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ECONOMYNEXT – Sri Lanka may have to pay interest of 4 percent and additional surcharges on an Extended Fund Facility (EFF) loan from the International Monetary Fund, State Minister of Finance, Ranjith Siyamabalapitiya has said.

“This is a loan approval, that we have gotten for the eighth time and we may even have to pay interest of 4 percent for this loan we have taken,” Minister Siyambalapitiya told parliament.

Sri Lanka is getting an EFF loan of 2.9 billion US dollar or 2.286 billion Special Drawing Rights. It is 395 percent of Sri Lanka’s SDR quota with the IMF.

The basic EFF facility comes with SDR interest rate plus 100 basis points.

At the moment the SDR interest rate which is a composite of US dollar, Sterling, Euro, Yen and Yuan is high at 3.363 percent after economist printed money and drove inflation to high levels.

If the loan disbursements exceed 187.5 percent of quota, an additional 2 percent will be charged, Siyambalapitiya said.

If Fund credit outstanding remains above 187.5 percent of quota for over 3 years, the surcharge rises to 3 percent.

“Surcharges are designed to discourage large and prolonged use of IMF resources,” according to the IMF.

Sri Lanka already has unpaid IMF loans taken after the central bank printed money in 2015 and trigged balance of payments troubles in the course of trying to target inflation despite being a reserve collecting central bank, critics have said.

In early 2015, 12 month inflation was near zero in 2015 due to base effects of the 2012 currency crisis inflation waning and Yellen quantity tightening in 2014 which was pushing commodity prices down, analysts say.

At the beginning of 2015, the central bank was already running inflationary open market operations by terminating term repo deals to artificially stop rates market rising amid a strong credit recovery, and losing forex reserves.

As of December 2022, Sri Lanka had loans of 798 million SDR or 138 percent of the country’s quota, according to IMF program documents.

Fund credit outstanding is expected to peak at 3.6 percent of GDP and 27 percent of gross reserves.

Repayments and interest would peak in 2031 at 3.5 percent of gross reserves, according to IMF documents.

Loans are also charged a commitment fee levied at the beginning of each 12-month period on amounts that could be drawn in the period. The fee is 15 basis points for committed amounts up to 115 percent of quota, 30 basis points on committed amounts above 115 percent and up to 575 percent of quota 60 basis points after that. (Colombo/Mar24/2023)

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