Press Release: IMF Executive Board Approves US$157.5 million in Emergency Assistance for Sri Lanka
March 4, 2005
The Executive Board of the International Monetary Fund (IMF) has approved SDR 103.35 million (about US$157.5 million) in emergency assistance for Sri Lanka. The amount approved is available immediately to help the government deal with the devastating effect of the tsunami that struck the island on December 26, 2004.
The human toll has been tremendous, with 31,000 people dead, 6,000 still missing, and hundreds of thousands displaced. The commercial centers in the western part of the country were largely unaffected, but the fisheries and tourism sectors sustained severe damages. The cost of replacing the damaged infrastructure has been estimated at US$1.5-1.6 billion, or 7½ percent of GDP.
Much of the impact on economic growth will be offset by the reconstruction effort. GDP growth in 2005 is now estimated at 5¼ percent, the same level as in 2004. However, the rehabilitation expenditure will put a great strain on the balance of payment and the budget. The emerging gaps in 2005-2007 will need to be filled, in part, through support from the international community.
The IMF provides emergency assistance to member countries hit by natural disaster to help them meet immediate balance of payments financing needs, and maintain or restore macroeconomic stability. The emergency assistance will be repaid in eight equal quarterly installments over 3¼ to 5 years from the disbursement date. In line with the Executive Board's decision to subsidize emergency assistance for PRGF-eligible countries hit by a natural disaster, the rate of charge on the assistance will be subsidized to 0.5 percent per annum (See Public Information Notice No. 05/8), subject to resource availability.
At the conclusion of the Executive Board's discussion on Sri Lanka,
Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"The IMF extends its deepest sympathy to the people of Sri Lanka for the destruction, suffering, and loss of life caused by the tsunami of December 26. The human loss has been incalculable, and the repair and reconstruction effort will require at least three years of sustained effort.
"The government, with the support of the international community, responded swiftly to the catastrophe. Within hours, the President of Sri Lanka launched the national operations center to coordinate the rescue and relief effort by government ministries and other institutions. Follow-up measures include a grant scheme for affected individuals, a concessional loan program to assist small and medium enterprises, and the development of a plan for rehabilitation and reconstruction.
"Infrastructure in the fisheries and tourism sectors was severely damaged, but the reconstruction effort should sustain economic growth around current levels. Imports for relief and reconstruction will put pressure on international reserves. Support from the international community, including emergency assistance from the IMF, will therefore be crucial for financing needed imports. Ensuring that pledged aid commitments from donors are effectively mobilized and efficiently used will be crucial for the success of the reconstruction and recovery program.
"As reconstruction efforts proceed, the authorities continue to be mindful of the limits to implementation capacity and of potential inflationary pressures. In this regard, it is reassuring that the government intends to keep domestic financing of the budget at the pre-tsunami level and contain money growth. The government is also working with stakeholders on a framework to monitor the disbursement and use of aid—an important step towards transparency and accountability.
"The government has indicated its intention to pursue steadfastly the medium-term reform agenda laid out in the 2005 budget. Priority will be given to fiscal sustainability. The authorities' commitment to macroeconomic stability, together with the continued support of the international community, will be essential to help Sri Lanka recover from this tragedy. Timely delivery of international support on appropriate terms will be essential to achieve this objective," Mr. Kato said.