Business

IMF’s unstated rate:Sri Lanka’s $695m loan costs about 5.33% per annum

Published

4 months ago

2026/06/1

Dr. Gita Gopinath

Gita Gopinath, who served as the IMF’s First Deputy Managing Director from 2022 to 2025 and is now a professor of economics at Harvard University, said something at a Bloomberg podcast interview on May 29 that every Sri Lankan policymaker and citizen should hear. She said: “I do think there has been a regime shift – a change in the underlying dynamics that kept interest rates low.”

According to her comments, for nearly two decades before the pandemic, the world enjoyed unusually cheap money. The IMF, the Asian Development Bank, and other multilateral lenders all lent at very low rates.

Now, that era is over.

The Island Financial Review asked an independent analyst what he thought about Gopinath’s comments and how they would matter to Sri Lanka right now.

The following are excerpts from his comments:

“Even though Sri Lanka cannot borrow from international capital markets because of its default, we still borrow from the IMF and ADB. Many people assume those loans are always cheap. They are cheaper than private banks and that is true. But they are no longer as cheap as they used to be.”

“The IMF’s interest rate is tied directly to global short-term rates, mainly the US dollar rate. When the US Federal Reserve raises rates, the IMF’s rate rises automatically. There is no escape. The ADB is in a similar position. It raises money by selling bonds in global markets. When those markets demand higher interest, the ADB must pay more. It then passes that cost to borrowers like Sri Lanka. So even our ‘concessional’ loans are now more expensive than they were five years ago. And because the shift is permanent – not temporary – we cannot wait for rates to fall back to the old normal. That normal is gone.”

At the interview, Gopinath gave three reasons for this shift: large government deficits in rich countries, the huge appetite for capital from the artificial intelligence boom, and a change in who buys government debt. None of those factors are going away soon. Her warning to the world was clear: adjust to higher rates, because they are here to stay.

For Sri Lanka, this means three things, the analyst said.

“First, every new IMF or ADB loan will carry a higher interest cost than the last one. Second, the 2% surcharge we currently pay to the IMF – because our borrowing exceeds 300% of our quota – becomes even more painful when the base rate is also high. Third, our path to returning to international capital markets is now steeper. If we try to go back to borrow privately, the rates waiting for us will be far higher. Probably as high as 8-10%.”

“None of this is a reason for panic. But it is a reason for realism. The cheap IMF and ADB loans of the past are gone. Gita Gopinath said so herself. The only sensible response is to borrow less, export more, and rebuild our economy so that one day we no longer depend on any lender – cheap or expensive. That day is still far away. But knowing the truth about interest rates is the first step toward reaching it.”

Notably, referring to a missing number in all the IMF news here in Sri Lanka, he said:

“There is one more thing worth noting. On May 29, Sri Lanka received a double tranche of USD 695 million from the IMF after the successful completion of the fifth and sixth reviews. Every news channel carried the story. The Central Bank issued a statement. The Finance Ministry welcomed the funds. And so did the Ceylon Chamber of Commerce. But not one official source told the Sri Lankan people a simple fact: at what interest rate did we receive this money?

“Here is the answer that nobody gave. The IMF’s current basic interest rate – called the rate of charge – is tied to the SDR interest rate, which stood at 2.729% as of mid-May 2026. On top of that, the IMF adds a fixed margin. In May 2026, the IMF Executive Board confirmed that the margin would remain at 60 basis points for the coming financial year. That brings the base rate to approximately 3.33%.

“But Sri Lanka does not pay only the base rate. Because our borrowing from the IMF exceeds 300% of our quota, we also pay a level-based surcharge of 200 basis points, or 2 percentage points. This surcharge was introduced to discourage countries from borrowing heavily from the Fund. For a country in default, however, there is little alternative.

“So the current borrowing cost can be estimated as follows: 2.73% SDR interest rate, plus 0.60% IMF margin, plus 2.00% surcharge. That comes to approximately 5.33% per annum.

“There is also a separate service charge of 0.50% levied on each disbursement. However, this is a one-time fee rather than an annual interest charge. For the latest USD 695 million tranche, that service charge would amount to roughly USD 3.5 million.

