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The final report of the International Monetary Fund (IMF) Article IV consultative group assessing economic and financial developments in Sri Lanka has been accepted unanimously by its Executive Board, a senior Central Bank (CB) official told Ceylon FT.

On February 25, the Executive Board of IMF concluded the Article IV consultation with Sri Lanka.

In response, the Lankan side had also made counter observations to which the Executive Board appears to have not been optimistic or accepted, he said.

However, he said, the Fund’s Article IV team had worked to unanimously approve the contents of the report.

The report was a comprehensive assessment of the economic and financial developments in Sri Lanka. It was prepared after lengthy discussions with the Government and CB officials on its economic and financial policies.

Accordingly, the final report including SL’s recommendations had been discussed at length at the Executive Council meeting held on that day.

Although it is the general practice of the IMF to issue an official press release within 24 hours of the Executive Board meeting, no official statement had been issued at the time of writing this report.

When inquired by an official of the CB in this regard, it was stated that the CB had made representations to make some changes in the official announcements of IMF regarding its debt sustainability interpretation.

He also said that the IMF would soon issue an official statement on whether or not to consider CB’s proposed request.

It was leant, according to the IMF debt sustainability analysts, SL’s Debt dynamics were worse than what was anticipated.

Based on the IMF, Article IV Consultation team Debt Sustainability Analysis (DSA), SL has a high risk of debt distress, with debt burden indicators well above the relevant thresholds in the baseline and all the stress scenarios.

Over the medium term, the public debt-to-GDP ratio is expected to increase moderately. In addition, lower foreign exchange reserve buffers will increase the potential distress concerns.

The IMF has forecast that SL’s central government Debt-to-GDP ratio will reach 110 per cent by 2021. This rate is likely to increase to over 115 per cent with borrowing from other public non-financial corporations and public financial corporations, including the CB. It also covers publicly guaranteed debt (debt the public sector does not hold but has an obligation to cover) and external public debt (debt held by non-residents of the country).

The Debt-to-GDP ratio should generally be around 85 per cent to implement the IMF-based Balance of Payment (BoP) support programme.

A country’s debt-carrying capacity depends on several factors, among them being the quality of institutions, debt management capacity, policies, and macroeconomic fundamentals.

Therefore, the IMF has taken into consideration the nation’s next three to five-year borrowing requirements, primary account status, inflation, economic growth trends and accessibility to external funding sources.

The DSA suggests that the most significant risks could result from worse-than-expected external flows and lower tourism income.

Global Credit Rating agencies including Fitch Ratings and Moody’s Investors Service recently cut the sovereign’s credit score deeper into junk territory citing delays in the government’s fundraising efforts.

It is expected that the next Article IV consultation with SL will be held on the standard 12-month cycle.

Sri Lanka has reiterated its opposition at the UN Human Rights Council to the evidence gathering mechanism it has established for the country.

It is unhelpful to the people, will polarize Sri Lankan society and adversely affect economic development, peace and harmony at a challenging time, foreign minister Prof. G.L. Peiris told the 49th session of the UNHRC in Geneva today (01).

It is also an unproductive drain on member state resources, he said.

The minister said Sri Lanka has participated actively and constructively in aspects of the UNHRC’s work that have been productive and beneficial and helped to ensure Sri Lankans live safer, longer and more dignified lives.

“We reject those that are punitive, politicized, divisive, unhelpful and initiated due to extraneous reasons,” he said.

Reproduced below is the full statement by Minister Peiris:

The Locomotive Engineering Operators’ Union says train operations could be limited owing to the fuel crisis in the country.

Secretary of the Union Indika Dodangoda speaking at a media briefing today said Sri Lanka Railways has sufficient fuel stocks to operate trains for the next three days.

He said several locations have reported of their availability of stocks, adding that the supply of fuel has not stabilised yet.

Dodangoda said Sri Lanka Railways is facing delays in receiving stocks at present with trains able to operate for the next two days while operations will come to a complete halt in three days if the fuel supply is not continued.

Therefore, he said the Sri Lanka Railways General Manager has been informed of the developments, and has been requested to secure sufficient stocks of fuel in order to continue train operations

The spokesperson of the Samagi United Trade Union, Ananda Palitha stated that more than 2,000 cargo containers and 9,000 private buses have stalled without Diesel.

Additionally, he stated that as of now, 50% of the farming industry has been destroyed with the introduction of organic fertilizer and the farmers are unable to even save the remaining 50% without Diesel to operate their machines.

During a media briefing held on Tuesday (01) he said that around 1,700 boats have been anchored without Diesel and they are unable to set out to the sea.

Fishermen, as well as farmers, are now suffering due to fuel shortages in the country.

Farmers in the Sungavila, Polonnaruwa area have commenced harvesting in the Maha season.

In the midst of the fertilizer crisis, farmers carried out their cultivations facing several challenges.

They allege that apart from the fertilizer crisis, the problem they have now is the fuel shortage.

Sri Lanka’s inflation in the capital Colombo accelerated to 15.1 percent in February 2022 from 14.2 percent in December, a 13-year high, after two years of money printing compounded by a commodity bubble fired by the US Federal Reserve.

In the month of February 2022, Sri Lanka Colombo Consumer Price Index, the most widely watched index rose 1.1 percent to 160.1 points after rising 2.4 percent a month earlier.

Sri Lanka has been printing money to keep interest rates down and expanding both reserve money and broad money since February 2020, after expanding the budget deficit by cutting taxes.

Sri Lanka printed 1.2 trillion rupees in 2021, a part of which was to repay debt buy reserves from the central bank as interest rates were too low to collect inflows from the current account.

Janaka Ratnayake, Chairman of the Public Utilities Commission of Sri Lanka (PUCSL) said the Ceylon Electricity Board has been given approval to impose a seven-and-a-half hour power cut tomorrow.

The Public Utilities Commission states that there will be a 5-hour power cut during the day and two and a half hours at night tomorrow (02).

”PUCSL is reluctantly compelled to approve CEB request (due to nonavailability of fuel ) for 7 and half hours long power cut island-wide for tomorrow (2/3/22),” said the PUCSL Chairman.

“Power shedding for all areas will be 5 hours between 8 am to 6 pm. And further 2 and half hours between 6 pm to 11 pm,” he added.

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