State Minister Ajith Nivard Cabraal says Sri Lanka will receive USD 780 mn in terms of Special Drawing Rights (SDR) in support of efforts to meet difficulties caused by the Covid-19 crisis. Asked whether the government had agreed to a programme, the former Governor of the Central Bank Cabraal said that the funds were made available to all countries regardless of a programme.

Pointing out that the total IMPF allocation was about USD 650 bn, Sri Lanka was entitled to USD 780 mn.

Top SJB spokesman Dr. Harsha de Silva, MP said that  every IMF member nation would get their share of the USD 650b new allocation to be used in any manner they wished but mostly for Covid-related expenses.

The MP said: “These allocations have taken place several times in the past as well. This time the proposal was stuck during the Trump administration but cleared by Biden.

Going to the IMF or not to resolve our debt issue is a separate matter. That is the decision of the government.

But the reality is that we are now on very thin ice because even with this windfall our official reserves will be around USD 3b at the end of August. And once the gold is removed, reserves will be around USD 2.5b. Then even if the reserves of all private banks and entities are added, at a national level usable reserves would be around USD 4.5b by the end of the month. But we have, both government and private sector, close to USD 7b in debt payments alone in the coming 12 months.

As we just saw last week the import ban is not working and the trade deficit is ballooning while remittances are falling and tourism is stuck. This means we will run a deficit in the current account of the balance of payments.

The result is additional requirements for reserves to meet imports.

Now I heard the Minister saying to CNBC that he expects USD 400m from India and USD 250m from Bangladesh. But these swaps are all very short term loans. A few months max. Maybe some additional money may come from China Development Bank etc. He said he expects anywhere from USD 400m to USD 1b from ‘utilizing underutilized assets’ in other words privatisation. This is I presume via Selendiva, but I am at a loss to figure out what would need to be sold to get that amount. That is still a one off inflow. Beyond that the much talked about FDI to Port City and elsewhere has not materialised and even if it does only a fraction would go to reserves as most would be spent on imports.

So even they have been harping on an ‘alternative’ no one has explained what it is.

So yes, I don’t see any other option but to approach the IMF to work out a facility to bail Sri Lanka out of the hole this government has put us into, starting from the unwise tax cuts in December 2019 and multiple blunders since, besides the pandemic. If they went to the IMF in late 2020 we could have settled at around LKR 190 to the dollar. If they go now perhaps around Rs 215 to Rs 220 and if we delay further then at a further depreciated rate. The choice is theirs but given the situation they have put us all into there is no way we can come out of this without the help of the IMF either now or 6 months down the road.

The MP said that instead of keeping the country open and letting thousands die because of their logic of the need to keep the economy moving, what they need to do is enter into a program with the IMF to restructure the debt and get a breather and close the country based on medical expert advice.”