“Before the pandemic, the IMF’s basic rate of charge was often below 2%. Sri Lanka’s total borrowing from the IMF under the Extended Fund Facility now stands at approximately USD 2.4 billion. By the time we finish repaying these loans – with repayment periods of 5 to 10 years in semi-annual installments – the total interest and related charges paid will run into hundreds of millions of dollars.

“None of this is a secret. The IMF publishes its rate formulas openly. Sri Lanka’s projected payments, including principal and interest, are available on the IMF website. For May 2026 alone, Sri Lanka’s scheduled payments to the IMF totaled more than USD 47 million, comprising USD 29.7 million in principal and USD 17.3 million in interest and charges.

“But somehow, when the good news of a disbursement is announced, the interest rate is never mentioned. Perhaps that is because 5.33% does not sound as heroic as USD 695 million. Perhaps it is because nobody wants to remind a suffering public that even IMF financing carries a significant cost. Whatever the reason, the people of Sri Lanka deserve to know the full cost of the money their government is borrowing.

“Gita Gopinath warned us that the era of cheap loans is gone. The latest IMF disbursement shows exactly what that new era looks like,” he said in conclusion.

When the good news is announced, no one has the heart to mention the cost

By Sanath Nanayakkare

All News Advertisement

Business

Sri Lanka pitches Saudi investors for new investment partnerships

Published

7 hours ago

2026/09/29

Sahan Weerasooriya

Saudi and Sri Lankan dignitaries at the National Day reception.

By Ifham Nizam

Sri Lanka is pitching Saudi Arabia for greater investment and deeper trade ties, seeking to attract Saudi capital into new development opportunities while aligning bilateral economic cooperation with the Kingdom’s ambitious Vision 2030 agenda, Ports and Civil Aviation Minister Anura Karunathilaka, chief guest at Saudi Arabia’s 96th National Day celebrations in Colombo, said.

Addressing the National Day reception at ITC Ratnadipa, Karunathilaka said Sri Lanka was keen to identify new areas of economic cooperation with the Kingdom and create fresh opportunities for Saudi investors and businesses.

‘We look forward to creating new opportunities for the people of both countries by working in cooperation with Saudi Arabia’s Vision 2030 and its broader development initiatives, he said.

The minister said Sri Lanka wanted to move beyond its existing development cooperation with Saudi Arabia and build a broader economic partnership encompassing investment, trade and new development projects.

He noted that Saudi Arabia had already made a substantial contribution to Sri Lanka’s development. Since 1981, the Kingdom has provided concessional financing amounting to around Saudi Riyals 1.5 billion for 13 projects in Sri Lanka, supporting key sectors including energy, healthcare, education, drinking water and infrastructure.

Karunathilaka said Sri Lanka appreciated this support and was keen to build on the foundation created by those projects by opening further avenues for Saudi investment.

The minister’s investment pitch comes as Saudi Arabia advances its Vision 2030 programme, with the Kingdom seeking to diversify its economy and develop new international partnerships. Sri Lanka, meanwhile, is seeking to attract investment and expand economic opportunities through closer engagement with international partners.

Karunathilaka also highlighted the strong people-to-people links between the two countries, noting that nearly 250,000 Sri Lankans currently work and reside in Saudi Arabia.

‘They serve as an important bridge between our two countries and contribute significantly to strengthening the people-to-people ties between Sri Lanka and Saudi Arabia, he said.

He expressed appreciation for Saudi Arabia’s continued assistance to Sri Lanka and thanked the Saudi government for the facilities extended to Sri Lankan Muslims undertaking Hajj and Umrah pilgrimages.

Karunathilaka said Sri Lanka looked forward to working more closely with Saudi Arabia to strengthen political relations, broaden investment opportunities and enhance development cooperation.

Yaser Abdulrahman Al-Hazme, Chargé d’Affaires of the Royal Embassy of Saudi Arabia to Sri Lanka, said the embassy remained committed to strengthening bilateral relations by promoting political, economic and cultural communication between the two countries.

‘The embassy of the Kingdom of Saudi Arabia in Colombo has been keen during the past period to strengthen bilateral relations between the two countries by playing its role in supporting political, economic, and cultural communication, Al-Hazme said.

Al-Hazme also highlighted the embassy’s role in strengthening communication between Saudi and Sri Lankan institutions and following up on the interests of Saudi citizens in Sri Lanka.

