## IMF Survey: Sri Lanka to Use IMF Loan to Reform Economy After Conflict

_IMF News, July 29, 2009_

## Source details

**Canonical URL:** [IMF Survey: Sri Lanka to Use IMF Loan to Reform Economy After Conflict](https://www.imf.org/en/news/articles/2015/09/28/04/53/soint073009a)

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## Bibliographic details
- Published: July 29, 2009

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### Program overview and objectives
- IMF approved a 20-month Stand-By Arrangement for Sri Lanka providing the country with a $2.6 billion loan to help reform the economy following the end of its extended conflict.
- The government’s program aims to:
  - rebuild international reserves;
  - reduce the fiscal deficit to a sustainable level of 5 percent of GDP by 2011;
  - strengthen the financial sector;
  - cushion the most vulnerable from the needed adjustment.
- The program is intended to provide a framework for international donor support for reconstruction needs (infrastructure, roads, hospitals, schools).

### Macroeconomic situation and causes of vulnerability
- Sri Lanka had been running high budget deficits for several years and had borrowed internationally on short terms.
- The global financial crisis caused a sudden stop in financing from international markets.
- The central bank intervened to prevent exchange rate depreciation, which put pressure on international currency reserves; reserves remain at very low levels.
- The country is emerging from a 26-year conflict, with significant reconstruction needs.

### Social protection and public spending commitments
- The government intends to maintain protection for the poor and funding for social services.
- Social sector spending is targeted to increase to 7 percent of GDP in 2009 from 6.8 percent in 2008.
- The Samurdhi program is cited as a key poverty-alleviation instrument, and the government is taking action to provide immediate relief and expand social safety net spending to resettle displaced persons in the North.

### Fund financing, access, and terms
- The government requested a 20-month Stand-By Arrangement with access of SDR 1,653.6 million (about $2.6 billion), equivalent to 400 percent of Sri Lanka’s quota.
- Disbursement schedule:
  - Initial disbursement of SDR 206.7 million (about $322.1 million) is made upon approval;
  - Followed by seven additional disbursements in an equivalent amount.
- Interest rate: currently less than 1½ percent per year.
- Disbursements will be subject to quarterly reviews; starting in September 2009, disbursements will depend on the completion of a review.
- IMF funds would go directly into central bank reserves, rather than financing budget expenditures, to rebuild reserves while allowing exchange rate flexibility.

### Expected effects and program design considerations
- Rebuilding reserves is expected to:
  - provide a shock absorber to the real economy and reduce the size of real-economy adjustment otherwise needed;
  - help avoid a balance of payments crisis and allow a more gradual adjustment;
  - preserve confidence and allow the country to sustain a higher level of growth over time.
- The program is tailored to Sri Lanka’s unique circumstances; negotiations took time to ensure careful design.

*Source: IMF Survey online, July 29, 2009.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Survey Interview](https://www.imf.org/en/news/search)
- [Press release](https://www.imf.org/external/np/sec/pr/2009/pr09266.htm)
- [Sri Lanka and the IMF](https://www.imf.org/external/country/lka/index.htm)
- [IMF to lend $2.6 billion to Sri Lanka](https://www.imf.org/external/pubs/ft/survey/so/2009/CAR072809A.htm)
- [Crisis deals blow to Asian growth](https://www.imf.org/external/pubs/ft/survey/so/2009/CAR050509A.htm)
- [IMF and the global crisis](https://www.imf.org/external/np/exr/key/finstab.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/soint073009a_