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SL gets IMF facility but US and European powers abstain

The IMF Executive Board on Friday approved a 20-month standby arrangement for Sri Lanka worth about SDR 1.65 billion (about US$ 2.6 billion) to support the country’s economic reform program.

Authoritative official sources said yesterday that 70% of the Executive Board had supported this arrangement with no votes against, although the US, UK, Germany, France and Argentina had abstained.

The IMF announced that following the Executive Board approval, SDR 206.7 million (about US$ 322.2 million) "becomes immediately available to Sri Lanka."

"The remaining amount will be phased in, subject to quarterly reviews," the IMF officially announced noting that the total amount of IMF resources made under Friday’s arrangement equals 400% of the country’s quota.

The IMF said that the key objectives of Sri Lanka’s economic reform program supported by the Fund are to strengthen the country’s fiscal position while ensuring the availability of resources for much needed post-conflict re-construction and relief efforts.

"The program is also intended to rebuild international reserves and strengthen Sri Lanka’s domestic financial system, and to protect the most vulnerable in the country from the burden of the needed economic adjustment," the IMF said.

"The program aims to lay a strong macroeconomic foundation that will help the authorities approach the broad international community for financial support in post-conflict reconstruction."

The IMF noted that Sri Lanka has been hit hard by the global economic and financial crisis. After years of reliance on short-term financing from international markets to cover its fiscal deficits, Sri Lanka experienced a sudden stop of international capital flows as the global crisis hit.

The Central Bank’s initial efforts to keep the exchange from depreciating had led to a significant loss of reserves, it was noted. Despite a rebounding short-term capital inflow following the end of the conflict, reserves remained low and foreign exchange remained acute.

The economic growth outlook has deteriorated with growth of around 3 percent expected this year compared to 6 percent in 2008. The financial sector has also been put under increasing stress as the economic slowdown takes its toll.

"The end of the conflict further added policy challenges to the authorities. The reconstruction and humanitarian relief efforts are a large undertaking. Significant spending priorities need to be met while debt sustainability is maintained," the IMF said.

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