‘On this precious national occasion, I extend my sincere thanks and appreciation to the government and people of the Democratic Socialist Republic of Sri Lanka for the attention and care given to relations between our two countries, and for the constructive cooperation that has contributed to strengthening the bonds of friendship and partnership between the Kingdom and Sri Lanka, he said.

Business

Sonali Rodrigo earns national recognition from Australia’s finance industry

Published

7 hours ago

2026/09/29

Sahan Weerasooriya

Sonali Rodrigo receiving the prestigious AFG Women on the Move Scholarship at the awarding ceremony held in Melbourne.

Australian finance professional Sonali Rodrigo has been recognised with the prestigious AFG Women on the Move Scholarship, presented by Australian Finance Group (AFG), in recognition of her leadership, industry contribution and impact spanning more than two decades in Australia’s finance industry.

The AFG Women on the Move program is dedicated to supporting and advancing women in the finance and mortgage broking industry, recognising individuals who demonstrate leadership, professional contribution, growth, impact and a commitment to empowering other women. The scholarship is supported by leading industry partners, including HSBC and Thinktank.

Sonali’s career spans more than 20 years in Australia’s finance industry, encompassing senior leadership, financial advisory and governance roles. Alongside her professional responsibilities, she has actively mentored and supported women in their career development, contributed to financial literacy, and helped individuals make more informed financial decisions. Her recognition reflects both her professional achievements and the broader impact of her leadership, particularly in creating opportunities and empowering the next generation of women in finance.

Business

Beyond the crisis: Sectoral paths to durable growth

Published

7 hours ago

2026/09/29

Sahan Weerasooriya

Institute of Policy Studies of Sri Lanka (IPS)

Continued From last Friday

Regional infrastructure improvements beyond the Western Province are essential to close market-access gaps and improve efficiency. The Western Province alone generates 42% of Sri Lanka’s GDP, but the dynamics of such agglomeration may also be highly underestimated. Officially, barely a fifth is deemed ‘urban’ in the province, but IPS re-estimates from the 2024 census using population density and infrastructure access, place the true figure at nearly 61%. The absence of strong secondary cities and industrial clusters outside the province reduces the potential gains from this agglomeration, thereby weakening incentives for firms to locate elsewhere or decentralise operations.

Fiscal incentives can promote decentralised corporate operations by offering tax rebates, lower property taxes, and land access in secondary cities like Kalutara and Gampaha, leveraging the connectivity of Southern and Colombo-Katunayake Expressways. The Hambantota seaport and airport, along with Koggala and Mirijjawela Export Processing Zones, can help develop the Southern Province through geography-based tax concessions.

Immediate measures, such as pricing vehicle entry into Colombo city will support regional agglomeration while tackling the acute problem of city congestion. Adopting a low-cost, technology-anchored free-flow method, similar to the Automated Number Plate Recognition (ANPR) currently used in commercial parking facilities for vehicles entering the city, is one such means. Installing high-mounted overhead ANPR gantries at key arterial entry points can operationalise congestion pricing without disrupting traffic speed. Fee collection can use a system like E-Tags electronic toll collection on expressways, integrated with digital payment gateways like GovPay and LankaQR for dynamic, time-of-day variable pricing.

The renewable energy transition is vital to drive competitiveness, external shock resilience, and green growth. Sri Lanka’s transition to renewable energy (RE) has advanced from a mere aspiration to tangible progress. Yet, the evidence suggests the transition is advancing faster on the generation side than the system built to absorb it. Transmission capacity, market design, financing channels, and digital infrastructure have not kept pace with capacity additions, and this gap is what will determine the pace of the transition through 2030.

Capital spending on transmission must be ring-fenced by legally, operationally, and financially separating the electricity grid (the transmission network) from the rest of the energy sector or by the broader government budget as a protected public investment within the medium-term budget framework. Funding should shift from general budget support to dedicated multilateral facilities, reinforced by sovereign guarantees for eligible borrowing. To safeguard public funds, this must be paired with a clear tariff pass-through mechanism that effectively limits open-ended Treasury exposure.

To build market trust, domestic budget funding should be earmarked for market-design technical assistance, signalling strong policy ownership rather than relying on external donors. Transparency too should be strengthened by publishing a firm implementation timeline in the Budget statement and fully disclosing long-term fiscal commitments from Power Purchase Agreements, capacity arrangements, and ancillary services.

(Concluded)