IMF Not A 'Fix-All Solution’ Or ‘Magic Wand’ — Crisis-Hit Sri Lanka Rules Out Loan From Global Lender

Sri Lanka's central bank Governor Ajith Nivard Cabraal says they see IMF only as 'one of many options', may look at a fresh loan from China.

The signages for International Monetary Fund and the central bank of Sri Lanka | Photos: Getty

New Delhi: With Sri Lanka reeling under severe economic crisis, several analysts have said the country may eventually have to go to the International Monetary Fund (IMF) for a bailout. But the government has been reluctant on this front.

The Sri Lankan government only sees this as “one of many options”, and central bank Governor Ajith Nivard Cabraal said the IMF is not a “magic wand”. 

"Approaching the IMF is not something to be taken lightly. The monetary board has had many discussions on this matter and we only see the IMF as one of many options," he said on Wednesday, according to a Reuters report.

"Our view is (that) the path we are on is the most appropriate. The IMF is not a fix-all solution, it's not a magic wand," he said, addressing an event organised by Sri Lanka’s Department of Government Information.

Sri Lanka is under a massive debt burden, and it has to shell out $4.5 billion towards debt repayment in 2022, starting with a $500 million International Sovereign Bond (ISB) maturing on January 18.

Cabraal, however, said Sri Lanka will meet all debt repayments this year. He also said they will work on a comprehensive plan to rebuild the dwindling foreign exchange reserves.

Sri Lanka May Seek Another Loan From China 

One of the main reasons for Sri Lanka’s economic crisis is its huge foreign debt burden.

The foreign currency reserves available with the country had gone down to just $1.58 billion in November, from $7.5 billion in 2019.

Stoking bankruptcy fears, opposition MP and economist Harsha de Silva had told Parliament in early December that the country’s forex reserves would be minus $437m by January. “The nation will be totally bankrupt,” he was quoted as saying in Sri Lankan newspaper Daily Mirror.

The MP had said seeking assistance from the International Monetary Fund (IMF) was the “only one solution” to tide over the crisis.

Similar suggestions had come from other quarters too, including international economists. However, the country has avoided going that way so far.   

It was reported in December that the Sri Lankan Cabinet was undecided on seeking an IMF loan.

Sri Lanka, meanwhile, managed to boost its foreign exchange reserves to $3.1 billion in December-end, after a yuan currency swap worth $1.5 billion with China.

Ruling out an IMF loan, Cabraal said Wednesday they could look at a fresh loan from China.