury Chief Punchi Banda Jayasundera said:

''We are asking the IMF to extend budget support ... That money cannot go the central bank.''

IMF loans are usually extended to central banks when countries run into balance of payments problems - meaning they can't meet their external obligations, such as paying in dollars for imports. See here.

Sri Lanka is however seeking the IMF loan for government spending e.g. on civil servant salaries or state purchases.

Also, 'budget support' means the government is free to decide how to spend the money - as opposed to loans for specific projects.

Jayasundera went on to state that the decision was made after foreign investment turned out to be less than 50% of the government's original target for the year.

That also means Sri Lanka's projected tax revenues, which enables government expenditure, have not materialised.

The government has also revised down its 2012 growth forecast to 6.5% from 7.2% after dramatic drops in imports due to tariffs imposed by the government.

The country's trade deficit remains a reported $10 billion.

In 2009, Sri Lanka was granted a $2.6bn loan from the IMF, which they finished drawing from earlier in 2012.

An IMF team is expected in the country later this month.

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