Moody’s Investors Service Sovereign Risk Group Senior Vice President Marie Diron stated the forthcoming multilateral and bilateral loans will provide external liquidity to ease immediate financing pressures.
Diron, the lead sovereign analyst for Sri Lanka commenting on IMF’s recently announced US$1.5 bn Extended Fund Facility with Sri Lanka said Sri Lanka’s agreement with the IMF agreement will have three benefits for Sri Lanka’s external financing profile.
Program disbursements together with forthcoming multilateral and bilateral loans will provide external liquidity to ease immediate financing pressures. It could reverse the decline in official foreign-exchange reserves and reduce Sri Lanka’s vulnerability to a sudden stop in capital inflows.
Second, the financing will likely be at more favourable terms than Sri Lanka can avail of through the market, which alleviates debt servicing cost pressures.
Third, if the agreement restores investor confidence in Sri Lanka’s policy framework, it could ultimately support more stable private external inflows, such as FDI.
"The agreement comes as Sri Lanka’s sovereign credit profile is increasingly under pressure from its large fiscal deficits, high debt levels and poor debt affordability.
If the program supports Sri Lankan authorities’ efforts to boost tax revenues and better manage state owned enterprises, it would address constraints on economic growth and reduce fiscal imbalances, thus improving the sovereign's credit profile.